Exploring Nearshore Opportunities in Mexico 🌎 Market Insights

Thanks for joining us at the Nearshore Cafe podcast.

Welcome everyone, to another episode of the Nearshore Cafe podcast where we talk about the people and stories doing business in Latin America. If you are interested in Mexico specifically, this is the show for you. We have Luis Lozano, who's an expert in nearshoring trends, especially economic. All sorts of great stuff we're going to get into today with Louise. Before we do that, let me thank our sponsor, Plug Technologies, plugg Tech. Plug is a great way to connect resources from Latin America to growing U.S. companies. Well, let's welcome Luis to the show. Luis, how are you?

I find. Thank you. Thank you, Brian, for bringing me in. Yeah, it's very, very exciting. Very excited to have this conversation. I think we have, we know this for some time and I am very happy to be able to join the Nearshore podcast.

Yeah, thank you. I think we're going to have some fun today. So I've got a lot of questions. I know, Luis, you've really kept your pulse on the trends for many, many years. You've seen near shoring explode. Today we're really going to dive into Mexico and why don't you just, why don't we start off big picture? What have you seen maybe since the pandemic in Mexico? What are some of the. The kind of biggest newspaper headlines and trends that you've seen with nearshoring to Mexico?

Okay. It's very interesting, I think, starting there because actually I see. And maybe we can talk that obviously on the call, but yeah, so I see, like there are two specific trends that have been happening in the last four years. The first is after the pandemic, we can start up and we can go from 2020, when the pandemic hit, to 2022. And then we have another episode of Nearshore in 2022 of April 2024. And we are starting to see another chapter. So it's very interesting. So let me start with the one you mentioned. So in the pandemic, what happened is obviously we have this three months of uncertainty. Nobody knew what's going to happen. All the world stopped. I mean, any company, every country didn't know what to expect. So we started to pick up after three months. And that's where we, I think as a, yes, the humankind decided, let's go digital. Right. Let's really try to push that this time. And so we started to see a lot of trends of not just nearshoring. Obviously that's important, but mostly like, let's work remote. Let's try to make it happen. Let's get a lot of apps on the market so people can really ask for food or to get delivery of things, travel and leisure. We're pretty hit on that for the next two years. And so I think what we saw was a trend in the software industry. Let's focus on that, if that's okay for you. Apps were the hottest things in the market. Right. Like there were a lot of companies pushing that, a lot of demos and obviously we were like having like a surplus of investment coming from different places to Latin America, obviously in Mexico specifically, because that's where we are going to talk today. So that's what I can tell you really the apps industry and the apps, I mean, in all the industries. But I will say it's like the tech industry per se were very hot and everybody was searching for this opportunity to grow their businesses.

Some kind of dive into some of the subtopics there because, you know, there's nearshoring is a loaded word. But you know, there's all these different pieces. There's manufacturing, air shoring, there's what I call professional service workers, like you said, software engineering, UI ux, things like that, accounting. And then there's maybe more of like the BPO call center type of near shoring. And I'd love to hear what you're seeing, especially recently, you know, amongst those three different groupings, is it volatile? Are they all growing? Are there potential roadblocks? You know, how are you seeing those. Those three.

Yes. So if you ask me these questions in January, I will say, like, we are stagnant, like we are not growing. But right now everything shows different. We are starting to grow again. So we. So when we start the call, I mentioned three different like chapters and we are in the third chapter for me. And based on what I am seeing in the, in the industry and obviously EPO manufacturing is also very important, if that's okay. Let me tell you a little bit about that. So obviously the BPO has been always a huge thing like, okay, they need call center or technical support guys or that that can really help the market in the US or Canada. Right. But also we have the manufacturing that is, I think is taking a second. Yeah. Second round this time because so I think in the 90s when what happened was that all the companies in the US with the treaty that we have come to Mexico. Yeah, around 20. Yeah. In the 200s or so they started.

And you're talking about NAFTA.

Yes, exactly, exactly. And so what happened is that everybody come here to Mexico expanding That. But then after the crash I was in 28 or so, they started to move to China. Right. And so everybody were there. So manufacturing take a hit in that moment. Okay. It is still happening in the, in the frontier between Mexico and the border right. Between Mexico and the US And I see our resurgence right now. Like you, you will see a lot of nearshore and I think that's a lot of is happening know you're like manufacturing of everything cars. Right. Like computers, a lot of stuff that was happening in China. They are moving the factories back to onshore or nearshore in this case Mexico. So I think that's. So that's the other piece I wanted to mention that I see. Yeah. As resources. I will say that of manufacturing in Mexico. So we will see a lot of new companies coming in.

Yeah. Yeah. Interesting. Let me take a, a little detour off of the economics for a second and sure. It's a political year.

Yes.

It's a political year for the US and so so maybe Mexico. That's also an election year for Mexico too.

Yes, that's right. Yeah.

So maybe maybe let's start there. So and forgive me if I mispronounce. Obrador is the Mexican president.

Yeah. Yes.

How have his policies over the last few years, how have they impacted near shoring.

It didn't it just. It was. It was better for the, for the country so because when he took office everybody told like okay, maybe this is going to go down right. Because of the way that he like his leftist. So but. But it didn't like he has done pretty good job on, on keeping things good like for, for businesses to come to, to Mexico and we can. We have seen that and even though normally if you go to the, to the previous elections, you normally see that there is a lot of situation between the exchange rate in the US And Mexico peso, US Dollars and Mexico peso. And you will see that every time that there is a change in the president, you will see that the US Dollar just spike. It didn't happen. It's actually dipping. So it's like. Yeah. If I can tell you like I think it's good. He is giving the power and opportunity for the states and for the government entities to do their job. I think that's the most important. And so I just see that as. And everybody is seeing that as a. Okay. It's a continuous and stable country. So we want to do business there. So that's why we are seeing that. And it's very interesting because it didn't happen before. So yeah, it's great. It's great.

Yeah. Stability and just space for businesses to operate. And like you said, less volatility, less uncertainty of are they going to jump in or not? Are they going to over regulate under regulate and really, you know, I think businesses in general, doesn't matter if you're in the US or Mexico or wherever. They just want to know what the playing field is going to look like and then they can, they can run, run their business. Right?

Yes. And yeah, I mean obviously we are not here to talk about politics, but they see that equal. I mean it could continue with the same party. I mean it's, I don't know if they, they are going to win or not, but if they do, I think that's what everybody's seeing. Like there is a high probability of the same party of overdor to win. And so it's the same. Right. If we were doing good, like yeah, we can continue. I mean I don't know if it's going to improve or not, but at least it's the same. And that's, that's normally what happens with the I US President wins the second term. So he's like, okay, it's the same. Okay, I know what to expect.

Okay. Yeah. So yeah, yeah. With Mexico for a second and out of my own curiosity, were there any groups that you think were impacted negatively from the last few years?

Yes, there have been some, obviously. I mean it depends on how it goes right. With you. But yes, obviously I think the most impact were for actually and it's very interesting that you mentioned for the staffing augmentation companies that were not doing things the right way to say something. So they were very hit because they, there were some changes right. In the institution so they needed to fix it and many of them were out of business. So yeah, I will say that the last years has been very hard for outsourcing companies. Not just staffing, but outsourcing in general because that's one of the key things that Obrador wanted to, to fix, if you call it like that way. And so it is more restrictive. So that's when you say like okay, maybe they are going to restrict something. Yes, they restrict that. It's not like in the US that you can have a lot of core to corpse and all that. It's not like that anymore. I mean you can do it, but you need to do it the right way, the way that the government wants right now. But I think that everybody that wasn't following that is already without. So I Think, yeah, the good companies stayed. So I think it's even, even good for the, for the, yeah, for in general, for Mexico, it's good to have this result because where there were a lot of, a lot of loopholes in the, in the law. Yeah, they close that and I think that's, that's good. And also big companies, they are paying more taxes. So yeah, that's also good, I think.

Yeah. So maybe to simplify, do you think right now the economy of Mexico is pro labor or pro business?

Yeah, I think it has always been pro labor. And basically I will say that not just Mexico, but Latin America, for people that is looking at this podcast from Latin America is pro labor, has always been. But lately, I mean, overall it is Pro Labor 100. So a lot of the tweaks that we have seen is more pro labor. But that doesn't mean that is deterrent for investment. I believe that is a better play field. And so it's. Make it like that. Right. Because when you are talking with candidates, they were like, oh, I have this scheme and other person has this scheme and maybe you. So it's more like a line, I will say. So I think also it's good. I think everything that comes to help the labor is going to be beneficial for everybody in the long term. That's my take.

Yeah. And I also wanted to ask you, and you know, the audience that listens to this is curious. They just want to learn more about how stuff works. Latin America has many different countries, many different nuances, how contractors, employees, entities, how all this stuff works. Sometimes Mexico can feel a little intimidating for, for a new business trying to figure out, can I contract this person? Do I need to have an entity? Do I need to pay them in pesos? And if I'm, if I'm labor, can I work directly as a contractor? Do I have to. Do I lose my pension and all the benefits of being connected to the labor force? I know that's a kind of a big question, but yeah, the more you can kind of share, like what does that look like? Would be fantastic.

Okay, so what I'm going to do, if that's okay for you, I am going to take the US as an example and then, and then because I think a lot of the audience is going to at least know how that works and it is different from country to country. So normally in the US you will have like either payroll or contractor or obviously. Right. So it's, that's, that's, that's like the tree. Obviously there are a lot of other options. And, and, and you're, we are not talking about how you pay taxes yet. It's like, okay, how I can hire somebody to work with me in Mexico, we have the same things, but we have different options. So that's, that's, I think that's where the confusion begins. Right. And, and being a pro labor, there is different things that you need to consider when you hire somebody. So for instance, you can also have payroll. Right. And you need an entity in Mexico. Okay. Obviously. And I think the majority of the US Companies doesn't take in count that in the US you can open a company very quickly like within a month or less. In Mexico it takes six months to eight months to open. And that's if you get like your, your name approved. Right. I have this fun story that we, we were building a company and it take 20, 22 names to get approved. So it took us like six months to get, to get approved. So that's, that's just to start the process. And then you need six months or eight months. And then you need to be in Mexico to be able to open. So, so there is a lot of things that you need to consider. Okay. So if you want to hire is payroll. You want the easiest way, I will say, because maybe that's going to be interesting for the audience. Right? So the easiest way is to go contractor, international contractor, I think is the best way to do it. And that not just help. I mean that way works in Mexico, in, in every other country. Now Mexico has a preference or let's say doesn't have a preference where you get the money as long as you pay taxes. Okay. So if you are in the US and you pay somebody to Mexico as a contractor, there is a way to pay only 2% in taxes for the person that is receiving that money. Whether if you go to Colombia, for instance, you need to pay 30 or 40% okay. For that. So it's really, really different. And that happened within this administration. So that, that just came in. It's not before you didn't need to pay anything, but right now you pay only 2%. And then it's like, okay, you are on the law, you are making everything fine. So payroll, you need a company in Mexico for contractor, you don't need a company in Mexico. You can hire them from your U.S. company. Okay. And yeah, so when it comes, and maybe, I mean, I don't think we will have time for that. But you also need to consider termination fees. Right? You need to, it's totally different. You need also to consider like if you are going to send the computer or some equipment because you have these taxes when you send the equipment from the US To Mexico, I have seen it all. So I think there is a lot of things. The easier way is go to contractor. And meanwhile you do that. You may want to realize, okay, maybe I want an office in Mexico. And then you will need to build your company. But it's going to take a year. It's not going to be easy.

Yeah, yeah, yeah. Thank you for explaining that in a way that someone from the US Might look at that. So while we're talking about the U.S. and politics.

Yes.

Like we know it's an election year in the US as well. How does so in the US in the media we always hear about immigration and the wall and.

Yes, yes.

So. But nearshoring, isn't that right? You know, nearshoring doesn't really have a lot to do with immigration. So I'm curious, what do you think this election year in the US Means for nearshoring? You know, are there policies that people in Mexico are kind of, you know, listening for or things that different candidates or parties are, are talking about that, you know, would it have an impact on nearshore and in Mexico?

I think it's a good question. But in this case I will say that I don't know, maybe I am, I am not correct in this. But. But my belief is that it won't impact actually I think is going to improve nearshore. Let me tell you why. Because whether, I don't know, regardless of who ends up in the office in the U.S. i mean, obviously they need to say yes, the wall and yes, immigration. But that's not really the problem. The problem is Ukraine and Russia. So they will continue to work on that, continue with the trade war with China. And that only helps because if they are having issues with with China. So somebody needs to put that, as I mentioned before, the factory somewhere, you cannot put them in Russia or in Ukraine as before. Right. You cannot do it. So you need to bring it closer to home. So I will say that it will impact the US if they decide to bring more or continue with this trade war with China is going to impact us directly to get more labor or more employment, but also will impact positively in Mexico. So I don't see again, I think the next six years because it's a term for Mexican president and the US Is for. But I think at least what rest of the decade is, we are going to see Nisha just getting stronger. That's my prediction. At least hope I am right. But yeah, I see that. I just see that happening because is the right thing to do. All everything points toward that. So yeah, I don't think it's going to impact negatively more than yeah, they need votes and they need to say whatever they need to say to get the person to go vote for them. But I really don't believe that they are going to get in the war like they did for instance Trump that we're in this war with Mexico at the beginning of the administration. I don't think it's going to happen regardless of who they want. But I mean again I can be wrong, but I don't think it's going to impact negatively.

Yeah, I want to go back Luis, to earlier we hit on currency just a little bit on how the dollar is tracking and could you talk a little more about that the peso versus the dollar, what it looks like today, how people are maybe forecasting that and really like what does that mean for everybody? You know, if the dollar gets weaker, the dollar gets stronger. Like how what does that mean for companies that are trying to nearshore.

Yes. Every month I sent Mexico tech update and I actually talk about that and because I think was the right time to do it at the top of the market. If we talk about the US and Mexico peso, the US was trading at about 25 pesos per dollar. Right now it's around 60 16. So 50% less. Okay. So that really impacts because most of the budgets are in the US Dollars are not in Mexico in Mexican peso. So if a company's coming and they plan a five years, just imagine somebody in 2019 that they planned the next five years, right. And they just realize after one or two years that they purchasing power is not just reduce the because and maybe I will get a little bit technical here, but you have two ways in which you reduce your purchasing power. If I am a company in the US coming to Mexico, right. So one is obviously the inflation. Inflation happens in every country and it hit us every year with a percentage. Right. So my purchasing power is lower. But another thing that is happening is because I because Mexico peso is gaining terrain against the dollar, obviously my dollars are worth less. So it's double dip on my own purchasing power. And so I think what most of I will talk now about Mexican candidates because I think we need to be more aware that this is going to impact the salaries. For sure. It has been a situation where the US companies have been adapting and adapting and adapting. Like okay, maybe I was Able to hire a software engineer for 4,000. Now I need 5,000. That's okay. When we are going to stop? I think it's going to stop very soon. So I think that's where. And Mexico is going to get like, okay, a halt, right? Like, oh, we were making a lot of money. That's great. And we can make more because there is no money. Right. So I think it's going to happen soon. That's going to happen soon. And talking about prediction, I think during this year we won't see a rise. And actually if this trend continue, we will be. It should be a salary reduction of the offers. Right. So that's something that hasn't happened since I am started 15 years ago. But I see that it could happen. Just imagine that we hit $15 per. 50 pesos per dollar. It's a lot. You already lost a lot, a lot of your purchasing power and inflation again is very high. And so, I don't know, it's interesting. But in another thing that also I think, Yeah, I think it's important to mention is that that's what we wanted. Like that's exactly what we wanted as Mexico when we signed the NAFTA agreement, that it already changed and everything. But when we signed that we wanted to be an equal to. To US and Canada. I mean, I think the dream is closer. We are not yet, obviously, but you can see that as the gaps start to reduce between very special people working in Mexico to US or to Canada. Okay. I mean, you have people right now that are paid more than people in the U.S. it's incredible. And with the same level just because, I mean, right now companies don't care much about that. Okay. I need the best people and I want to hire them. So I think it's a very interesting fact. Obviously, I am not talking about faang and all these big companies pay a lot of money. Right. But in general. So, yeah, I think for me it's very, very exciting to see it coming to fruition. Right. Because I see a good trend where we are going to be more impaired and it has its consequences, like obviously. But in other instances, our purchasing power in Mexico could be the same or a little bit lower. But if we go, for instance, to overseas, we will be able to pay for more things or travel or everything. So I think it's great. I think it's. You need to, I mean, you need to sacrifice somewhere. Right? So I think that, I don't know, I believe it's a very interesting moment right now for Mexico.

Yeah. And I think overall what the US should, should understand is that a strong Mexico is actually good for the U.S. you know, like you talked about with especially gives an alternative to China. Right. From the manufacturing side. It opens up the doors for a larger labor pool. All businesses want a larger talent pool to draw from. So I think it's great. I think it, it's, it's really good for overall supply and demand economics too.

Yes. And now that you mentioned that, I think another important thing to mention is that the, there is going, there is still going to be a lot of savings as well to come into nearshore because maybe the top talent like the senior people management is going to be very similar. Maybe you will even pays similar salaries to the U.S. but when it comes to labor that doesn't speak English, that's just like there's where the saving is. You will be able to have a top management scheme where you have this management team that can speak English pretty well, well paid. And that has happened since the beginning of this trade. Right. But I think right now is showing a little bit more like getting even closer in the payments. But when you go and say, okay, I need 1,000 employees, yeah, for sure you're going to save money in Mexico. That's, that's, that's for sure. And not just 30 or 20%, maybe 60 or 70%.

Yeah, totally. Absolutely. Absolutely. Well, as we start to, to wind down the show, I've got a couple of fun questions for you, Luis.

Sure.

So Monterey is a city that a lot of people are surprised with how amazing it is for someone who's traveling to Monterey for the first time. Do you have any travel tips, where to eat, what to see, what to do?

The first thing that you need to understand is how big the city is. Right? That's the first thing. And so either if you want to party, you have options. If you want to go to the, to small towns, you have options. If you want to go with the nature, you also have options. Right. And I think that's where people normally don't know. And that's okay because you can do it all obviously. Like for instance, if you want to go for, for some night again, you like nature. There is a lot of travel that you can do. Ecotourism, right. It's also a pretty, pretty good thing. And but depending on how extreme you like it, you can pretty, I mean you can be climbing mountains, going to rivers, right? Stuff like that. Very, very fun stuff. Camping is also, I mean we are with 15 mountains. So I think it's also Pretty good to just walk to the top of the summit of the mountain. I think this is pretty good. But also we have like different small cities close by that you can, you can go again if you want to. If you like to eat. There is a lot of things to eat here that a lot of cuisines. Right. We have. If you like to party, there is a lot to do in the night as well. So, yeah, I think the only thing that we don't have is a beach. But everything else, I think you have a place to go and actually also shopping. I mean, if you like shopping, there is a lot of pretty good companies and. Yeah. And stores here where you can buy stuff. You can, you can buy almost anything you need. So. So yeah, I will say that in terms of food, obviously cabrito is. You need to. You need to try it. Not everybody likes it. Don't, don't worry about the smell. Just taste it. It's a little hard at the beginning. Yeah, it's a strong smell, but it's good. I really like it. I really like it. And obviously, like beef carne asada is amazing. I mean, I have been in other cities fortunate and I think I will rank Hermose first and then Monterey in food. Probably I will get riled by that. But yeah, it's good. I think it's amazing. It's an amazing place. I have been living here my whole life, but I have traveled and stayed more than three months living in different cities in the US and also Mexico. And I always came back. So, yeah, I don't know. I really like the city.

Amazing. And the last question I have for you, Luis, as someone who speaks both Spanish and English very, very well, do you have a favorite English word or English phrase?

Well, yes. I mean, I am, I am thinking, I think one that I like. I mean, let's talk about business and then I can talk about fun, right? Yeah. So in business, I will say make it happen. And that's something that. Yeah, my dad always told us. And, and I just before I. We started, I was thinking like, he was also on the new shoring side because. But in the manufacturing stuff. So, I mean, like we were doing the same thing. Right. 20 years apart. But yeah, I think making it happen. And I will say, like in a phone site for all the Star wars fans, like, hello there from Kenobi. I think that's the one that I use the most for memes and all stuff. Yes, that's great. That's great.

I love it. Well, you heard it here from Luis Lozano and wow, we really hit on a lot of interesting geopolitical economic topics. I learned a lot. I know our audience did too. So thank you, Elise, for coming on the podcast.

Thank you, Brian. Thank you. Thank you everybody. Yes, I am here to help if you need anything.

Luis, where can people find you if they want to reach out to you?

Yeah, I think my LinkedIn profile, I am very active on there. If we can share that link there. Yeah, and actually I think I have my phone number, my business phone number there as well. So yeah, WhatsApp or LinkedIn is the best way.

Cool. You got it. Well everyone, thank you again for listening to another episode of the Nearshore Cafe podcast. This podcast is sponsored by Plug Technologies. Plugg Tech Plug is a great way to connect resources from Latin America with growing US Companies.

Tune in next week for a new episode featuring another special guest with exciting stories.