What is the Mexican Premium?

Recently, I had a conference call with Chris, a customer based in St. Louis, about a potential new project. We were discussing all the possible attributes of the new team, both in terms of composition and skillset, when he mentioned something that surprised me when we got to the topic of location.

It’s worth mentioning that more than 90% of Chris’ teams are in Aguascalientes, Mexico, lending itself to be the obvious proposed destination for this potential new team. That’s when he said, "Sure, I don't have a problem paying the Mexican premium for this engagement.”

That day I learned that there is a something, a phenomenon, that some may call “The Mexican Premium.” As it was the first time that I had heard about it (despite being a Mexican myself for more than 45 years, and counting), I had to ask: “What are you to referring to with ’premium’?”

Chris mentioned that having a team outside the US, at a nearshore destination like Mexico, has important advantages over an offshore country like India, Vietnam, or the Philippines, “Let me point out the most important ones”, he continued.

“First, and perhaps most obvious, is regarding the time zone. Teams located in the Americas work regular business hours as we do in the US, while a team located in Asia needs to work outside business hours.”

He is right on the money for this first point. While teams in Asia may start work during their afternoon or night to align with the US time zones, these engagements often end up being ineffective or unstable in the long run, when compared with those that share their daylight hours with the client. (And believe me, I know about this firsthand, having lived in China for more than 6 years. While I overall loved that experience, after working a couple of days a week at night for a long time to mimic the morning US hours, it eventually takes its toll. As Bestselling Author Scott Berkun, in his book, The Year Without Pants, said, “My team had hit the natural limits of space and time on planet earth… For us to speak at the same time, someone would have to be miserable.”

“Second, cultural affinity and straightforward communication plays a huge role in the team environment and business relationship. This one is tough to simply put on paper or explain in a conversation, because it goes beyond English skills and clarity. It involves really grasping the culture, working etiquette, ability to say ‘No,’ events, politics, jokes, sports, and nuances of daily life. Every time I go to Mexico, it’s like being in the US in many respects. You guys have everything down there that we have here, from retail stores and restaurants to similar working environment, intellectual property protections, and financial frameworks facilitated by the new USMCA agreement…plus way better tacos.”

Unless a person from the East has lived in the US, engaging in a conversation about daily life in America can be extremely challenging. For a Mexican, this is not the case, since the US and Mexico have a lot in common, on top of the 1,900 miles of land that we call a border.

“Third, is the distance. Traveling to India or the Philippines takes between 15 and 20 hours, plus the hours lost due to time difference (and not to mention jet lag). Flying from St. Louis to Aguascalientes can be done in less than 5 hours., allowing one to have meetings in the afternoon. The same applies when the team needs to travel to the US on short notice. Being able to have part of the team the next day at our offices for any emergency meeting has provided a lot of value.”

“And finally, what we can call the cherry on top, is price,” Chris told me. “Having a team in Mexico is not as expensive as people think, in comparison to having a team in India or the Philippines. If you compare it on a head-to-head engagement, let's say, staffing, the East will be cheaper than the West, but as you keep growing, the onsite presence becomes necessary and diminishes or eliminates any up-front savings. Take my team as an example; I currently have an organization of 25 nearshore guys and zero onsite presence. Previously, for me to have the same team, I needed to have three or four onsite liaisons or managers.”

Chris closed the conversation by saying, "And that, my friend, that, is the Mexican Premium that I don't mind paying. Because all the benefits that I get from your team are not individually quantifiable, yet adding them all up far exceeds the small difference in price that I pay for having a team located in Asia."

This call reminded me of a financial model that we have at Softtek called Total Cost of Engagement (TCE). The model considers some of the above points, like location, time zone, leverage of onsite vs. nearshore vs. offshore. It calculates the real cost of a team over the long term. The TCE is an essential tool when forecasting how much an organization will eventually pay by taking into account all the tangibles and the intangibles in a long-term commitment.

One last item that was not discussed during the call, and mostly because it has not created a single problem as of today, is the sound and robust infrastructure required for the teams to work from home during the COVID global pandemic. We were able to operate all of Chris’ teams remotely the next day after the government called for stay-at-home order in March 2020. Everyone already had a laptop and had a seamless transition thanks to our Disaster Recovery Plan previously established.

When looking at the big picture, the so-called “Mexican Premium” that Chris is readily aware of, is not really a premium per se, but rather the value that is created by removing, as much as possible, the frictions generated by outsourcing work outside of an organization. And if you ask me, the tacos are also a plus.