Economic Growth and Business Opportunities in Latin America
The globalisation of manufacturing was the big story of the 1970s and has been the driver behind growth in Korea, other Far Eastern countries and, most recently, China. Services, however, have continued to be ‘local’ and the globalisation of technology and other knowledge services have been one of the hallmarks of economic activity in the past decade. With a humble start in remote development, this has now morphed into a more than US$30bn business. Globally, over 50% of the Fortune 100 companies have an active global sourcing programme. Additionally, global sourcing has moved beyond technology to transaction processing, call centres, medical transcription, business modelling, analytics, research and radiology.
To date, India has remained the hub for this activity. However, as more companies adopt global outsourcing, other countries are becoming viable candidates for establishing IT and business process outsourcing (BPO) operations. For example, China brings with it a large educated labour pool, while eastern Europe promises a highly educated workforce and proximity to key European markets.
On the other side of the Atlantic, Latin America has become a very attractive emerging market for service sourcing due to its proximity to the US and the shared time zone offers, which offers a significant potential. For the European market, it offers an alternate location from a risk mitigation perspective and has a large pool of Spanish- and Portuguese-speaking talent, as well as smaller pools of German and French speakers.
Latin America allows for global delivery on a 24×7 basis, as the work carried out can span across American, European and Asian time zones. By doing so, an organisation can split a project into three components and these can be carried out in three different regions depending on where makes the most economic sense to complete. For example, programming can be conducted in India, testing in Latin America and the final integration in the UK. For service providers, expanding their global delivery footprint also enables access to alternate talent pools, as the existing markets in China and India increasingly become more competitive.
For technology and BPO companies and global corporations, Latin America offers a number of attractive benefits for global sourcing and delivery. The first is time zone and physical proximity to the largest economy in the world, as mentioned above. The four Latin American giants – Mexico, Brazil, Chile and Argentina – all fall in the EST +/- 2 hour time zone. For US corporates, including North American subsidiaries of European companies, this is a significant advantage for activities that need to be conducted during US daytime hours, for example, developers taking requirements from business users. This can be done by a programmer working the night shift in India – but in the long run there are morale and productivity issues that could arise due to such a stringent schedule.
In addition to time zone proximity, there is also physical proximity – the aforementioned developer based in Mexico, for instance, could fly to Dallas for a on- day workshop in a couple of hours, whereas his Indian counterpart would need to sacrifice an entire working week to make the same trip. For UK based clients, this split delivery model would allow for complete global coverage – the India/China based delivery units would allow for work to be done from 4am to 1pm (GMT), after which work could be transferred to the Latin American centre.
Second, the Latin American market is able to offer Spanish and Portuguese language skills, which is the mother tongue in the region. This has proved beneficial for many UK corporations that have been able to reduce costs on translators by offshoring operations to the region.
Third, reduced cost is another attractive benefit. Although Latin America is more expensive than other offshore destinations, such as India, work conducted from the region is still able to offer a 25-30% discount over UK rates.
And finally, corporations are able to contain risk through true global delivery – as corporations increase the proportion of services offered from India, a Latin American component could ease country risk concerns and allow them to use the model to a greater extent.
For service providers, the fastest growing local market (especially in the financial services industry) is Latin America. The reason is that, as these corporations mature and develop sophisticated products and services, they need the developed market expertise that external providers can deliver. For example, several banks in the region are looking to replicate the strong e-banking platforms that western banks have built up. This includes larg- scale system redesign, new application development and consulting services for business process changes. The region has a population of over 550 million, is a strong emerging market in its own right and several top companies internationally, such as Cemex and Telmex, call this part of the world home.
As we look at the options available from a sourcing and delivery perspective, four countries stand out in Latin America:
Brazil is the largest country (in terms of area, population and economy size) in the region and one that also has a large local market. It is a low cost location compared to other countries in the region and has a large local talent pool. It is a Portuguese speaking country and English/Spanish speaking talent is harder to source.
Chile has been actively positioning itself as a springboard to Latin America, given its robust legal and regulatory framework and the ease of doing business there. The capital and largest city, Santiago, has a lot of potential to emerge as a major global delivery centre given its large population concentration and top tier universities. It is a much smaller country (with a population of 16 million) than Brazil, for example, and scale would be a challenge for service providers.
Argentina has long been known in the region for its well-educated, English speaking talent. With the devaluation of the Argentinean peso, it has also become a very cost effective location. The negatives for Argentina include an unfriendly regulatory environment and the fear that a peso comeback would destroy the business case for a global delivery location (although the peso is currently worth about 30 cents, it had parity with the US dollar in 2000).
Mexico has historically been known as a manufacturing and component assembly location with its ‘maquiladoras’ located close to the U.S border. It has a large educated, technically adept population and an excellent private university system. The country has historically unfriendly business laws but is in the process of changing these to attract investments. On the flip side, Mexico, along with Chile, is a comparatively expensive location.
The key to success in moving work to a new offshore location is to focus on a few specifics. One example is to have a clear sense of why a new delivery location is required – is this to service a specific language requirement, a risk mitigation step or a move to access an alternate talent pool? Choose the first few engagements carefully and have a roadmap for expanding the scope if the pilot engagements are successful.
Ideally, the first programme should have an onsite (UK) and offshore component (Latin America) – this would allow for the two teams to interact, which is often critical to ensure that the soft cultural nuances are communicated, as well as the hard requirement components.
The Latin America region has significant potential to develop a knowledge based, export-oriented industry. Service providers and corporations have been looking at the option closely and the next few years should see sourcing and delivery from the region becoming an important complement to work currently being done in India and China.