Why outsource to Mexico: Advantages, legislation, and restrictions

Why do companies outsource to Mexico?

Companies outsource to Mexico for its low labor costs, skilled workforce, and location right next to the United States, which makes nearshore work fast and easy.

• Mexico shares time zones with the US, so teams can work together in real time.
• Many workers speak both English and Spanish, which helps customer support.
• Goods and services move across the border quickly, which cuts costs.

In recent years, Mexico has become a strong place to outsource business tasks. The country’s good location, low labor costs, and skilled workforce make it a smart choice. So firms turn to it to cut costs and lift output.

However, outsourcing to Mexico has its own hurdles. In particular, the country’s rules on outsourcing shape how you hire workers there. Even so, firms keep coming for specialized services. Let us look at what to know when you outsource to Mexico.

History of outsourcing in Mexico

Manufacturing in Mexico grew in the late 1960s. At that time, the US farm labor deal known as the Bracero program came to an end. In response, the US and Mexican governments set up the Border Industrialization Program. This let US firms build products in Mexico with lower duties, using US parts and materials.

Over the years, simple assembly work grew into complex manufacturing. Today, plants there make televisions, vehicles, and many consumer goods. Meanwhile, low-cost commodity work has moved to China. Still, Mexico draws US firms that want a low-cost option close to home for higher-value goods.

Why outsource to Mexico?

Firms choose to outsource to Mexico for many reasons.

• It lets firms get work done at a lower cost, often with strong providers.
• Because it sits so close, manufacturing in Mexico beats many far-off options.
• Firms value the edges Mexico offers, such as lower pay, steady labor relations, cheaper transport, good exchange rates, and fair tariffs.
• Mexican labor laws also push providers to follow the rules and treat workers well.

The pros of outsourcing to Mexico

The cost of goods is the biggest reason to outsource labor and production. In fact, doing business in Mexico can lift profit over time. Besides cost, here are the other gains when firms outsource to Mexico.

Convenient time zones

Mexico is a great pick for nearshore hiring because its time zone matches the US. In fact, it has four time zones that mirror those of the US. As a result, setting up calls is easy.

In addition, you can fix bugs and site issues in real time. So a partner in Mexico keeps your work hours in sync, which makes talk and teamwork smoother.

Improved scalability

Today, the average annual salary in Mexico is around MXN 230,000 (about US$13,000). Because of this gap, US firms can reuse the savings, and even scale up. Instead of overspending on gear for unclear volumes, a client can ask for more or less output based on demand. So firms can flex up or down without big internal changes.

Focused core competencies

Outsourcing lets firms lean on trained staff who can take on extra work. By using contract manufacturing, the client frees up time, labor, and money. As a result, they can refocus on revenue work like marketing and sales.

Well-educated and bilingual employees

Mexico is now a top outsourcing spot, thanks to its workforce. Many Mexican professionals speak good English and hold strong degrees. So this is a big plus for US firms that outsource support.

Better customer service is another gain of outsourcing to contact centers there. While most people think Spanish is the national language, it is only one of the country’s most-used tongues. Still, that helps a lot. Because Spanish is the second most spoken language in the US, Mexican firms are well placed to serve those buyers.

Services you can outsource to Mexico

Mexico’s outsourcing sectors should keep growing. Here are some services you can outsource there.

Manufacturing

The auto, aerospace, medical device, textile, and consumer goods sectors are Mexico’s best-known plants. There are good reasons to move production there. Above all, the country offers proximity. Because goods ship into the US over land, delivery is fast and cheap. As a result, the cost of outsourcing drops.

Accounting and bookkeeping

Outsourced accounting gives small firms full accounting support. These firms keep a whole staff of accountants, so they can offer a small team at a lower cost than an in-house hire. Accounting and bookkeeping outsourcing helps when your own team cannot keep up. In short, your hired staff take over your books and manage them for the agreed time. A bilingual Mexican team can also handle both personal and business accounts with ease.

Software development

It is said that Mexico’s developers grow in number each year, and faster than in the US. Because of this, software outsourcing is in high demand there. Most firms pick Mexico for its deep talent and flexibility. So providers can build and maintain systems as clients need.

Back-office

The act of outsourcing back-office work helps firms cut the cost of office space and staff. As a result, they save on hiring and upkeep.

Recruitment

Firms that want a low-cost way to maximize their recruiting efforts often look to Mexico. In addition, small and mid-sized US firms gain from its skilled labor and closeness. Here are some back-office recruitment services.

• Searching for talent
• Screening and hiring of candidates
• Salary and employee benefits
• Management of Human Resources
• Distribution of paychecks
• Assistance with the onboarding process

US companies that outsource to Mexico

Many US makers now weigh moving some or all production. Done right, this cuts costs without hurting quality or stock. As a result, several US firms have chosen to nearshore in Mexico. Here are some of them.

• Ford
• Volkswagen
• Sabritas
• Nestle
• Medtronic
• Molex
• General Motors
• Curtiss-Wright
• Honeywell

Mexico’s outsourcing ban

In recent years, the Mexican government prohibited outsourcing in its old form. President Andrés Manuel López Obrador pushed measures to end most subcontracting by private firms. The goal was to stop firms from hiring people through a third party just to dodge their duties under Mexican law. Here are the main points of the rules on outsourced labor.

Specialized services and contractors use

Firms can still hire contractors for specialized services that fall outside their core work.

Profit-sharing participation in the company

Workers who once worked for service firms or third parties must now join profit-sharing plans.

Different laws are aligned and modified

The reform also changed related laws. This includes the following.

• Federal labor law
• Social security law
• The law governing the Institute of the National Housing Fund for Workers
• The Federal fiscal code
• Income tax law
• Value-added tax law

Employment service providers

Under the change, agencies may now only help recruit, select, and train candidates. In addition, the firm that gets the services must be the one that hires.

Outsourcing in Mexico: Answering your FAQs

Because of these changes, many clients want answers before they start nearshore work. Here are common questions about outsourcing in Mexico, plus what you need to know.

What is the purpose of the legislation?

The main aim is to push firms to hire workers directly under labor deals. In turn, this reflects real market terms and triggers the taxes and social security that the law requires.

Does Mexico Outsource?

Mexico says outsourcing will be strictly limited. In its view, the old practice let firms skip worker benefits. So providers must now register with the government and pay all taxes and benefits. Firms must also account for profit-sharing plans, which the Labor Department says could raise payments by 156%.

What are the common legal structures used in outsourcing?

Subcontracting staff, or HR outsourcing, is the most common form. A service deal between a firm and a provider, with no direct hire, limits risk and liability.

Is it better to do business in Mexico with a small or large company?

Both have seen big wins and big misses. In the end, size does not decide the outcome. What matters more is how you do it. So find the right people and firm, ones who will learn your business and become true partners.

Key takeaways

• Firms outsource to Mexico for low costs, skilled workers, and a shared border with the US.
• Top services include manufacturing, accounting, software, back-office, and recruitment.
• Shared time zones and bilingual staff make nearshore work smooth.
• Recent reforms limit old-style outsourcing, so providers must register and follow the rules.
• The right partner matters more than the size of the firm.