Longitudinal arbitrage & LatAm hech hubs

December 30, 2022

“In the remote economy, timezone matters most. The longitudinal arbitrage is just beginning.” - Balaji

I just got back from Mexico City for Christmas. Mostly because I wanted to go somewhere warm. But also because I was curious about the tech scene of the city and the region.

The post-COVID, US-centered, startup-centered, tech universe has three main regions: North America, Europe, and India. Most tech folks have colleagues in Europe, or work for a European tech company; a few have colleagues in India. If you’re on English tech Twitter, your audience is mostly people from these regions. In each of these regions, tech tends to concentrate in 1-2 large cities: NYC and SF; London and Berlin; Bangalore. (Each region has a few secondary hubs, usually regional economic centers.)

There are other tech worlds: China, Russia, Japan, Korea, LatAm, Africa. Right now, these aren’t well-connected to “tech” for geopolitical/timezone/language reasons. I suspect this will change in a big way for LatAm and Africa in particular, over the next 5-10 years.

I believe Mexico City will develop into Latin America’s primary tech hub over the next 5-10 years, and that it will be increasingly connected with the US tech world.

Three generations of remote tech work

The zeroth generation of remote tech workers, circa 2000, were and are American companies opening offices in other regions (or hiring “outsourcing” firms with offices in other regions)

The first generation of remote tech workers, circa 2010, were expats inspired by Tim Ferriss — largely American, heavily male, lifestyle design folks making spreadsheets comparing amenities in Merida, Medellin, and Bali.

The second generation of remote tech workers, circa 2020, were catalyzed by COVID and enabled by Zoom, Slack, and Teams.

The expat crowd is becoming more European (if you liked your LatAm gap year at 18, why not come back in your late 20s?) and female. And in a world were conversation and meetings happens on Zoom, Slack, and Teams, it’s far easier for Western companies to hire from the developing world.

That’s what I saw in Mexico City, at least. In the two most westernized parts of the city, Roma and Condesa, expats were everywhere. Mexico City has become a popular destination for European remote workers; my friend Miguel Raz, a Mexico City native, recently took a job with a German tech training firm, working with their North American clients.

Some other things I noticed on my visit:

  • It was a 5 hour flight for me, but it’s 3 hours from Dallas and Phoenix, 3.5 hours from Miami, 4 hours from SLC, Denver and Atlanta, and 4.5 hours from Chicago and Charlotte.
  • Summers average a high of 76 (great for Texans); winters average a high of 71 (great for Midwesterners).
  • I met folks who worked for European industrial companies, like BASF, and larger American tech companies like Esri.
  • Crime rates are comparable to Dallas or Houston; higher than NYC or LA; lower than Chicago or Philly.
  • Expat heavy neighborhoods like Roma and Condesa are particularly safe and full of department stores, ice cream and sushi places, etc.

Remote work with offices

So what’s the third wave of remote tech workers? My guess is it that Western tech companies wanting to continue remote work setups but without a hit to team and company cohesiveness will open offices in developing regions and hire for roles on existing teams (ie, extent how remote teams work today, not not create silo-ed org structures like in the old model).

So where will Western tech companies locate new developing world offices? They’re going to look for places that:

  1. lots of people live in
  2. are attractive for others to move to
  3. are timezone compatible with existing employee locations
  4. are easy to get to/from existing employee locations
  5. are relatively familiar, perceived as safe and friendly

Ranking LatAm cities

Let’s throw in the top 3 LatAm metro regions, along with a “lifestyle design” city, Medellin:

Location Population Large pop Attractive to live Timezone compatible Easy to get to/from Familiar, safe and friendly Score
Mexico City 20m Yes Yes Yes Yes Partly 4.5/5
Buenos Aires 15m Yes Yes Yes No Yes (Evita, Messi) 4/5
Rio de Janiero 13m Yes Yes Yes No No 3/5
Medellin 2.5m Partly Partly Yes No No 2/5

Mexico City and Buenos Aires are the top contenders. Brazil is out due to safety issues. The lifestyle design cities don’t come close. And whoever starts winning will probably keep winning — agglomeration effects.

(Does this seem conservative? Think about where European tech companies open their North American offices — in NYC or SF.)

Time will tell. But I’m optimistic, and glad I visited.

Counterpoint: My friend Steven Moody is more bullish on Buenos Aires. Here’s his “steelman case against Mexico City”:

  • immigration from the US reportedly stalled out before the pandemic. Mexicans have stopped coming to the US as much for a decade.
  • Mexico City crime spooked Gen X when it peaked in the 90s, and it is better now, but it is a negative piece. As long as there is a thriving drug trade into the US, there will be interests in Mexico City that can cause collateral damage. What if an American gets killed on TikTok?
  • The proximity to the US actually makes Mexico a worse choice for a talent hub, because the best talent finds its way to the US

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Written by Sam Bhagwat, cofounder & chief strategy officer at Gatsby; programmer, analyst, writer; follow me on Twitter!