Morelia Looks to Carve Out a Space in Mexico’s IT/BPO Sector

 A colonial city in central Mexico, Morelia is perhaps best known for its spectacular cathedral, but in recent years the Michoacan state capital has also begun drawing investment into new sectors …

Morelia, Michoacan.

 A colonial city in central Mexico, Morelia is perhaps best known for its spectacular cathedral, but in recent years the Michoacan state capital has also begun drawing investment into new sectors such as IT.

Michoacan’s Ministry of Economy lists information services alongside agro-industry and mining as the state’s main strategic industries. “We’ve already finished the first phase of establishing the industry. Now we’re working on growing the IT sector,” explained David Jáuregui Mendoza, the chairman of Morelia’s IT industry group ClusterTIM.

Why Morelia?

Location is one of Morelia’s strongest assets as it’s a relatively short drive from Mexico City. Bernardo Perez de Lara, CEO of Florida-based software development company NearBPO, has an office in Morelia that supplements his operations in Mexico City, Chihuahua, Leon, and Guadalajara. “It’s not too far from Mexico City or Guadalajara. I can drive there in the morning from Mexico City. You can also fly people out easily. That’s an advantage for customers,” Perez de Lara explained.

Morelia is also home to an esteemed film festival and a number of top notch restaurants such as Los Trojes and San Miguelito. “Quality of life is a definite advantage. In Mexico City, I have people that drive three hours a day to get to work. In Morelia many of the guys can walk to work in twenty minutes,” Perez de Lara added. “Morelia is a beautiful city. There’s art, entertainment and the food is great. There are also a lot of great universities.”

With over half a million residents, Morelia is home to the bulk of Michoacan’s college students. Jaime Martinez Vallejo, director of the technology academic program at the Universidad Tecnologica de Morelia (UTC), explained that although Morelia’s IT sector “can’t compete with Monterrey or Queretero, in terms of IT education we are really good.”

The city’s best known college is the Universidad Michoacana, which was founded in 1540. It is the oldest university in the Americas and is considered one of Mexico’s top colleges.

In addition to the UTC, Morelia is also home to the Instituto Tecnológico de Morelia (ITM), the Instituo de Estudios Superiores de la Comunicación (IESCAC), the Universidad Latina de America, the Instituto Michoacano de Ciencias de la Educación and the Centro de Investigación y Desarrollo del Estado de Michoacán (CIDEM), plus satellite campuses for prestigious Mexican universities such as UNAM Campus Morelia, Universidad La Salle and ITESM.

The problem, according to Martinez Vallejo, is that “there aren’t enough IT jobs for graduates. About half of all IT graduates migrate to other states.”

Martinez, though, is optimistic about Morelia’s future as an IT/BPO center. “It’s growing. There are a lot more small and medium-sized businesses,” he explained. The World Bank Ease of Doing Business Index for 2012 ranks Morelia at number eight among 32 major Mexican cities, well ahead of better-known IT/BPO industry hubs such as Mexico City, Monterrey, Tijuana, and Ciudad Juarez. “The state government has made efforts to create a tech cluster, but it hasn’t worked out the way they would have liked,” Martinez added.

A National Priority 

Over the last few months, however, Michoacan has received an increasing amount of attention from Mexico’s federal government. In February 2014, Alfredo Castillo, Michoacan’s federally appointed Security Commissioner, announced his decision to appoint replacements for seven state-level officials. Then, on April 3, Secretary of State Miguel Angel Osorio Chong, explained that while Michoacan has been considered a “hotspot,” it is also a state with a lot of opportunities. “We have to work to consolidate those opportunities,” he added. “We have problems…but when more investment comes there will be more opportunities…Michoacan is a strong state,” he said.

Over the last decade, Michoacan’s reputation has been marred by the rise of a succession of increasingly violent organized crime groups who have fought to control the state’s main port and the highways that connect it with the U.S. border.

In 2013, the state made headlines because of the emergence of heavily armed “self-defense” citizen militia groups. The start of 2014 was marked by a series of battles between vigilantes and cartel gunmen, but the federal government has now restored order and reached a tentative with the self-defense squads that will allow for their members to be incorporated into an officially sanctioned rural police force.

Despite the negative publicity, the security problems in rural Michoacan have not affected the IT/BPO sector in Morelia. “I feel very safe. The perception is that the [security] issues are not in Morelia. The issues are in rural areas. Problems with drug cartels and vigilantes are not happening in downtown Morelia. None of my employees has had a problem with security,” Perez de Lara explained.

“Morelia has had some problems but with the latest actions by the government there’s a perception that it’s safer now,” Martinez said. In total Morelia reported 124 homicides in 2012. “Morelia has a heavy police presence. It doesn’t have the same security problems as other parts of the state,” explained Mexico City-based security analyst Eduardo Guerrero.

On April 8, President Peña Nieto attended the inauguration of a new customer support facility operated by satellite TV provider Dish, a site that is expected to employ more than 1,500 people in Morelia. Peña Nieto explained that his government “will keep working to back this sort of initiative and supplement these private efforts.”

“Unfortunately Michoacan has been harried by organized crime and groups dedicated to illegal activities…the government is working to change this scene and make sure that Michoacan has law and order,” the president explained. “Michoacan has optimal conditions and a good environment to keep moving forward with development,” he added.

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The Road Ahead

While Morelia has many assets that could be developed to help the city turn itself into an IT/BPO hub, it currently lacks the type of comprehensive tech ecosystem found in Guadalajara or Monterrey.

However the state government operates an incubator called the Michoacan Information Technology Cluster (ClusterTIM), which has teamed up with local firm IA Interactive to bring Startup Weekend, a networking event for young entrepreneurs, to Morelia.

The ClusterTIM center is working to attract tech companies and current residents include digital animation company Site Ecosistemas; Deipi, an IT and marketing consulting company; Konexo, a contact center; and Scio Consulting, a software developing company with offices in Austin, Seattle, and Morelia.

“With help from all three levels of government we made this collective of IT companies to develop the sector. Today we have 37 businesses collaborating with us and associations with 22 universities. We also have a business accelerator for start-ups,” explained ClusterTIM Chairman David Jáuregui Mendoza.

Given the strength of the local film industry, ClusterTIM is encouraging Morelia’s IT sector to specialize in interactive media, digital animation, and video post-production, Jauregui added: “We have the most famous film festival in Latin America, a university program in film directing, and are also home to Cinepolis.”

Finding the Right Balance

Luis Delgado, the CEO of G4A, a website design and multimedia company that was previously based in the ClusterTIM but recently moved to a new location closer to Morelia’s downtown, explained that although “ClusterTIM needs to focus on continuing to mature and attract more attention, overall Morelia is economically viable for IT. It’s not expensive here, there are a lot of universities and it’s close to Guadalajara and Mexico. In the long-term it can become an IT center, but it needs more help from the government.”

G4A was founded four years ago and has grown from three employees to 30. Delgado says that he’s been able to grow the business “bit by bit” and that many clients actually seek him out. Overall, Morelia works as the location for his business “primarily because of the costs,” he said. “You can get the same quality as elsewhere in Mexico but it costs less.”

While in the short term the lack of competition translates into an ease of finding talent for lower wages than in Mexico City, the lack of a healthy ecosystem can also make it difficult to find people with highly specialized skills. “There has to be a balance. You can’t be an island, but if there are too many companies and they steal talent from each other, that’s not good. There has to be a cluster that works with universities to develop personnel,” Perez de Lara explained.

Morelia is not yet competing directly in terms of size with the IT clusters in Guadalajara and Monterrey, but it’s establishing a foothold in the industry. As Jauregui said, “The IT sector can be a new opportunity for the state in terms of economic development and job creation.”