Nearshoring Staff Augmentation in Latin America: Unlocking Market Opportunities for Businesses and Startups

NEARSHORING STAFF AUGMENTATION IN LATIN AMERICA: UNLOCKING MARKET OPPORTUNITIES FOR BUSINESSES AND STARTUPS

James Jara

Copyright © 2025 James Jara

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The Cost of Cutting Corners—When Cheap Nearshoring Goes Wrong

It started with a promise:

Quality development at a fraction of the cost.

The fintech’s senior management was drawn to the offer, convinced they had found a way to maximize their budget. A partnership was made with a consultancy firm that brought in a team of offshore developers from (redacted), a deal spanning multiple years and involving several teams. On paper, it seemed perfect—cost savings, a steady stream of developers, and all the technical talent they needed to scale. But what followed was far from the expected.

The developers arrived with high hopes, but quickly, it became evident that something was terribly wrong. JIRA boards were a mess. Basic tasks—like setting up functional sprints or conducting proper code reviews—were poorly executed or completely ignored. React libraries and frameworks were outdated by years. Communication was difficult, not just because of the language barrier, but because they simply didn’t understand the work. Instructions were misinterpreted, tasks left half-done or done incorrectly, and the development process ground to a halt. The problems seemed endless, leaving the teams frustrated and demoralized.

In retrospect, it was clear: you pay for cheap developers, and you get a bad product. The consultancy had brought developers with questionable qualifications—people who didn’t have the necessary skills but were willing to work for lower wages in exchange for a visa. Nice people, yes, but wholly unprepared for the task at hand. And now, the bank was paying the price for it. Junior graduates with just six months of experience were outperforming these supposed senior developers, and the consultancy was becoming a sinking ship the company was desperate to escape.

What started as a cost-saving strategy became a cautionary tale. The developers they had hoped would drive innovation were, in fact, holding the company back. The fintech learned the hard way that you can’t afford to skimp on talent in the tech industry. True quality demands investment, not just in tools and infrastructure, but in people—people with the right skills, experience, and motivation to do the job well.

This story may seem extreme, but it’s not unique. Many businesses, eager to save on costs, turn to cheaper outsourcing or hiring options only to find themselves caught in a cycle of inefficiency, frustration, and ultimately higher costs in the long run. The allure of low prices blinds them to the risks, but as we’ll explore in this book, investing in the right way—particularly through nearshoring and staff augmentation in regions like Latin America—can lead to both cost savings and high-quality outcomes.

The difference?

Choosing the right partner, the right location, and above all, the right people. This is the future of smart, scalable growth.

Introduction

In today’s dynamic business environment, companies face a number of pressing challenges. Whether it’s navigating skill shortages, managing rising operational costs, or maintaining agility in the face of rapid market changes, businesses are in a constant race to stay competitive. Traditional hiring practices, with their lengthy processes and high overheads, often fall short of meeting these needs. For many organizations, the solution lies in adopting more flexible workforce strategies—chief among them, staff augmentation.

Staff augmentation is a flexible staffing model that allows companies to scale their teams quickly by supplementing in-house resources with specialized external talent. Unlike full outsourcing, where entire projects or functions are handed over to external providers, staff augmentation keeps control firmly within the company while providing access to the expertise needed to meet immediate demands. This approach has become increasingly popular, particularly in industries such as technology, where the need for skilled professionals often outpaces supply.

Back to 1960s, The Maquiladora Model

The earliest and most visible evidence of nearshoring can be found in Mexico’s maquiladora program, which predates NAFTA. Initiated in the 1960s, this program allowed foreign companies—primarily from the United States—to establish assembly plants along the U.S.-Mexico border. These plants could import raw materials and components duty-free, assemble them, and then export the finished products back to the U.S. with minimal tariffs.

The maquiladora system was a pioneering form of nearshoring because it:

Allowed U.S. companies to access low-cost labor close to their markets, reducing shipping costs and shortening supply chains.

Created opportunities for cross-border collaboration, enabling faster response times compared to operations in Asia.

Laid the foundation for a transnational economic zone, particularly between the U.S. and Mexico, where infrastructure and logistics developed to support manufacturing close to U.S. markets.

This model demonstrated the viability of nearshoring, but it was largely limited to manufacturing and assembly work. It wasn’t until later that the nearshore model expanded into service industries like IT and software development. ¹

Back to 1970s

In the early days of globalization, businesses primarily outsourced manufacturing and services to distant locations like China, India, and the Philippines. This was especially common in the 1970s and 1980s when multinational corporations sought to minimize costs through offshore manufacturing and outsourcing, taking advantage of lower labor expenses in these regions.

However, while these offshore locations provided cost benefits, they also presented challenges:

Time Zone Differences: Communication and collaboration were often delayed, as workers operated on significantly different schedules .

Cultural and Language Barriers: inconsistent language skills and cultural misunderstandings frequently led to miscommunication, impacting efficiency and quality.

Extended Supply Chains: the geographical distance resulted in longer and more complex supply chains, increasing the risk of delays and higher transportation costs.

By the late 1980s and early 1990s, as businesses experienced these challenges, a trend began to emerge: companies started exploring proximity-based alternatives, especially for industries where agility and real-time collaboration were critical. The concept of nearshoring became a response to the limitations of offshoring, focusing on finding outsourcing solutions closer to home.

The role of NAFTA

The introduction of the North American Free Trade Agreement (NAFTA) in 1994 was a critical turning point in the evolution of nearshoring. NAFTA was designed to create a free trade zone between the United States, Mexico, and Canada, removing tariffs, reducing trade barriers, and encouraging investment across the region. This agreement not only expanded the existing maquiladora model but also laid the groundwork for new nearshore opportunities beyond manufacturing.

Key Impacts of NAFTA on Nearshoring

Trade Liberalization and Economic Integration

NAFTA’s elimination of tariffs and reduction of trade barriers meant that companies could operate more freely within North America. For U.S. firms, this translated into lower costs and simpler logistics when moving operations or collaborating with partners in Mexico and Canada. It effectively created a seamless economic environment that supported nearshoring as a more efficient alternative to offshoring in distant regions. According to the U.S. International Trade Commission, trade between the U.S. and Mexico nearly tripled from 1994 to 2000, illustrating the rapid economic integration NAFTA facilitated (USITC, 2001). This economic integration also meant the infrastructure connecting these countries, like highways, ports, and telecommunications networks, improved significantly, further enabling nearshore business operations.²

Rise of IT and Service-Based Nearshoring

Initially, NAFTA’s impact was most visible in manufacturing, as companies increasingly moved production to Mexico to capitalize on lower labor costs and the country’s proximity. However, as the digital economy expanded in the late 1990s and early 2000s, businesses began to explore nearshoring not just for physical goods but also for digital services.Mexico and other Latin American countries began developing their IT and service sectors, recognizing the potential of leveraging NAFTA’s benefits to attract U.S. companies looking for outsourced IT support, software development, and other business processes.By the early 2000s, countries like Costa Rica became early adopters of this model, promoting their skilled workforce and technological capabilities as an alternative to traditional offshore destinations in Asia. ³

Growth of Cross-Border Collaboration

NAFTA also fostered a culture of collaboration across North America. With a more interconnected economy, companies in the U.S., Mexico, and Canada could engage in joint ventures, partnerships, and shared service centers, benefiting from geographic proximity and time zone alignment. A study by the Brookings Institution noted that the geographic and economic ties promoted by NAFTA allowed businesses in the U.S. to collaborate with counterparts in Mexico and Canada more effectively, reducing project timelines and improving efficiency.⁴ This proximity and alignment made nearshoring particularly attractive for sectors that required real-time communication and cultural compatibility, such as software development, customer support, and consulting services.

NAFTA’s Legacy: Transitioning to a Knowledge-Based Economy

While NAFTA’s initial influence was heavily centered on manufacturing, its longer-term legacy was the development of a more diversified and knowledge-based economy in North America. Mexico, in particular, invested in education and technology infrastructure to attract U.S. firms for IT and digital services. The agreement’s provisions on intellectual property and digital trade further encouraged tech and software companies to set up nearshore operations across the border.

As a result:

Latin America’s tech talent pool expanded, making it a viable nearshore destination for industries beyond manufacturing.

By 2010, Mexico and other NAFTA countries like Canada were increasingly offering competitive IT and business services, making them attractive alternatives to traditional offshore destinations.

NAFTA set the foundation for nearshoring as a strategic business practice, evolving from a manufacturing-focused model into a broader, service-oriented approach that included IT and software development. This shift not only diversified the nearshoring landscape but also showcased the versatility and advantages of choosing nearshore partners over distant offshore ones.

Back to the 2020s, the origin of USMCA

The United States-Mexico-Canada Agreement (USMCA), which went into effect on July