By Patrick Haller
There is no denying that Mexico has made great strides over the last five years, and has become a player in the global IT market. One of the engines for this growth is the public/private initiative MexicoIT. Alfredo Pacheco, CEO of MexicoIT, previously COO at CANIETI, the private sector organism that represents the interests of the Mexican High Tech Industry, spoke with us about the measures that his organization has taken, in partnership with the Mexican government, to tackle head-on the extreme obstacles that the Mexican IT industry was facing, and what they are doing to solidify the country’s competitive position.
NSAM: What has MexicoIT done recently, or that is different than what it has done in the past, to promote Mexico as an attractive location for IT-focused businesses?
AP: First of all, MexicoIT started as private/public partnership six or seven years ago to position country as a possible global player. Ten years ago IT exports were less than $200 million US dollars annually. We had a negative growth rate in domestic market and availability of human capital was very very low. Companies that had some kind of certification were less than 25 in the country. The private and public sectors started working together to do something – and our basic reference was the Indian miracle – and we thought we had all the capabilities needed to be one of the leaders in global IT services. And that is how MexicoIT was born. It is funded by the government but owned and managed by the private sector. The private sector had the experience and interest. We reached out to global analyst firms like Gartner and A.T. Kearney to help design our strategy. Then we started to work closely with Neoris, Hildebrando and Softtek. They talked about their experience and the global market – particularly the US market.
It has been a long hard road, but now Mexico’s exports are around $5 billion US dollars and the country is ranked number four by the analyst firms. Gartner’s projection is that Mexico will replace the Philippines as the number three player within the next two years. Our domestic market has been growing at a rate of 50% over the last five years.
We worked with the government and the World Bank to correct the trend of low human capital – and now we have more than 90,000 engineering students graduating annually. That is the highest number in Latin America and is bigger than the US. And we foster MexicoFIRST with the objective of training and certifying recent grads in technologies that the private sector needs. We cannot compete with India or China in volume so we have to do an India or China plus one strategy. We want to concentrate our strength on buyers that needs a hands-on approach or constant project supervision with a high level of specialization and communication between buyer and vendor. Right now Mexico holds the highest number of certifications for process specialization at around 400.
NSAM: Please provide an overview of MexicoIT’s activities, especially in the areas of investment funding, finding mentors for local firms, arranging tax credits, etc.
AP: There are a lot because MexicoIT is owned and managed by CANIETI which represents the industry to the government. What’s been a key part of the success is working very closely with a government that understands the importance of this industry; they share the vision and sometimes take the leadership in this mission. We have a very aggressive policy called ProSoft that gives away cash grants focused on buyers that do business with Mexican companies or foreign investment. This combined with another incentive package of the state government can reduce the cost of a project up to 50%. Of course there is a process and the project has to be approved.
MexicoFirst focused on human capital and reduced the total cost of training and certification up to 70%. We also work with universities to offer an extra credit for the students so that when they already have professional accreditation when they graduate. Over 32,000 students have benefitted from this over the last three years.
Two or three years ago the main Indian companies came to Mexico and opened facilities that hired around 1,000 employees each and we were afraid that the human capital would be drained, and that there would be wage inflation. We think we have done a good job of training so that we can offer a high quality human capital. Other incentives include local taxes, and – depending on job creation and the size of investment – some states even offer land. However, we are not very involved with mentoring programs.
Right now the IT sector accounts for more than 650,000 employees and having all the IT services companies, BPO and call centers focusing on exports shows that a majority of the positions are focused on outsourcing.
NSAM: Where specifically does MexicoIT see the greatest long-and short-term opportunity for IT job growth in Mexico: In local start-ups that grow into global brands; “captive” organizations of global firms, or local service providers serving other businesses in the domestic market?
AP: We have a very good chance of focusing on the domestic market. There are more than 3,000 IT companies in Mexico and a very low percent is focused on exports. If we continue to grow the domestic market we have a good chance to foster and grow the companies so that in about three years we will have a very good platform of domestic companies that can serve the global market. Of course we are a global player when it comes to attracting investment into these companies. We have to establish strong public and governmental policies. The government is working with start-ups, but the private sector is fostering the ones that are already established with at least two years in business, and at least 10 employees. That is the basic structure where they can possibly benefit from training, certifications and cash grants.
NSAM: We recently ran a story in which the head of a network of startups suggested that Mexico needs to educate more “dreamers and thinkers” who will challenge the status quo, and not just engineers. To what extent do you agree? What, if anything, should the government be doing differently in the area of education to help meet the needs of the IT industry?
AP: I do agree to a great extent but I think there are different optics because you need to continue to work in order to foster the engineers, work with the universities, but if you want to bet on fostering the innovative process, that is where Mexico has a good opportunity. From that point of view, he is right, the educational system and cultural alignment of the country is not focused on innovation because it is continuing a system that has been established for years and it does not incentivize innovation.
There are few companies – around 25 – that are very focused on innovation. But 25 is nothing. For example, IDZ, in the Northern part of Mexico is focused on solving problems by a non-systematic process. It is the only Mexican provider that works with the US Defense Ministry to solve problems with air traffic accidents. They are solving problems with a very innovative process, but it is very difficult for a student who recently graduated to get into a company like this.
We have several companies working on healthcare issues, on clinical expediency, and they have been working on several solutions and applications that are mobile focused, and on the cloud. One solution allows the patient to coordinate doctors so that they can solve their health problem, keep track of medicines, keep track of progress, and medical alerts.
NSAM: How big a role does IT outsourcing specifically play as a job creator in the Mexican IT industry? Do you see this growing over time and, if so, by how much?
AP: We have been growing by double-digits. Right now the IT sector accounts for more than 650,000 employees and having all the IT services companies, BPO and call centers focusing on exports shows that a majority of the positions are focused on outsourcing. Another third of the job creation comes from foreign investment.
NSAM: What are the strongest growth areas within Mexico’s IT industry – software development and testing, multimedia, mobile, games, remote infrastructure management?
AP: All of those and the finance and healthcare sectors. There is a pretty even spread; maybe the number one sector is finance.
NSAM: Compared to other countries in Latin America, is Mexico becoming more or less competitive in the IT industry? What are the reasons for it becoming more or less competitive – ranging from currency to skills to security concerns?
AP: We are becoming more competitive because part of the master plan is that we continue developing Mexican companies that can compete in global market. We are not the cheapest option, but we are a very good example of highly qualified human capital. And the total cost of engagement is pretty much the same when compared to India or China. We are not comparative to India or China but the momentum of those two countries is not growing. There are several advantages to using Mexican companies such as NAFTA, visa benefits, cultural alignment, business oriented outlook, same time zone, and another factor is that our domestic market is very high as compared to other domestic markets. And there is a fast growing Hispanic market in the US, and we offer a door to that market.
NSAM: What is your view of the usefulness of “top-down” IT development efforts such as the Multimedia Center?
AP: One of the first advantages of this model is that you get a very low price when compared to other markets. We have been producing in this model for a very long time domestically and companies are now getting good results from the US market.
NSAM: We understand that the amount of funding available for start-ups is slowly increasing in Mexico. Where is it compared to where it should be, and what (if anything) is MexicoIT doing to close the gap?
AP: There is a very good initiative for start-ups. There is a lot of money from the government side. It is like the half empty/half full glass scenario depending on who is looking at it. The government is doing a hell of a job supporting start-ups and the programs that we are working with gave away almost $800 million US dollars in 2011 alone. That is a very good amount and from the private side we think that we are doing a good job investing that money. If more money comes we can do other things, but we think that amount is very good for start-ups, training and certification. Of course we need more money, but right now from what we are getting we are doing more than enough.
NSAM: And lastly, what’s the most interesting story about IT in Mexico (anything from a specific company to an entrepreneur to an investment or education trend) people outside the country don’t know about?
AP: Definitely MexicoIT – to have less than $200 million US dollars in exports in 2002 and closing out 2011 with more than $5 billion US dollars that is definitely a success story. What’s the best kept secret? Mexico is the number two business partner with the US, not only in the IT sector but the whole economy. This creates jobs in Mexico and the US. For every dollar invested in Mexico, there is a return of 70 cents – not one-to-one – but we are probably the best investment speaking about the country as a whole.