Image credits: Kevin Ku
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Analysis

Mexico’s IT Sector Heading Into Industry 4.0

By Cinthya Alaniz Salazar | Wed, 10/06/2021 - 10:03

The COVID-19 pandemic compelled the global economy to accelerate and shorten digitalization efforts from years to months, prompting US companies to look abroad for help with their transformation and adaptation process. Attracted by a highly qualified talent pool, competitive labor costs and logistical advantages, US companies have looked to Mexico as an incredible opportunity to fill the current domestic deficit in the highly competitive market of computer information and communication technologies (ICT). This demand, driven mainly by startups, could stimulate the rise of a new domestic economy in which programmers are the backbone of the economy—an essential development as the world fully moves toward Industry 4.0.

IT labor shortages are nothing new to US companies and were a major source of lost productivity even before the pandemic, costing millions. CompTIA, IT trade association, reported that in the first three months of 2019, US companies had about 918,000 unfilled IT jobs as the sector grew 32 percent in the first half of the year. These findings were corroborated by a Manpower research group which found that 69 percent of US employers were struggling to find skilled workers in 2019, up 14 percent from 2010. Even amidst the global COVID-19 pandemic, as other economic sectors contracted and thousands lost their jobs, four out of five employment categories saw modest growth in March. The only technology sector to recede was the telecommunications sector, which saw a loss of 1,700 jobs.

A year later, even with the generous financial assistance and a robust vaccine roll out, some US economic sectors are still struggling to gain momentum. The IT sector has not, reporting an additional 10, 500 jobs in June, for a total of 80,600 jobs in the first half of 2021. In short, the US has an insatiable tech sector with a domestic talent pool deficit therefore, forcing companies to look for talent abroad.

On the back of constitutional reforms intended to reduce monopolistic behavior and spur competition, Mexico’s ICT sector has been positioning itself for new investment opportunities since 2013. In 2014, Mexico’s ICT export sector was valued at US$62.4 billion, ranking it the fifth largest in the word in 2017. The country had then benefited from US nearshoring although not nearly at the same level it is now. Comparatively, only three years after, Mexico's ICT export sector is now valued a little over US$68.3 billion, representing an almost 10 percent increase as indicated by CEIC Data. Cities like Monterrey and Guadalajara, dubbed the “Silicon Valley of Latin America,” have led development in this sector drawing investment from big tech companies including Amazon, Facebook, Microsoft, Google, Apple and SAP. 

These centers tend to have a surplus of talent given that Mexican universities are able to produce over 110,000 engineers on an annual basis, due to lower education costs compared to the US. In addition to this, to the benefit of companies, US talent agency CodersLink found that talent in Mexico was found to be two to three times more competitive than domestic talent, without compromising quality or specialized experience. Lastly, once international travel resumes at its pre-pandemic pace, US companies can count on the geographic proximity and high volume of daily interstate flights between Mexico and the US, giving companies the option to travel and come back on the same day.

Given these circumstances, it is not surprising that US tech companies quickly pivoted to Mexico to source talent, driving a 1,000 percent increase in demand for IT profiles from 2019 to 2020 according to EmpleosTI, a job search site specializing in ICT. This demand has not been limited to the US, however. The Digital Transformation Index by Dell Technology revealed that 80 percent of surveyed companies in Mexico experienced a rapid digital transformation, forcing 89 percent of them to realize the necessity of flexible and scalable IT. This change indicates that Mexican business are ready to invest in IT, which may give rise to a new economy with programmers at the center. 

As global economies exhaustively look for a competitive edge over one another, they will continue to drive global IT spending. Following the projections of Gartner Inc., an enterprise tech research group, worldwide IT spending is projected to reach US$4.2 trillion in 2021, up 8.6 percent from last year. According to forecasting from the World Bank in 2017, Mexico was expected to grow at an annual rate between 10-15 percent, but the pandemic has evidenced consumer willingness to adopt these technologies, a clear indication to market players that this is the time to expand the sector to meet demand. Mexico has garnered the experience and economic development to support the growth of this promising sector thereby positioning the country for development success as the world fully transitions into Industry 4.0.

The data used in this article was sourced from:  
CompTIA, Manpower Research Group, CEIC Data, CodersLink, IVEMESA, Gartner Inc, World Bank,
Photo by:   Kevin Ku
Cinthya Alaniz Salazar Cinthya Alaniz Salazar Journalist & Industry Analyst