Jalisco’s Tech Boom: “The New US Government is Helping Mexico”

14746965706_af4f8ffef1_k

Read the daily news and you’d be forgiven for thinking US-Mexico relations are at a nadir. When it comes to some sectors, however, that isn’t the case. Jalisco State, on Mexico’s Pacific coast, has enjoyed an IT boom for several years. Now one of its leading tech scions tells Red Herring that Jalisco–and its capital city Guadalajara–are set to benefit from US President Trump’s nativist policies.

Anurag Kumar is CEO of iTexico, a software company that assists companies with mobile development via ‘nearshore outsourcing’–corporate lingo for using services in a nearby foreign nation. Its clients include top-line brands like Appcelerator, IBM and Microsoft.

iTexico employs over 140 people from its headquarters in Austin, Texas. It also has an office in Silicon Valley, but the vast majority of iTexico’s staff are based in Guadalajara. Kumar, a vastly experienced Indian businessman from Punjab, made his name at firms like Dell, Entreave and the Austin Business Board before co-founding iTexico in 2010. He flies to Guadalajara regularly. Since iTexico was conceived he has seen Guadalajara working to compound on several key advantages.

Low energy and labor costs have long drawn US companies south of the border. Mexico is the 11th largest economy in the world, with an economy worth $2.2tr. However its GDP per capita stands at just $18,900 compared to the US’ $57,300.

Jalisco’s tech industry took a lead almost half a century ago when IBM, Motorola and others began manufacturing semiconductors there. Engineering came soon after, and now software and IT services are providing a third wave of tech-led benefits to the local economy.

In recent years the North American Free Trade Agreement (NAFTA), signed into effect by George H W Bush, Mexican president Carlos Salinas de Gortari and Canadian prime minister Brian Mulroney in 1994, has increased movement between the three nations, and helped swell a wealthy, English-speaking Mexican middle class in major cities including Guadalajara, which managed to avoid the worst of Mexico’s bloody drug wars.

iTexico is part of the Guadalajara tech boom, a move that has seen $120 million poured into more than 300 startups since 2014. The state of Jalisco exports $21bn in tech products and services per year, and global firms like Oracle and IBM have significant presences.

85,000 tech graduates come out of Jalisco’s 12 universities each year. More and more are working in the tech industry, which is said to be worth around an annual $12bn. Since iTexico began operation the local ecosystem has “changed dramatically,” Kumar says. Tech firms from India, Russia, Ukraine and the US have been busy setting up shop. Universities have expanded tech programs. Salaries have gone up, as have several high-rises catering to an influx of wealthy workers.

Because of NAFTA provisions, movement of professionals between US, Mexico and Canada is not as dependent on H-1B as with other countries,” Kumar says. “Nothing has changed for companies like ours. In fact, due to the H-1B concerns, companies in US are now looking more at Mexico for talent.

“Movement of people, goods, services and technology is the same as before,” he adds. “It is almost as if nothing as happened and it is business as usual.”

That may not resonate with millions of undocumented Mexican and other migrants living in the US, who have seen their rights to live in America under threat under Donald Trump’s conservative, protectionist rule. The President has attempted to incentivize companies to bring jobs back from Mexico to the US, and has issued statements on the Mexican population perceived by many to border on racism.

On November 10, under two days after Donald Trump won the 2016 Presidential Election, Kumar sent a letter to his team. “Today is the dawn of a new chapter,” he wrote. “While the results are surprising and may cause some concerns for you, we must understand, change is a fact of life.”

Kumar added that there would be, “no changes to our strategy and plans for the next few months.” In the intervening months, while the White House has issued statements and proposed policies to hinder interaction between the US and Mexico, businesses on the border have been busy doing the opposite.

This month the Texas-Mexico Trade Coalition was formed. The new agreement, Texas Association of Business CEO Jeff Moseley said, will contemplate “so much development in technology” that has occurred since NAFTA’s implementation. That will help firms like iTexico, which contribute to the $579bn traded each way between Mexico and the US.

Enthused by the talent, proximity and cost-effectiveness on offer, venture capitalists have begun flooding into Jalisco. Exits and big funding rounds are no longer pie in the sky. Local governor Jorge Aristóteles Sandoval Díaz has been on the corporate campaign trail, meeting with political and business leaders in the US and preaching his state’s potential benefits. “We want tech companies to know there is a huge opportunity for them to grow,” he told USA Today this February.

Ties to Kumar’s native India are being seen as a huge potential boost for Mexico’s economy. The Financial Times recently reported that Tech Mahindra, one of India’s largest IT companies, wants to double its Mexico operations in the next 18 months, if the president’s H1-B visa crackdown comes into place.

Elon Musk chose Guadalajara last September as the location in which to announce his plans to colonize Mars with interstellar project SpaceX. It also hosts a number of tech conferences each year, bringing people from all over Latin America and the world. Travel connections to its international airport are increasing and money is helping infrastructural development on all levels. The city is becoming a modern boomtown.

Ironically, says Kumar, “the new US government is helping Mexico. The increased awareness and media coverage about Mexico is making business look at Mexico again and realize that it is actually a really good idea for the two countries to engage even more.” That extends not only to goods like sugar and corn, which Mexico buys from US suppliers in huge quantities, by consumer electronics and IT services.

Kumar adds, “The city itself is a beautiful place to live and work.”

This is the first of three special features on the Mexican tech ecosystem. Our next story will examine the scene in the city of Tijuana.