THE SOFT MACHINE

Mexico 2014 | TELECOMS & IT | FOCUS: SOFTWARE DEVELOPMENT

Mexico is ahead of other Hispanic nations in terms of software production, but though growth has been rapid, there remains vast untapped potential.

Mexico's IT sector has long been a key contributor to the nation's economy. Proximity to the US, shared time zones, and legal protection guaranteed by the NAFTA agreement offer US firms the ideal conditions to outsource maintenance, call center assistance, and IT support services. Over 60,000 graduates qualify each year to work in the sector, sustaining an already dynamic industry, and with new talent comes fresh ideas. The development of software solutions has emerged as another important segment of the market, an area that is developing rapidly thanks to improving education and the encouragement of innovation.

Mexico's IT industry has grown precipitously over the past 10 years on the back of demand from the US and its approximately 40 million-strong Spanish-speaking population. However, the country's potential for selling new software is not limited to the colossal market to its north; FTAs with over 40 countries offer Mexican startups unfettered access to hundreds of millions of consumers across the globe. Exports from the sector have grown from $200 million a decade ago to over $3.75 billion. The domestic market also promises substantial possibilities, given that just 4% of PC software downloaded in Mexico originates from the country. Support for this burgeoning industry is coming from both private and public sources. The government is backing the construction and maintenance of over two dozen technology parks across approximately two thirds of the 31 federal states, aiming to ensure that opportunities are created for Mexico's young innovators. MexicoIT, funded by the state but run by private management, is the result of a convergence of public and private interests and a shared desire to see the sector grow.

However, one major potential hurdle for the future of these companies and the many foreign firms establishing a presence in Mexico is the limited human resources available. Though graduates from both public and private educational institutions are well trained and capable, the alumni of the former rarely have sufficient command of the English language to compete for jobs with major firms. In response to this challenge, the MexicoFIRST initiative was created by MexicoIT, in cooperation with the Secretary of Economy and the World Bank to promote a more educated, qualified, and numerous labor force. The plan is envisaged to improve the competitiveness of domestic firms as much as to attract overseas capital. This will be done by easing access to training and certification for individuals and firms through strategic alliances. Overall, training costs have been lowered by almost three quarters in some cases, with tens of thousands of students reaping the benefits of the plan.

More challenging still is the issue of access to funding, a problem which faces SMEs in different sectors across the country. Again, MexicoIT is attempting to rectify the problem, employing the ProSoft fund program which coordinates subsidies from state governments or industry organizations and offers them to companies purchasing material from Mexican firms, or those which are bringing investment to the country. Now running for a decade, it has been utilized by hundreds of firms, and has allowed the sector to achieve a continuous annual export growth rate of 12% since 2002, with the industry rising at four times the national GDP rate of growth. Certain areas, which for security reasons or otherwise, have emerged as safer options for investment. Guadalajara, for one, is a center of this new wave of development, with the capital of Jalisco producing approximately half of the country's over 6,000 technology graduates, playing host to exemplary local start-ups, and boasting an export basket, which is 60% related to high-tech products.

Now, just ranking behind the US, Israel, and Sweden in the list of biggest PC and smartphone software-producing nations, Mexico stands out as an economy with strong prospects in this area. With only Spain to really contend with among Spanish-speaking nations, Mexico could readily expand this sector and provide for consumers in Latin America.