Stepping away from Latin America specifically, and more into global sourcing, I recently found an interesting article by Stephanie Overby on CIO.com that I want to share. It’s titled “24 Ways to Compare India vs China”, and takes a deep dive into the differences between the two locations, how those variations are affecting outsourcing market share, and how the two countries can improve. In this two part analysis of the article, I’d like to look at the key factors brought up that affect a services destination, and examine how Latin America compares.
Labor and cost
China and India are the two most populated countries in the world, so companies are usually not worried about scalability issues when they set up there. China has an active workforce of around 813 million, while India brings 467 million to the table. Contrast this with the 200-something million workers that all the Latin American countries together offer, and we begin to see why companies in the region are worried about this issue. According to the article, India pulls in US$ 70 billion in annual revenues from IT services alone, while China currently stands at $20 billion.
Costs in terms of wages are another clear differentiator. India made its mark as a cheap BPO and ITO location, but according to consultancy Neo Advisory, China is now cheaper for tech salaries – “An entry level ITO worker earns $7000 a year versus $8400 in India”. To give you a comparative idea, a worker of similar position in Brazil would be paid approx. $9000, with salaries and social benefits continuing to increase.
However where Latin America clearly stands out is in the education and skill level of its workforce. ITO hubs like Curitiba, Santiago, Bogotá, San Jose and Monterrey deliver an extremely tech-oriented labor pool that understands lean, agile, open source, 2.0 – you name it. Contrast that with China, whose population is tech savvy, yes, but lags behind in these critical competencies that firms are looking for. India has started moving up the value chain from a pure IT base into business process and knowledge process work, just as Latin America is doing.
According to Overby, the main service delivery model in India is third party outsourcers, while in China its captive centers that account for more than half of all IT operations. Latin America interestingly has a good mix of both, with a heated ongoing debate over which is cheaper and more efficient (great topic for a future post!)
In terms of IT services India is always viewed as the most mature location, with the Indian players now expanding worldwide and moving into Latin America and the US itself. “India has a robust and competitive provider environment led by a legion of Indian-owned, publicly held suppliers and large local operations of global providers, along with niche players”, says Overby. “China's market is fragmented and dominated by small to mid-size suppliers, including Chinese owned providers, Western-managed companies, and local operations of global suppliers”. Latin America again, has a mix of both. All the analysts I’ve spoken to agree that the region cannot yet be called a mature destination, but remain optimistic that it will hit that point soon.
English is the language of business in India, and the country has 232 million English speakers as compared to China’s 10 million. The Chinese government is aggressively ramping up initiatives to train its workforce, with reportedly over 300 million people learning the language.
Because of its proximity to the US and exposure to the culture, English is spoken at varying degrees all over Latin America. However in order to be made work-ready, we’re seeing many governments targeting the language skills of their population. Chile’s National Registry of English Speakers, and Colombia’s Talk to the World initiative are just two good examples.
In Part Two, we’ll be comparing IP laws, infrastructure and investment climate. Stay tuned!