Why Silicon Valley Tech Bubble Has Companies Flocking Across the Border

In a recent blog, we looked at the reasons why Mexico had become a haven for technology startups. In one extreme example, we learned of the story of Eric Simons, who was compelled to reside on a sofa at AOL’s Bay Area headquarters as a means of avoiding homelessness in the outsized San Francisco housing market.

But more than an outlier, Simons’ story is reflective of a harsh and growing reality in Silicon Valley – though engineers and programmers are among the most highly compensated in North America, their salaries cannot keep apace with the exploding cost of real estate in America’s technology epicenter. Though the average developer is pulling down $120,000 per year, that can barely pay the landscaping costs on the average home, which transacts for a cool million, according to a Redfin real estate study.

This has given rise, according to the New Yorker, to the “Rockstar Developer,” represented by agents who are driving up prices for the best programmers, in much the same way that LeBron and Stephan are able to wring big bucks out of their sports franchises.

This “distorted ecosystem,” according to an article by Nearshore Americas, has no less than billionaire financier Mark Cuban warning that the growing Silicon Valley tech bubble may rival that of the early 2000s. And it has sent shockwaves through many U.S. enterprises, who realize they can no longer afford to look exclusively to Silicon Valley for their tech needs.

As companies shift their gaze away from the rocky West Coast, they are finding that “nearshoring” models – like that which is employed by iTexico – deliver the best combination of value, resources and efficiency. iTexico was recently cited by the Washington Post for its role in fostering a new tech boom in Guadalajara.

In its feature, titled: “Is Mexico the Next Silicon Valley,” the Post noted the inflow of technology venture capital – more than $120 million in the past two years – from U.S. interests. The influx has led to a building – and hiring – boom in Guadalajara and throughout Jalisco. Here, high-tech ventures are staffed by young, bright developers, trained in local universities, who deliver quality outputs consistent with their American counterparts -- for a third of the average U.S. salary.

In addition, low energy costs, hefty government subsidies and a stabilized political climate make Mexico an excellent choice for the cost conscious.

“It’s a question of promotion,” iTexico chief executive and co-founder Anurag Kumar told the Washington Post. “Proximity to the U.S., NAFTA, IP protection, the ability to have people travel back and forth, the visa ease — you don’t need H1s, you don’t need L1s.”

In addition, Kumar told the Post, Mexico’s geographic closeness the U.S. serves as an equalizer for the kinds of cultural disconnects that sometimes result from offshoring to India or China.

“When you ask someone to design a car, the guys in India won’t put the steering wheel in the same place,” Kumar says. “When you have teams in Mexico, you don’t have to explain the business concepts. They get it.”