The Debate's Not About Latin America Sourcing

India is too hot. Not hot as in a summer's day in Bhopal, or hot as in an Adrian Gonzalez hitting streak, but hot as in an overheated market for IT outsourcing.

"Today a lot of customers are struggling with India because it is such a hot place, the labor market is hot, attrition is as high as it's ever been... and because of the demand, global multinational providers out of India have a hard time deploying senior, highly qualified IT experts there because there isn't enough of them."

That was Stephanie Moore, principal analyst with Forrester Research, speaking during a panel discussion earlier this week on the Latin American IT services market. "Overheating in India makes people look twice, three times, four times more at Latin America," she said.

One of those that looked at and said yes to Latin America is EMC, the giant storage company. EMC has about a thousand employees and 17 offices in the region, including Brazil and Argentina, said Joel Schwartz, senior VP. "Big data" is one of the major trends in LatAm, "and one example of big data implications is in oil exploration," he said. "This is important for Brazil, Mexico, and Venezuela. The ability to get oil out of the ground more effectively is worth huge amounts of money to these companies," like Petrobras in Brazil, which has found vast deposits off its coast. Anyone that can help an industry sort through all that "big data" is going to find lots of opportunity in Latin America.

People are also outsourcing infrastructure and application development more often, Moore said. "When I talk to the buy side, service buyers, they are looking to use Latin America more than ever before for a number of reasons. Anybody that has a global strategy knows there is not just one location for outsourcing. India has the bulk [of outsourcing work] today, but as we've learned, there are many reasons to have other locations," she said.

It's the Culture Connection

Moore mentioned several factors that work to the nearshore's advantage as an outsourcing location for North American companies, including the oft-heard time-zone alignment and geographic proximity. "As businesses do more work that requires collaboration, it makes sense to collaborate in similar time zones," she said.

But she also talked about a factor that has gotten more attention lately: cultural affinity. That makes it much easier to deal with things like change requirements, for example. "It is a big struggle to get your requirements solid enough to send into a different culture," she said. "This is more important than ever before. A lot of customers in Portugal, Spain, the U.S., share a culture with Latin American people. From the perspective of configuring software instead of programming software, there is a much easier connection path with people in Latin America. Customers are looking for IT talent that understands their business context."

"You can get that [contextual] understanding from Latin America, which makes it a more popular destination," Moore said

That's all good, but Beni Lopez, chief globalization officer for Softtek, cautioned that people have to avoid thinking of Latin America as a "single homogenous location."

"There are many differences between the countries. They all have their own strengths and challenges," he said. "In Argentina, for example, inflation has been on the rise and the exchange rate has not kept up. If you are considering Argentina for exports to the U.S., you need to factor in inflation because it is going to have a direct effect on the dollar."

Lopez advised against focusing only on cost when investigating Latin America. "In all these countries, the unit cost is higher than in Asia. It is very important to understand that.... Many other aspects need to be considered," he said, including total cost of engagement. "Over the past 14 years, we have proven that Latin America is cost-effective and more efficient compared to Asia."

Asked for his impressions of doing business in Latin America, EMC's Schwartz said one thing that surprised him is the language. "Many companies dealing with the back-office side find that theoretically everyone speaks English in India, but for some reason, it's easier to understand the English spoken in Latin American countries than the English in India," he said.

India for This, Other Countries for That

By the way, this panel session was not a let's-bash-India party. Everyone advocated a global sourcing approach. EMC, for example, chooses India for its more "mundane tasks" at the lowest possible cost. ("But I'm not implying there's not enough smart Indians," Schwartz emphasized.) In Russia, EMC has about 300 developers, and they are aces at "handling our toughest analytic problems," he said. Schwartz also said that even though we all talk about the nearshore's geographic proximity, "Until you've taken a flight from New York City to Sao Paulo or Rio, you don't realize it's not exactly a flight around the corner."

Schwartz also mentioned an issue that often comes up in destination discussions: Perceptions of danger. "Brazil and Mexico are two countries where there's a reticence on the part of our employees to go there."

So, Latin America will continue to heat up. And with the heat comes not just glory but challenges, some of the same challenges that hot India is grappling with, especially labor issues.

Beni Lopez put forth the challenge ahead for everyone managing outsourcing services, no matter where in the world, but one that could determine just how much Latin America will grow as an IT haven: "We have to learn to manage differently than we have traditionally with FTEs or we will face the same problems like attrition," he said. The industry needs to move away from the predominant model for buying IT services, and needs different ways of delivering services. "Otherwise," Lopez said, "there's not enough talent out there."

You can listen to the entire "Latin American Debate" discussion here.