IT Outsourcing in Latin America: 10 Things Some Vendors Won’t Tell You

Yesterday's piece by Stephanie Overby in CIO.com – "IT Outsourcing in Latin America: 9 Things Your Vendor Won't Tell You" – has sparked several reactions, including a blog post by HfS' Esteban Herrera, who expressed: "I find myself, for the first time ever, empathizing with politicians and celebrities who claim to be 'quoted out of context.'"

I have to say that I consider myself a fan of Stephanie Overby's work at CIO Magazine; I follow her and always appreciate her insights concerning the outsourcing industry. I also appreciate the awareness her piece is bringing to Latin America. Yet I think this time her article is begging for a response, since she has laid out nine things, that from her perspective, vendors won't tell you with regards to their capabilities and Latin America. Although Stephanie does not mention specific vendors (referring to LatAm as a whole),  we think a response is in order.

We strive to maintain this space as sales-neutral as possible, yet for this occasion I will focus on answering Overby's 9 things she argues vendors won't say. I'll do this from the perspective of Softtek. We do have a unique vantage point, given the fact that we have presence in 10 countries in Latin America, and do serve the US and European markets from Mexico, Argentina and Brazil. I'll use as many public references as possible, and throw in an additional nugget. I know other vendors and experts on the region may provide additional context from their own angles.

1. Overby says "We're slow." NO, we are not. Our competitiveness depends on our ability to respond to clients' needs, changing market conditions, and in certain occasions to natural disasters. Continuity Insights Magazine, reported about Softtek's response to two natural disasters, the H1N1 outbreak in 2009 and Hurricane Alex in 2010. In both cases Softtek was able to provide uninterrupted service to its clients. We enabled remote work to more than three thousand people in less than two days.

2. Why would we say that our political situation could threaten your business? Perhaps for those doing business in Venezuela, Bolivia, Ecuador or Nicaragua, but who is outsourcing there anyway?

3. Our prices have not risen faster than any other region. The article cites currency appreciation and inflation. The chart maps different currencies, and their valuation against the US Dollar, from the period of January 2003 thru May 2010. The chart clearly shows that the Mexican Peso and Argentine Peso have gained competitiveness, actually loosing value against the US Dollar, while the Canadian and Brazilian currencies have appreciated.

   

   Esteban Herrera accurately points out that labor arbitrage fades through time. We argue that the case is not limited to Latin America; the same phenomenon happens around the world. If you pursue the lowest rate all over the world, you will end up running out of places to go. This is why we have been advocating productivity-based models for years, as opposed to rate cards

4. Overby argues we avoid saying that you might get a better deal across the border. It is wrong to look at the region as a single entity. In an article published by CIO.com in March 2009, I wrote: 'The region is fragmented in terms of language skills, talent pool, legal framework, macroeconomic perspectives, and the availability of indigenous providers—all of which vary widely among countries. In addition, there is no such thing as the "other India."'

5. Overby says "We are not afraid to say no." She is right; we're not! and that is a good thing. It is a constant in the positive feedback that we get from our customers.

6. Our English could use some work. Probably. We have always acknowledged that fact. English is always a second language in Latin America. Any company doing a serious assessment of companies in the region will notice that during the first five minutes. We are as upfront as possible. A section in our website even has descriptions written by our people in English, with grammatical errors and all. We may have thick accents, we make grammatical errors; does that mean we cannot thrive and deliver? NO.

7. Overby says that "Process is not our strength". It may not be the strength of other providers. Ours is, we are a Six Sigma organization, assessed at CMMi Level 5. We have diverse ISO 9000 certifications. Processes are Softtek's strength. 

8. Overby thinks we won't recognize that we lack scale. In the same March 2009 article published by CIO.com, I stated: 'In terms of demographics alone, the region cannot create the next Bangalore or Hyderabad. But we see great potential for smaller regional centers that can evolve and grow the talent base into pools of maybe 5,000 to 10,000 resources—not tens of thousands, like India.'

9. Physical security concerns could pose a problem. This is perhaps the most frequently asked question in the last 18 months. I even wrote a blog entry on the subject. Avoiding that question only leads to more questions.
   Our CEO has been quoted by AP: "To a certain extent, we saw ourselves as a privileged city and very isolated from Mexico's problems," said Blanca Trevino, Monterrey-based president and CEO of Softtek, the largest information technology consulting firm in Latin America. "The violence hit us because we were not accustomed to having it and therefore to handling it."

   It is an unfortunate situation, yet we think it is temporary and needs to be viewed with the right perspective:

   • In the first 5 months of 2010 the state of Nuevo León, where Softtek is headqueartered, recorded the arrival of 1.54 billion USD in foreign direct investment (FDI), exceeding the total FDI registered in 2009, pledged by 24 different companies, and creating nearly 3,000 new jobs.  
   • Foreign direct investment in Mexico rose 28% in the first half of 2010 from a year earlier.

10. It is very hard to obtain reliable information from Latin America. Hands-on and in depth analysis is not readily available. Numerous opinions and judgments around the region are made lightly. To really know, buyers need to spend time visiting their prospective vendors. They can also use analyst reports from people that have spent time in the region, like Forrester, Gartner, and most recently HfS, whose most recent report can be downloaded from nearshore.com