In just the last few days we’ve seen two high profile announcements by global service providers ramping up capabilities and growing their footprints in Latin America. Capgemini is expanding its delivery centers in Chile, Brazil and Guatemala, while HP intends to dramatically increase agent numbers in Costa Rica. When we read reports like this, it’s important not to view them simply as separate items, but to consider the larger market trends that they’re symptomatic of. As we’ve discussed in previous posts, it all points to the fact that Latin America is increasingly becoming a staple of a diversified outsourcing portfolio.
Demand for the Nearshore
While each of the above-mentioned locations have their own set of advantages, clients are usually not asking for a presence in specific countries. Instead, they’re demanding a strong Nearshore presence. As ITO evolves from basic tech support to higher value added software services, testing methodologies and R&D, US companies increasingly look for agile software development. And for that, they need their providers to be in the same time zone, geographically close by, and comfortable with the language and business culture. They want the ability to work closely with their outsourcing partners, monitor deadlines and be in control. Gone are the days when work was simply thrown over the fence and then thrown back when completed.
As a natural reaction to this trend, providers (including the “India Inc.” players) are spreading themselves out across Latin America and the Caribbean in hopes of attracting more business. Simply put, the Nearshore is now where the action is. As Phil Fersht, CEO of Horses for Sources recently said, he’s seeing “how valuable Latin American resources are becoming for augmenting both IT and business processes within a global sourcing environment”.
Lacking in maturity
All this being said however, Latin America is far from a mature outsourcing location. We’ve heard about violence in northern Mexico, labor pool saturation in Panama, rising costs in Brazil, low English proficiency in Chile, and bureaucracy and corruption in Argentina. Whether these are correct perceptions is a debate best left for another time, but the plain fact is that these are the perceptions of many US firms – the target audience. And no number of marketing campaigns by LatAm investment promo agencies will dispel those perceptions if things don’t visibly change. As a CIO considering a strategic sourcing destination, you’re always looking to balance those risks against the potential benefits of sending your project to a third party.
The good news is we’re seeing strong indications from some LatAm governments that IT services are being taken seriously. The President of Brazil’s BRASSCOM Antonio Gil recently said that the country aims to be in the top four markets for IT by 2020. CEO of MexicoIT Alfredo Pacheco has been working to expand the incentives and benefits packages offered to foreign tech companies. And Chile’s large copper revenues are allowing the country and CORFO to invest heavily in the ITO and BPO industries. But the coming years will show whether Latin American can really ramp up and ride the outsourcing wave.