Mexico Expansion: What IT Consulting Firms Got Right and Where They Stumbled

Business Consulting Firms and ERP System Integrators are experts at their craft. Their customers trust their expertise to lead the digital transformation of their companies, under a strict timeframe and budgets. Additionally, they have to be masters at scaling up or down their delivery capabilities based on available projects, favoring agile operations.

Leveraging nearshore capabilities has become an integral part of delivering IT services in North America. However, some firms have underestimated the effort needed when opening new Mexico operations, unnecessarily complicating their business outcomes—an issue that could easily be avoided.

Perhaps the proximity of Mexico -just a one-hour flight away- led some firms to assume that hiring and incorporating a company would be similar to the U.S. Others because it was for temporary projects, skipped the research needed to prevent surprises. So, what can other IT Service Providers learn from those who have already done it? What did they get right, and where did they stumble?

Surprises

Firms that skipped proper due diligence sooner or later faced unexpected setbacks. For example, the CEO of a small service firm was stunned when he was sued for unpaid wages by a former employee who had left their Mexico-based company, returned, and then left again. His company had neglected to collect the necessary documentation so now they did not have the required proof to win the case. Additionally, he had to appear at the labor board in an unfamiliar city that the former employee had selected. His reaction? “It shouldn’t be that way.”

Similarly, a large System Integrator that opened a Mexico-based entity, hired an administrative staff that included 15 recruiters to build the delivery practice quickly. Once the team was in place, they attempted to downsize by letting go of 10 recruiters—only to discover they were required to pay severance equal to three months’ salary per employee, despite their tenure being only six months. This resulted in significant financial losses. Another company faced a different issue: after spending more than expected and waiting twice as long as planned to establish a foreign-owned entity, they learned that the structure couldn’t legally be used to hire IT contractors (which was the goal) due to recent labor law changes in Mexico.

But even smaller surprises can impact the bottom line. For instance, companies that follow a Do-It-Yourself approach may struggle with their recruitment efforts for months before someone tells them that Mexico’s unemployment rate is at a 20-year low. This is why their job ads are not impactful, as Tech candidates are not actively searching as they are being frequently contacted by recruiters. Further research might reveal that they are using concepts that don't mean the same thing —such as using the U.S. annual salary number, which does not translate well to Mexico, where salaries are calculated differently. And you always, always, always, specify if it's gross or net earnings. And that’s just the start.

What Others Did Right

Surprisingly, those that didn’t have much time, did better. Since establishing a functioning entity in Mexico takes 3-4 months, they cannot tell their new customer that the recently awarded project should wait 5 months to start. Instead, they had to do a deep dive into entry models and what other firms had successfully used in these cases.

Outsourcing to another tech company was out of the question, as it would mean training a future competitor and granting them direct access to customers. Instead, they explored Mexico’s soft-landing options, which have been available for 40 years. It enables foreign companies to launch operations quickly while minimizing risks and costs. In particular, IT service providers favor pay-per-use frameworks, allowing them to test the region before making full commitments. This approach was especially useful in creating a temporary presence to support regional rollouts or project-based work.

Companies using these models were operational within a month and sheltered from potential local risks, so they could put all their focus on their projects. It also helps them to gain extra time to decide when is the right time to create their stand-alone entity. After they gained valuable insights into local laws, such as the importance of co-responsibility laws, which hold firms accountable for hiring blacklisted vendors. By using a shelter model, they avoided potential liabilities and ensured compliance with Mexican regulations.

Advantages gained

• True Scalability – Firms that took a do-it-yourself (DIY) approach and hired administrative support staff—including managers, accountants, HR personnel, and recruiters—found that during project downtimes, their teams were idle, adding unnecessary costs. In contrast, those using soft-landing options could pause operations and expenses, when demand fluctuated.
• Cost Efficiency – Companies that opted for the Subsidiary-as-a-Service model saved 80% in first-year setup and operational costs compared to DIY approaches. In subsequent years, they saw 40% annual savings on operating expenses.
• Number of Experts—Having a cost-effective operation in North America meant that IT Consulting firms could hire more guru-level talent for customer-facing roles with the same budget, enhancing customer satisfaction.
• Productivity – Mexico bilingual teams allowed firms to serve both North and South American clients. European companies entering the U.S. also found that they could hire their North American presales engineers in Mexico, maximizing their North American budget.

Conclusion

In the Tech Industry, IT Consulting firms were the pioneers in building offshore centers and later nearshore operations. This is why there are so many stories to learn from, but some continue to repeat costly mistakes. For example, a 1,500-person digital transformation firm with a presence in multiple countries decided to open Mexico operations and to lead this effort, it hired an engineer they knew previously from a Project, because “he was from Mexico”. It failed on multiple fronts.

Another common misstep is thinking that there is software for everything, like subscribing to many platforms to cover the operations locally. Such as using a 160-country payroll software solution, which is good at automating common tasks but will not try to prevent business mistakes, including those mentioned in this article. A foreign company will not know that there is an option in certain cases for hiring on a short training-period contract, which can help them know the employee better before signing the permanent contract. The platform will apply its standard work-for-all contracts and will use global terms, like annual salary, making the foreign company use terms that will not help. These errors will accumulate, transferring the resulting costs to the foreign company.

There′s a common thread in this article based on true events. Those who failed were those with the thinking that “it should be the way that they know back home”, and clearly, that’s not going to work when expanding into an unknown region. But those who did well and did all their homework didn’t experiment. They knew that they lacked expertise for this endeavor and trusted their organization with someone who had done it multiple times. Ironically, this is the same advice they give to their customers.