I recently wrote an article on Nearshore Americas called “Brazil: Always on the Edge of Greatness”. I essentially compared Brazil today with the India of 1990, right before its outsourcing industry began to grow. But after thinking about the many similarities, I realized that it’s not just Brazil that can be compared to India, but much of Latin America, which shares many common characteristics. I believe the Nearshore region as a whole has a lot to learn from India’s success story:
Latin America struggles with bureaucracy, just as India does. Whether it’s a complex tax structure in Brazil, corruption in Argentina or IP rights violations in Peru, companies in the Nearshore have trouble with inflexible labor unions and slow-acting governments. That’s one of the reasons India’s IT industry has been so successful – the government simply removed itself from that area, and left it to the private sector. It realized that ITO was India’s strength and only through open and private competition could the industry really become robust enough to go international. It was a conscious decision made by the government in the 1990s and look where India’s sourcing industry is now.
For better or for worse, this is one thing Latin American governments have been unable to do. Of course I wouldn’t advocate complete non-participation of government. State investment promo agencies are required to create the conditions for a good investment climate, and help to ramp up the skills of the population. But further than that, the sourcing industry should be left to the private sector.
This is one area in which India excelled. Nasscom (the national promotion agency) has continually sent one clear message to the international community. In contrast, the message that Latin America sends is often confusing and non-differentiating. As a region, the Nearshore markets itself as being able to handle all kinds of functions from call centers to BPO to software development to R&D. That’s not necessarily true. Countries should focus on what they’re good at, and then slowly climb the value chain toward higher skilled services.
Not a carbon copy
So can Latin America replicate India’s success story? I don’t believe so. At least, not completely. When India’s infant services industry started targeting international firms, the outsourcing model was new, and US executives didn’t know if it would work. That made it a lot harder. By contrast, the Nearshore countries and their service industries are operating in a time when the outsourcing model has been fully validated.
That’s an advantage, but it does have its price...literally. Many Latin American countries are more expensive than India was in 1990, or even India today. Brazil in particular with its high tax rates and currency appreciation stands at 0.75 of the US dollar.
Those high costs are justifiable if we look at the variety of technical skills available in Latin America. Which means the Nearshore region should focus on those niche IT services. Numbers and costs should not be the competitive differentiator. I believe both India and Latin America bring a strong value proposition to the table, and should both form part of a truly diversified sourcing portfolio.