Latin America: Outsourcing’s New Hot Spot

South America and Central America are increasingly becoming popular destinations for information technology outsourcing — whether it is offshore, nearshore or even “rightshore.”

“Central and South American countries are improving on outsourcing competitiveness,” said Mark Minevich, international strategic advisor and principal at Going Global Ventures, a consulting firm that focuses on outsourcing in New York. He recently completed an in-depth research report on outsourcing centers that evaluated and ranked countries across the globe.

Costa Rica is the current leader in the region, according to the report’s “Future Growth Index,” which ranked the Central American country in third place globally behind only India and China. But this may soon change.

Staying Competitive

“Costa Rica will struggle to remain competitive because they’ll be unable to maintain the population growth and skilled workforces necessary to remain attractive to source nations,” Minevich said. “By 2015, we fully expect Costa Rica to drop from the top 10 and for Brazil to rise to number four. Brazil has huge potential, due to its large population, the creativity of its engineers and government programs supporting the IT-outsourcing industry.”

Minevich told CRM Buyer that nations such as Brazil and Mexico are benefiting from expansion of what he called the “nearshoring” trend, which he defined as the practice of sending operations offsite to nations closer, both culturally and geographically, to the source nation.

Eugene Kublanov, vice president of corporate development at neoIT, a consulting firm based in San Ramon, Calif., that specializes in providing advice on offshoring, said he is seeing two trends. One is that governments in Central and South America are focusing on developing their markets as offshoring/nearshoring destinations for U.S. clients by putting in place policy and infrastructure to support the demand. Second, he said, is that service providers based in Central and South America are ramping up efforts to market and sell to U.S. clients.

“Although there is increased flow of work to Central and South America, there is tremendous competition from providers in Asia and Eastern Europe,” Kublanov said. “Central and South American service providers need to mature at a faster pace in their marketing and sales in the U.S. to compete effectively with entrenched offshore players.”

Another Alternative

Kublanov said that his firm’s focus has been on learning more about the capabilities of Central and South America. “Although our clients are not actively seeking to outsource to the region today, we expect this to change in the next several years.”

Capgemini, a provider of outsourcing services with co-headquarters in Paris and New York, is currently exploring call center operations in Central America. Chris Carrington, president of Americas outsourcing services at Capgemini said, “Too many outsourcing providers are convinced that it is either onshore or offshore to India or China — all or nothing.”

Carrington said that Capgemini believes in giving clients what he called a “rightshore approach,” which could mean utilizing a call center in rural Texas or Guatemala instead of pushing all the work to distributed delivery centers in Bangalore, India, or Guangzhou, China.

“Outsourcing to India, China, southern and eastern Europe and South Africa is expected to grow exponentially over the next 10 years. But Latin America is expected to leverage its competitive advantages in certain high-growth areas of offshore outsourcing and continue to be an attractive labor arbitrage alternative,” Carrington told CRM Buyer.

Capitalizing on Advantages

“Latin America has some built-in advantages as U.S. companies look for attractive nearshore alternatives for some of their back-office functions.” He said those advantages include being in the same time zone as the United States and some government incentives already in place.

Abinav Kumar, head of marketing at TCS Iberoamerica — the Latin American arm of Tata Consultancy Services, based in Mumbai, India — said that he does not see any disadvantages to outsourcing to Latin America, if it is done right. “There are, however, many risks to outsourcing that must be carefully planned for and managed,” he said.

Kumar said that TCS recently started serving an insurance client in Chile with a center in Uruguay as a nearshore location, augmented by a team in India as the offshore location. “The nearshore team brings in understanding of the local business environment, Spanish language skills and ability to understand and define the client requirements. While the offshore team brings in deep domain and technological expertise,” Kumar said.

“This model allows us to meet the client’s local needs by combining local knowledge with global expertise to provide a faster and lower cost solution to the client,” Kumar added.