Despite the headline-grabbing parlance of the US president, Mexico is shaping up to be the hottest new sourcing destination. With the proximity and time zone to cater to the US market with relative ease, the Mexican IT sector has a lot to look forward to over the next few years. We spent some time with a Mexican-based IT services firm this month—and some of the interesting organizations it is working with—to dig into the details and find out why sourcing executives shouldn’t be shy about looking to Mexico as the new sourcing hotspot.

Sourcing is a people business—and digital talent in Mexico is growing rapidly with 110,000+ graduates joining the ranks annually

When you put analysts in a room with an IT service provider, it doesn’t take long for the conversation to shift toward talent. How are they hiring, training, and retaining? What are they doing to get the best people in? Unsurprisingly, a conversation with executives from Mexico-based IT services firm Softtek landed on the talent question almost immediately.

For a variety of reasons—from domestic demand to IT infrastructure—Mexico has played second fiddle to India as key IT sourcing destination, particularly when competing in terms of scale. One of the biggest challenges holding the location back is the availability of talent. Contrast that with India, which has a booming IT services industry with 3.5 million direct employees and 12 million indirect employees, which has grown consistently for the past two decades. Mexico’s is smaller, with less than a half million directly employed by the industry. Although 110,000+ graduates per year are helping boost growth, the newly-minted talent pool is still smaller than the million-plus graduates India boasts. But the reality is that for now, organizations such as Softtek don’t need to get too bogged down in a scale game. As business leaders look for a more tangible relationship with outsourced services—particularly in digital design and the development of POCs and experimental technologies—greater demand for onshore and nearshore capabilities is eroding industrialized service delivery, which puts Mexico in a prime position for the US market.

Softtek executives know that with the right talent attraction and retention program, the future looks bright, and they’re working with some interesting partners to make sure the talent pool is growing. Mexico IT, a government body looking to push Mexico as an IT outsourcing destination, argues that Mexico is well primed to grow its digital economy but with the caveat that the education system needs to keep pace with the growing burden that IT services firms are placing on it.

That’s where innovative initiatives like Codellege come in. Codellege is an initiative aimed at upskilling professionals through a program that teaches them core IT and coding skills over four months. The firm aims to train a new generation of programmers in core coding languages, interpersonal and language skills, and business acumen. The team is working with Softtek and other IT firms to fuel the new wave of IT services demand with talented professionals.

Nearshore and onshore are ever more important in an agile world – which puts Mexican-based firm Softtek in prime position to leverage the latest business trend

What’s becoming clearer is that distance makes many aspects of agile working hard to grapple with. Nearshore heavyweights like Softtek recognized this disadvantage early on when they pushed to invest more in Mexico and Latin America instead of chasing arbitrage trends pushing work toward India. As enterprise leaders look to build upon agile capabilities, particularly in application services—the mainstay of the modern business platform—the assumption is that they will need to look closer to home to get the most out of the approach.

Of course, it’s not impossible to embrace agile long-distance, but it does become more complex, and businesses must develop processes that mirror the same inclusion and feedback loops that proximity can offer. The growing demand for a more balanced blend of shoring capabilities is reflective of this new business understanding; as it develops, it could leave firms like Softtek in prime position to exploit fresh business demand. Given the nature of the Mexican IT talent market, it won’t be as easy for large IT services firms to pop up a delivery center in Cancun and expect to scale up within weeks. Candidly, IT executives familiar with the space were able to pull out an exhaustive list of the IT majors that had struggled to gain a foothold in the market.

The big orange elephant in the room could be both beneficial and damaging

However, the prime position of Mexico to the world’s biggest economy to the north doesn’t make its rise to prominence a guarantee. Political rhetoric north of the border has undoubtedly damaged the perception of outsourcing work to Mexico. It’s not difficult to track down stories of the sitting president suggesting that firms placing offices and factories outside of the US lack patriotism.

While in the business world we tend to see ourselves as being more logical and distant from the emotive rhetoric of the political classes, it’s still an important factor. US business leaders may place a higher price on the PR cost of being demonized under the current political regime than the value they could achieve by partnering up with firms south of the border. This makes it harder for firms like Softtek to position themselves as a partner to US firms, rather than the destination for unpatriotic CEOs looking to save money.

The Bottom Line: Sourcing executives recognize that their next agile partner could well be south of the Rio Grande where a growing pool of digital talent stands ready.

Nevertheless, business leaders must recognize that in the competitive digital landscape, a high-value and well-positioned partner leveraging growing talent in Mexico may be the home for solutions to many of their challenges—especially as enterprises look to squeeze every drop of value from agile practices and new digital technologies.