A New Economic Alliance in the Nearshore

One bit of news that went relatively unnoticed in the sourcing community last week is the planned economic bloc between four Nearshore countries: Colombia, Peru, Mexico and Chile. I’ve reported on similar Latin American alliances before on this blog, but they have usually been loose trade agreements whose terms are quite vague, and provide little value to US companies thinking of investing. This one is different however, in that it’s much more formalized, and involves a much stronger government commitment than before. The four presidents – Piñera of Chile, Calderon of Mexico, Santos of Colombia, and Garcia of Peru – will meet on May 2^nd in Lima to plan out what the alliance will look like.

What’s more, heavy words like “economic integration” are being used. It may be superficial, but the fact is that most Latin American countries have until now stayed away from alliances on this scale. As President Garcia said, “We will arrange the greatest possible free movement of capital, services, products, and people so that we can grow more effectively.” 

What they bring to the table 

It’s important to realize that this trade agreement is not being created with outsourcing in mind, rather with broad economic growth as the focus. So it’s possible that it could hurt the sourcing fortunes of some, while making others the new destination of choice for US clients. But the idea is that each of these four countries have something unique to offer the other three. Here’s what I think their value propositions are: 

Chile: One of only two Nearshore nations to be a member of the OECD (the other is Mexico), Chile has one of the wealthiest economies in Latin America. Buoyed by copper revenues and an extremely educated population, Chile has become the R&D capital of the region. That strong technical education system, and the focus on higher end IT and niche application development is something that the other countries can learn. 

Peru: This Andean country’s contribution is simple. It’s the fastest growing economy in Latin America, and the other three countries will be aiming to leverage that growth in their own economies. 

Colombia: Recently exploded as an IT destination, Colombia has the advantage of strong government support for the IT industry (which every LatAm administration could learn), and key marketing expertise from its investment promotion agency ProExport Colombia. 

Mexico: It’s unclear for now how this economic alliance will work in light of Mexico’s NAFTA alliance with the US. But the fact is that Mexico’s reputation and close business ties to North American buy-side companies are what the other three countries are after.

In my next post we’ll discuss what each of these countries will gain from the new trade alliance.