Mexico holds great potential as a supplier of offshored services, given its low costs, proximity to the United States, fast-growing pool of university graduates, and promising domestic market. But research by the McKinsey Global Institute (MGI) finds that a dearth of IT vendors, a costly infrastructure, and a talent pool with limited suitability for multinational positions are among the factors preventing Mexico from realizing the considerable opportunity created by globalization.

Mexico’s advantages start with low labor costs, which, at around one-quarter of US levels, were the fifth lowest among the 28 low-wage countries we studied.¹ (The full report, The Emerging Global Labor Market, Part II—The Supply of Offshore Talent in Services, is available free of charge online.) Even after accounting for the relatively high cost of electric power, Mexico is a less expensive offshoring location than low-wage centers in Eastern Europe. Indeed, for a company motivated primarily by cost, Mexico holds the most attractive position among the Latin American countries we studied.²

Mexico’s other benefits include its cultural ties and physical proximity to the United States and Canada,...