Hacking the Mexican market after the 2021 outsourcing ban

Commonly practiced in Mexico, Outsourcing is when a company relocates a specific activity from its business to a third party. That means that some of the non-strategic or specialized processes are to be handled by an external company with expertise on the subject. Outsourcing can increase efficiency and save costs by delivering these activities to experts, while the company can concentrate on the core activities. Additionally, with the outsourcing of employees, a subcontracting arrangement is made between the third party and a hired employee for a specific task or role for the main company (Carlos Reynoso Castillo, 2011).

These practices have been present and included a long time in the Mexican Federal Law of Labor. However, this model caused several discomforts and great polemic due to malpractices committed by certain entities that profited from the outsourcing practices to evade taxes and save money on social security expenses and other mandatory employment benefits.

Under the 2021 reforms in the Mexican labor legislation, the model of sub-contraction of personnel mentioned before, is now prohibited. This puts an end to malpractices and forces the companies to directly hire their workers. Since the modifications were made to the outsourcing laws, companies are now obliged to provide employees access to social security, payment of profit-sharing benefits, etc. Nevertheless, the sub-contraction of specialized services is permitted if the activities are not economically essential for the hiring companies (El Financiero, 2021).

Since the amendments that prohibited the outsourcing of personnel, data showed an important boost in the nominal wage growth that benefited 2.5 million workers. This event is relevant too because of the direct impact on the minimum wages from 88.36 pesos in

2018 to 172.87 pesos in 2022, and 88.36 pesos to 260.34 pesos in the same period inside The Free Zone1 (Fredes, 2022)

Despite the doubts that this event may have created, Mexico is still a worthy bet. Compared to other countries, Mexico has many competitive advantages that are appealing reasons to dive into nearshoring, such as the manufacturing industry where its proximity to the US benefits the exportation processes and reduces the cost of outsourcing.

The IMMEX maquiladora program is one of the advantages Mexico has to offer. This program allows foreign companies to relocate their manufacturing operations benefiting from low labor costs. The companies import their materials temporarily into Mexico without tax fees, for the Maquiladora factories to take over the specialized operations they were hired to do, the condition is to export out of Mexico all finished products.

Maquiladoras ensure efficiency and quality, their over 60 years of experience and their relations with more than 80 auto-part maker companies are proof of the high level of work these maquiladoras provide. Mexico and the Maquiladoras have a wide range of industries they work on, including aerospace, medical devices, electronics, alternative energy, general consumers products and many others (NAPS, 2022).

Along with outsourcing, nearshoring or offshoring, global companies are betting on the PEO (professional employer organization) services as a solution to the global economic and political uncertainties that may appear while entering a new market.

Outsourcing	Nearshoring	Offshoring	PEO
Companies relocate business activities to a third party	Companies relocate business activities to a near foreign country to save costs	Companies relocate activities to a third party situated abroad regardless of distance	Outsourcing organization that provides integrated human resources services

A PEO specializes in everything related to employment and the human resources aspects of the business like the administration of employee benefits, tax laws, compensations, and insurance. Also, while saving time and money, a PEO can help assure a safe work environment, talent acquisition, and how to retain it. The difference between the outsourcing of employees and hiring via PEO services, is that the outsourcing occurs when a constituted company puts their own employees to work for the benefit of another company that has the same corporate purpose. Meanwhile, the PEO will acquire talent for the company in the foreign country avoiding the need to establish a local entity (Anna Baluch, 2022).

Even after the 2021 reform to outsourcing in the Mexican Laws, this country’s market appeals to foreign nations. Mexpando comes as a solution for customized services and connecting with the right leads; specifically working alongside experts of the consumer goods and machine industries. We target each company’s needs while offering a secure partnership for your disembark in Mexico.

[1] The Free Zone program aims to boost economic growth by encouraging border residents to consume inside the “Free Zone” by reducing value added taxes and corporate income taxes, matching fuel and electricity rates with US prices and the increase of the minimum wage. This includes 43 municipalities along the border with the US (San Diego Regional Chamber of Commerce, 2019).

Carlos Reynoso Castillo, B. P. (2011). Libros (Biblioteca Jurídica Virtual). Retrieved from https://archivos.juridicas.unam.mx/www/bjv/libros/7/3008/7.pdf

Anna Baluch, C. B. (24 de August de 2022). What Is A PEO? Pros, Cons & Considerations. Retrieved from Forbes Advisor: https://www.forbes.com/advisor/business/what-is-peo/

El Financiero. (21 de september de 2021). ¿Cómo quedó el outsourcing 2021 en México? Retrieved from https://www.elfinanciero.com.mx/economia/2021/09/01/como-quedo-el-outsourcing-2021-en-mexico/

Fredes, F. M. (6 de september de 2022). Reforma de outsourcing inyectó dinamismo laboral no visto en dos décadas: Banxico. Retrieved from El Economista: https://www.eleconomista.com.mx/capitalhumano/Reforma-de-outsourcing-inyecto-dinamismo-laboral-no-visto-en-dos-decadas-Banxico-20220905-0106.html

Hayes, A. (28 de May de 2022). Offshore. Retrieved from Investipedia: https://www.investopedia.com/terms/o/offshore.asp

NAPS. (2022). A Comprehensive Guide to the IMMEX Program. Retrieved from https://napsintl.com/manufacturing-in-mexico/the-immex-program-manufacturing-in-mexico/

Probasco, J. (22 de August de 2019). Professional Employer Organization (PEO). Retrieved from https://www.investopedia.com/professional-employer-organization-definition-4766977

San Diego Regional Chamber of Commerce. (17 de January de 2019). Mexico's Free Zone Program. Retrieved from https://sdchamber.org/2019/01/mexicos-free-zone-program/

Twin, A. (18 de June de 2022). Outsourcing: How It Works in Business, With Examples. Retrieved from https://www.investopedia.com/terms/o/outsourcing.asp