Outsourcing in Latin America
- August 17, 2009
The outsourcing industry has not been spared by the current conditions of global economic volatility. Indeed, it has been affected both directly and indirectly by this economic crisis. Outsourcing target markets are also suffering from severe difficulties as they struggle to recover from the crisis. This has brought about a change in the behavior of some outsourcing niche areas, and has also modified the criteria and methods that organizations apply in order to plan and make strategic decisions regarding outsourcing resources.
China and India are healthy global outsourcing destinations today, but other players have been changing their position during this difficult economic period. According to the 2009 A.T. Kearney Global Services Location Index (The Shifting Geography of Offshoring), some eastern European countries have fallen from leadership positions; in contrast, some countries in the Middle East have been climbing up.
Latin American countries experienced some positional changes from 2007 to 2009, but they still preserve competitiveness in the outsourcing industry. Independently of irregular economic trends, India, China, and Malaysia are still very powerful competitors in the outsourcing market.
Undoubtedly, India and China are—and will continue to be—major players in the outsourcing arena for the next few years to come. They have achieved a powerful combination of expertise/cost/technical skills that makes them key players. This, combined with their vast pool of labor resources, represents a winning bet. The US and Canada are the main outsourcing clients for these kind of services. But European companies in countries such as Spain, England, and Germany, are also searching for other places to address their offshore outsourcing needs. Countries like Philippines and Malaysia are taking advantage of this, and have acquired importance in the outsourcing field.
Despite the global economic turbulence, Latin American countries seem to be thriving to some extent. Some major players such as Brazil, Chile, and Mexico are already common destinations for companies looking for nearshore services. But there are also new players pushing hard to gain market share, including Argentina, Costa Rica, Panama, and Uruguay.
The Latin American Players
According to the 2009 A.T. Kearney Global Services Location Index, Latin America countries ranked very respectably when the following factors are taken into consideration:
- financial attractiveness
- people skills and availability
- business environment
Chile is ranked by A.T. Kearney as the outsourcing leader in Latin America, followed not far behind by Mexico and Brazil, but there are some other countries that appear to be in better positions to deliver outsourcing services:
Chile—It is no surprise that Chile appears as one of the leaders for outsourcing in Latin America. A solid infrastructure for telecommunications, investment attractiveness due to clear financial regulations, political stability, and attractive costs all make it a regular choice for outsourcing. Offering service for US and Spanish companies, it’s a very attractive choice for business process outsourcing (BPO), knowledge process outsourcing (KPO), and call center operations for very diverse industries.
Mexico—Still a common nearshore destiny for companies from the US and Canada, Mexico has maintained a stable position in the global outsourcing market. Proximity to the US and a Spanish-language consumer market with stable growth have helped Mexico maintain its position as a common destination for nearshore call center and BPO operations as well as IT outsourcing.
Brazil—This country is already a big world player in IT outsourcing. The Brazilian government has been making efforts to encourage offshoring and maintain its IT quality services and infrastructure. Brazil is also taking advantage of its large population and its efficient and skilled IT workforce to stay the course within volatile global economic conditions. Already a proven contender in the IT area, it has a growing labor force and is a stable contender in the IT offshore market.
Costa Rica—This small Central American player is growing because of its strong efforts to enroll new investors and create opportunities. Based also on its proximity to the US, it has developed a strong and skilled workforce, along with an efficient telecommunications infrastructure to improve its outsourcing services at a global level.
Argentina and Uruguay—With high education rates, these two countries have continued to develop and encourage their outsourcing services. They count on their strong, skilled, and low-cost workforces to be considered as an ideal option for services such as IT and financial services. They expect to be also important players for the large Hispanic customer service sector within the US.
Panama—Like other countries in this region, Panama is trying to take advantage of its proximity to the US, as well as of the fact that they share an important time zone. With a large bilingual community (thanks to a long relationship with the US based on the Panama Canal), it is encouraging local and global outsourcing companies to invest in outsourcing services, and is trying to consolidate a larger technically skilled workforce.
There are some factors that have enabled some countries such as Brazil, Chile, and Mexico to maintain a competitive and stable global position regardless of the global economic crisis. Some of these factors have to do with natural features from the region:
Nearshore advantage—The US is still one of the biggest—if not the biggest—outsourcing client in the world, and proximity seems to be an important feature for many US outsourcing contractors. Cheaper travel costs due to this proximity makes them ideal for projects that need agile management and quick response. Almost all Latin American countries offer nearshore services.
Cultural affinity—Besides the nearshore advantage, Chile, Mexico, and Brazil have cultural similarities (with respect to the US) that always come into consideration when selecting an outsourcing destination. Brazil, Chile, and Mexico, as well as Argentina, have been working to create a more solid English-speaking workforce, and some Latin American outsourcing companies prepare their personnel to know and match business culture from US and European companies. And other factor is that major Latin America cities like Sao Paulo, Buenos Aires, Montevideo, Santiago, Mexico City, and others have a solid infrastructure in place, along with service conditions to host and carry out major business trade events.
Growing Spanish customer market—Given the growing Spanish-language market in the US, and growing outsourcing business from Spain, Latin America outsourcing companies enjoy a strong competitive advantage thanks to their ability to manage workforce teams in Spanish language. Major offshore companies in Chile, Costa Rica, Argentina, and Panama are making strong efforts to offer bilingual services and to offer an alternative to Mexico (which is regularly a common option in the outsourcing scenario). Chile, Argentina, and Uruguay, with their high education rates, are able to offer strong technical skills with bilingual characteristics.
Cost—Cost is inevitably a very important factor, and more important nowadays. According to the A.T. Kearney Index, Latin America countries have enjoyed steady numbers since 2007, despite some ups and downs.
Latin American outsourcing companies should consider some important factors in order to not only maintain, but increase their overall presence in the outsourcing market:
Workforce—One of the great challenges for Latin America lies perhaps in maintaining and increasing the general skilled workforce for all outsourcing areas. Many Latin American countries have small populations compared with India or China, and furthermore have a relative shortage of qualified resources for the outsourcing industry. Latin America needs to address this challenge and augment the skilled workforce, as well as working on the perception that they can provide outsourcing investors with a confident human resources source. Is clear that Latin America will not be able to compete with China and India in terms of workforce volumes, but opportunities could come in attending to very special niches such as English-Spanish markets for BPO and ITO services.
Security and regulation standards—Another factor that could be an issue in some countries is related to safety and security. There may be concerns from outsourcing contractors regarding high crime rates, political issues, and regulations in some Latin American countries. These concerns could cause some organizations to reconsider sending outsourcing services to those countries.
In periods of economic volatility, the general trend is to send more outsourcing nearshore. This point is crucial for Latin America companies, in that they have a strong advantage to take and receive larger market share from this potential market in the US, for both the English and the steadily growing Spanish segments. However, outsourcing services must be backed up by sufficient workforce (both in terms of skill and raw numbers) to face the challenge. The ideal conditions of qualified workforce, security, and strong regulations need to be met to ensure significant benefits from this industry. In fact, given the current economic climate, as well as internal problems in Latin American countries, Latin American companies may have no alternative but to meet these ideal conditions in order not to be swept off the global outsourcing map altogether.