Web Software Firm Enters New Outsourcing Frontier

Kevin Harris found a way to get extra sleep and make more money: Stop dealing with computer programmers in India and Pakistan in favor of their counterparts in Mexico.

Harris’ firm, Silicon Space Inc., creates Web-based systems so companies can automate tedious tasks such as bookkeeping and develop ways to market their services online.

In 2002, Harris, the company’s chief operating officer and a minority shareholder, began tapping a new source of talent across the border. He hired a handful of Mexican technology experts to work in his office in San Diego. And he started sending extra work to a software firm in Mexico City.

“Near-sourcing,” as this type of cross-border relationship is called, wouldn’t have been possible a decade ago because of the lack of sufficient technical expertise south of the border. But in an effort to compete with China and India, Mexican officials are beefing up their technical training, giving incentives to foreign high-tech firms and providing funding to promising Mexican start-ups.

One of the pockets of innovation is along the San Diego-Tijuana border, where companies such as Silicon Space are contributing to an increasingly vibrant economy. Last year, the 75-person firm, whose clients include Fortune 500 companies and the U.S. Navy, raked in $10 million in revenue, up from $3 million in 2002.

“The beauty of working in Mexico is I can pick up the phone and have their guys here tomorrow,” said Harris, 34, who worked at a San Diego tech firm before joining Silicon Space six years ago. “And they don’t have to fly 26 hours to get here and it doesn’t cost them thousands of dollars. And because 30% of my staff is from Mexico, culturally and language-wise, they can communicate beautifully.”

The future didn’t look so rosy five years ago after the Internet bubble collapsed and Harris was forced to reduce his staff from 105 to 20.

But when Harris began rebuilding his workforce, he was surprised to discover that some of the people answering the Internet ads were Tijuana residents with U.S. citizenship. By hiring from both sides of the border, he was able to draw from a bigger pool of talent.

Alexander Ponce, a 31-year-old computer science graduate, was teaching college students when a friend urged him to apply at Silicon Space. Although he wanted to stay in Mexico, he was attracted by the higher salary and the opportunity to work for a U.S. technology firm.

In Ponce’s world, straddling the border was nothing unusual. Although he was born in the United States, he moved to Tijuana as a child and his father commuted to San Diego to work as a barber.

With his U.S. government-authorized Sentry pass, which allows him to use a special lane to cross the border, it usually takes Ponce less than an hour to travel between work and home.

“For me, it’s a very comfortable life,” said Ponce, who manages a project for the Navy.

Harris was an early advocate of outsourcing. As far back as the mid-1990s, he tried shipping less-technical work -- such as code design and testing -- to India and Pakistan. But he gave up after a few years of juggling time zones and communication gaps.

As the cost pressures increased, Harris decided to try Mexico. He started looking in Tijuana but couldn’t find any computer firms large enough to spare a couple of employees for months at a time. He finally found his present partner, a large Mexico City-based software firm, at a business conference.

This cross-border relationship gives Silicon Space the flexibility to operate like a much bigger company, taking on larger jobs and supplementing its technical staff with programmers from Mexico. And it makes it cheaper for him to do the research that he needs to develop products, such as search engine marketing tools. Small firms usually can’t afford to invest money in products that might not work out.

“Our ability to use our partner for our” research and development “has made it affordable to us,” he said.

For Harris, an Angeleno who moved to San Diego for college, the cross-border lifestyle extends beyond his workday. His wife is a native of Mexico and he used to travel frequently to Baja for work and pleasure before his two young sons were born.

“People say Mexico is a Third World country, but you can go out to a beautiful dinner [in Tijuana] that will rival anything in downtown San Diego,” Harris said.

In 2004, eight years after its birth, Silicon Space moved to the mid-city area of San Diego. In addition to being cheaper, the location is close to Harris’ home and a 20-minute drive to the border.

Silicon Space offers its clients a one-stop shop for transitioning from pen and paper to the Internet age. San Diego-based Harcourt Trade Publishers asked the firm to develop a Web-based system to manage its publication rights and royalty payments. The Navy needed a system to manage the flow of documents related to satellite launches.

PenChecks Inc., a San Diego company with 15 employees, came to Silicon Space three years ago looking for help in automating the process of managing employee benefits checks for a number of large companies.

Cheryl Einsele, PenChecks’ chief operating officer, said she didn’t consider outsourcing the job because she wanted to meet regularly with the team developing the Web-based system. She said she didn’t know at first that the project manager, Gustavo Pena Verplanken, 29, was commuting from Tijuana.

When she learned, Einsele called Harris to find out more about the arrangement. She was reassured to learn that Pena was being fairly compensated. And she has since become convinced that everyone has benefited from the cross-border strategy.

Not only is she pleased with Pena’s handling of the difficult project but she also said Silicon Space’s use of resources in Mexico had lowered the final price tag.

“Our company is not that large, and for us, this product will be very expensive,” she said. “Ultimately, it’s good that we can make this cost-effective.”

Given the public backlash against outsourcing, many U.S. companies don’t want anyone to know that their work is leaving the country. Silicon Space doesn’t send any of its government work across the border to avoid raising red flags.

But Harris said most of his private clients didn’t care whether their work was done in San Diego, Tijuana or Bangalore, India, as long as the products were delivered on time and under budget.

Still, he knows not everyone shares his enthusiasm for cross-border integration.

Harris is looking into opening an office in Tijuana. But he isn’t sure whether the savings will outweigh the headaches and he worries that some of his U.S. clients may get nervous if too much of their work is heading south.

“When I walk in the door to get a new contract, I don’t want their legal department to worry about doing business with a Mexican firm,” he said.