Silicon Valley expands south for access to skilled engineers struggling to enter US

4 hours ago by: Hannah Kuchler in San Francisco, Aliya Ram in New Delhi and Jude Webber in Mexico City

Donald Trump’s pledge to clamp down on immigration has soured relations between Mexico and the US as the new president looks to build a border wall between the two countries.

But his moves to restrict how many highly skilled immigrants can enter the country may benefit America’s southern neighbour, as technology outsourcers from India, Europe and the US eye Mexico as a place from which to service US clients struggling to recruit software engineers.

Tech Mahindra, one of India’s largest IT service companies, says it will double its operations in Mexico in the next year to 18 months if the US makes it more difficult for Indians to get skilled H1-B visas.

Arvind Malhotra, global head of strategic accounts and South America, said: “We’ve been having several conversations that we want to ramp up the operations in [Latin] America — especially English-speaking operations — because of the current administration.”

It is considering nearly doubling the size of its 110-strong office in Mexico, from which it could send people quickly and cheaply across the border into the US to provide services that are currently done by its large US-based staff. Tech Mahindra last year filed 8,615 applications for H-1B visas according to My Visa Jobs, an immigration consultancy.

Mr Trump has targeted the H1-B visa, used heavily by technology outsourcing companies to bring engineers to the US, as part of his “Hire American” agenda. Between 2010 and 2014, the four employers who brought in the most workers on H1-Bs were outsourcers, with Infosys at number one bringing in more than 30,000, according to Ronil Hira, associate professor of public policy at Howard University.

Companies had already complained that the visa was in short supply, as the annual allotment of 85,000 runs out in days. But last month the US president signed an executive order pledging to crack down on H1-B “fraud and abuse” and make applicants prove their skills to a higher level.

While some large US tech brands are exploring expanding in Canada, IT services companies are focusing on Mexico as demand for “nearshore” services soars. US business leaders warn on impact of immigration restrictions Speakers at Milken conference also give Trump tax and deregulation policies warm welcome

Mexican IT services hit $20bn in 2016 and are set to outpace the growth of the sector in India, increasing 15 per cent year on year, according to HFS Research, which tracks the IT services industry. US and other clients take advantage of a near timezone, easy border crossing, good technology and English language skills.

iTexico, an Austin-headquartered nearshoring company, has opened a new office in Aguascalientes and is looking to expand by acquisition. ArkusNexus, another software nearshorer, is expanding its campus just over the US border in Tijuana, building a new 1,000 sq-ft facility. Swiss outsourcer Luxoft says its “stretch goal” is to double the size of its Mexican operations.

The governor of Jalisco is seizing the opportunity offered by US restrictions on immigration. He toured Silicon Valley earlier this year with the message that the province wants to be a “sanctuary” for highly skilled workers. Jalisco put a full page advert in the US publication Politico, offering to work with tech companies. It is also loosening immigration rules for new companies setting up shop, ditching an old requirement that companies could only have 10 per cent foreign employees.

“We’re putting a strategy together with the Mexican consulate to make it easy for people to come work in Jalisco seamlessly, as if they were in Silicon Valley . . . or in their home countries,” said Jaime Reyes, the secretary of innovation in Jalisco. “We will help to establish them with schools and transportation and whatever they need.”

Mexico was already becoming a nearshoring hotspot, with much of the growth centred in Guadalajara, Jalisco’s capital. Indian outsourcers including Infosys and HCL have expanded dramatically in the past five years. IBM has been in the country for 90 years and Oracle is reported to have its own offices to hire software engineers directly. Oracle would not comment.

The state government of Baja California and several business groups in Tijuana have teamed up to bring a proposal to the Mexican Congress later in the year, designed to attract companies who cannot bring enough foreign workers to the US.

David Mayagoitia, chair of the Tijuana EDC, an economic development organisation, said the proposal includes allowing companies to import up to 90 per cent of their staff, in return for commitments to train Mexican workers and educate Mexican students. Far more people apply to enter the US than gain entry, Mr Mayagoitia said, creating a huge economic opportunity for Mexico, even if it can only capture 5 per cent of those rejected by the US. “If we did that every year for the next 10 years, the Mexican border would be a totally different border,” he said.

Now that many basic tasks that used to be done by outsourcers are automated, many tech companies are using the companies for more advanced software development. “If there are certain jobs that involve people frequently going across and coming back and you want to reduce that travel cost, it makes sense to be in Mexico,” said R Chandrashekhar, president of NASSCOM, India’s IT trade association.  US warned that work visa curbs will send jobs abroad India’s IT services chiefs say H-1B crackdown will hasten offshoring by raising wages “If it isn’t possible to have people actually located in the US . . . that would require people in Mexico.”

Angel Sanchez, ArkusNexus chief executive and co-founder of the Mexican innovation development hub, says nearshore is really more like “no shore”.

“Vendors, partners and a lot of prospects start the day in downtown San Diego or the Soreno Valley and in 45 minutes max they are in Tijuana. They get to work and interact with their team, then we take them all out for street food, tacos and stuff,” he said. “The same day they can be back home for supper.”

Bismarck Lepe, chief executive of Wizeline, first came to Mexico with his last start-up, online video company Ooyala. “In 2010, when we opened our operation in Mexico, my board asked me if there were engineers in Mexico. A funny thing to ask. It turned out to be tremendous and incredibly successful,” he said. Many in Silicon Valley still do not realise it is a tech hub, not a “drug or narco-infested area”, he added.

Wizeline has an office in San Francisco but the majority of its employees are in Guadalajara and its Mexican operation is expanding at twice the speed of its US office. It provides software engineering services to multinationals including News Corp and GlaxoSmithKline.

Companies can hire Mexican engineers and bring in experience from abroad. Mr Lepe said the longest it had taken to get a visa for an employee had been two to three weeks, compared to a much longer process and a lottery for H1-Bs in the US. “Every company needs to adopt software and there aren’t enough software engineers in the US so we have to look elsewhere,” he said. “The H1-B was a favourable immigration policy for a while but if that changes people need a plan B or C.”