Telecoms & IT

A Broad Scope

Strategic investments, excellent human capital, geo-economic proximity, and a string of unforeseeably fortuitous political developments have made Mexico's IT sector stronger than ever.

However worn the truism, the old adage in real estate that “location, location, location” determines everything holds true for many other fields—IT, for starters. Not only does Mexico have the world’s 15th-largest economy and serve as an IT hub for an increasingly large number of firms operating in the country, it also has unfettered access to the world’s largest economy. And, despite expectations to the contrary, the country’s IT sector in particular has benefited from the Trump administration’s immigration stance. Running desperately short of much needed H-1B visas for skilled knowledge-economy workers, many firms, both American and foreign, are setting up shop or expanding in Mexico instead.

What’s more, of the 600,000 “dreamers”—Mexicans who came to the US illegally as children whose status was protected by former president Obama’s Deferred Action for Childhood Arrivals program but are now in legal limbo under Trump—many are bilingual, very well educated, and already being recruited by tech firms such as San Francisco-based Wizeline to join its 260 employees in either Mexico City or Guadalajara as ideal tech- and culture-savvy crossover employees. But not that the competition is not already stiff.

Home to Guadalajara, Mexico’s tech hub, the province of Jalisco alone graduates nearly 8,000 engineers a year. The market is doing its best to keep up, with total employment in Guadalajara’s IT sector increasing to 115,000 in 2017 from 105,000 in 2015, according to Jaime Reyes, the state’s Secretary of Innovation, Science and Technology. With cost of living and wages far below San Francisco, but with direct flights to the Silicon Valley hub, Guadalajara is well placed to capitalize on its situational advantages. As a result, its software industry grew by 7% in 2016, even higher than the city’s overall economic growth of 4.6%. Nor did its two biggest internal competitors, Mexico City and Monterrey, fare too poorly: their respective software industries grew by 8.8% and 10% in 2016, according to LinkedIn.

But the Americans are far from the only outsiders trying to cash in on Mexico’s IT advantages. One of the biggest stories of the past several years has been the encroaching Chinese presence in the market. In 2017, Mexico’s number-one rated news app was Noticias Aguila, with 20 million users. Founded by Chinese tech entrepreneur Tang Xin, whose entire development team is based in Shenzhen, it is far from alone. An increasingly sharkish market in China is forcing many Chinese tech entrepreneurs to look abroad—increasingly so to Mexico. While Hangzhou-based Tian Ge Interactive Holdings Ltd. is trying to build an internet finance platform and China Mobile Games & Entertainment Group is looking to distribute mobile games in Mexico, the Beijing-based bicycle sharing service Ofo is entering Mexico as its first foray into Latin America.

Meanwhile, the World Bank now estimates that Mexico’s export of IT services stands at USD46 billion a year, making it the third-largest such exporter in the world. With its IT outsourcing industry growing at 10-15% annually and its software industry ranked only behind the US, Brazil, and Canada in the Americas, these figures are but the tip of the iceberg. Thanks to consistent support from the government and World Bank, programs such as the Information-Technology Development Project launched in 2004, the Program for the Development of the Software Industry (PROSOFT) launched in 2006, and MexicoFIRST, a training institution providing technical, managerial, and English courses, are finally bearing fruit; 40,000 MexicoFIRST graduates have gone on to find employment in the country’s IT sector alone.

A perfect storm of excellent human capital, long-term strategic investment, geo-economic proximity, and political circumstance is expected to give Mexico’s IT sector compound annual growth of 13.6% between 2011-2019, according to ProMéxico, the government’s foreign investment promotion body. Though the government is hardly alone in making such an ebullient assessment of the industry.