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Mexico’s Location Is Benefiting Tech Firms and Startups in New Ways

Mexico’s Location Is Benefiting Tech Firms and Startups in New Ways

Posted by PanamericanWorld on May 21, 2015

Proximity to the United States is an oft-cited reason for locating foreign investment in Mexico. Business reports so frequently reference the commute time for cargo headed to the United States—1-2 days in the case of Mexico, compared to 14-21 days if shipped from Asia—that few studies even bother to provide a source citation for the statistic anymore. In the lingo of international trade, Mexico’s location is a “static” advantage in the sense that it is an enduring feature, not subject to change, but also unlikely to generate much in the way of unanticipated returns.

Yet Mexico’s proximity is adding value to projects, and spurring innovation, in new ways. This promises more benefits for those looking to access the US, Mexican, and increasingly, the Latin American, market.

University Training

For decades now, Mexican universities have tailored programs to meet the tech needs of foreign firms by setting up shop in the country in order to export to the U.S. market. Truth be told, Mexico’s appeal in this regard is not low wages per se, but rather the fact that America simply does not produce enough STEM graduates to meet the needs of employers. This has produced a “skills gap” that will continue to push U.S. firms to integrate Mexican advanced manufacturing into the production cycle, at least for the foreseeable future.

To this end, Duncan Tucker’s recent series highlights the many gains in employment and productivity that are resulting from engineering and technology programs in Guadalajara. And, as a result of the skills imparted from such programs and the relative abundance of IT skills found in the population, Mexico has consistently been one of the world’s most competitive countries in terms of IT labor costs, according to a ranking by KPMG.

Yet, even as this trend continues, university groups in the United States are increasingly targeting Mexico. Students at UC Berkeley have taken to documenting how young entrepreneurs in Mexico and the U.S. work year-round to present their ideas at Mexico’s annual “Global Entrepreneurship Week,” to be held this year from November 16-22. There they hope to draw seed money from venture capitalists. In the process, they work at tech incubators and attend hackathons with other budding techies and operate out of incubators like iLab Veracruz.

The Mountains Move

Meanwhile, U.S. technology innovation is moving out, both to the south and west. Silicon Valley is reasserting its global dominance over tech design and is feeding a tech startup boom that, depending on where you sit, either promises to swaddle humanity in driverless cars or is merely inflating the greatest tech bubble since the dot com frenzy of the late 1990s. The vibrancy of Silicon Valley has so far proven impossible to replicate outside the States, though certainly pockets of tech innovation can be found in India and, on a smaller scale, in places like Chile’s aptly named “Chilecon Valley.”

Rather, the most vibrant tech startup scene outside of Silicon Valley is found spread out across the United States. Austin, drawing talent off the University of Texas, is perhaps the most advanced tech scene these days, as evidenced by the Austin Technology Incubator (ATI). But other towns are also getting in on the action, from Boulder, CO, to Charlotte, NC. This is drawing the center of U.S. tech research and innovation further away from its East Coast roots. As noted elsewhere, it is a case of the proverbial mountain moving to Muhammad, at least if you are a Mexican technologist.

The Future Gains of Mexico’s Location

Demographics promise to muddle Mexico’s “static” advantage even further. Currently, the buying power of Latinos in the U.S. tops $1.1 trillion; based on that number, they could form the world’s 16th richest country. But as the influence of this group grows in step with their share of the U.S. population, it seems likely that more and more people will invest in Mexico simply to position operations to cater expressly to Latinos north of the border.

However, in the near term the spread of Latino buying power in the U.S. may tack sideways. Due to mounting drug violence, many Mexican entrepreneurs simply left for the security of the U.S after 2006. This involved a “unique” migration stream of an “urbanite elite not typically represented in Mexican diaspora populations,” as one academic paper put it. San Antonio, Texas, emerged as one of the most popular hubs of resettlement.

Now many are back in Mexico. According to oneWashington Post article, many Mexican immigrants are returning to their home country as “tenacious” serial entrepreneurs, having saved up a large portion of their income in the States and also drawn lessons on American small business. As more and more Mexicans like this return, they bring networks of contacts in U.S. technology industries, not to mention the startup ethos that has become the rage since the Great Recession. “They see the United States more as a model than an exploiter,” notes the Post.

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