Picking up where we left off, I want to discuss the specific aspects of Latin American labor laws that are most distasteful to US firms investing in the region. Put very simply, they result in higher labor related costs for the company, and decreased flexibility in scaling up and down according to market conditions or new contracts. That’s a cause for concern to a buyer whose main reasons for outsourcing are exactly those two factors. So what are these laws and why are they so problematic? I’ll discuss three broad groups:
Consistently the worst LatAm offender in terms of inflexible labor laws is Brazil. Other countries like Chile and Colombia are also presenting problems for outsourcing buyers, while the strong presence of labor unions in Argentina and Mexico continues to be a barrier to any constructive change.
There’s no doubt that change must happen in order for these countries to continue evolving as sourcing destinations. But on a positive note for the time being, many buyers have told me that the labor laws are manageable, as long as you plan for them and include them in your due diligence, even as part of the necessary overhead costs. The important thing is that firms know what to expect before they set up a new location, and avoid nasty surprises later. Latin America still has a lot to offer in terms of cost savings; the region just has to work out a few kinks first.
For more detailed information on LatAm labor laws, take a look at a previous article of mine here.