Emerging economies across the world are trying to emulate the success India has achieved in providing outsourcing services. What started with the millennium bug, led to India being one of the top outsourcing destinations in the world. Availability of talented resources, a large pool of people speaking English, government support in the form of tax breaks and relatively strong IP/Data security related laws are some of the factors that worked in India’s favor. Countries in the Latin American (LAM) region namely Brazil, Argentina, Chile, Mexico, etc are being increasingly recognized as alternate destinations to India and China primarily due to the increasing demand for near shore outsourcing service providers.
The blend of LAM's geographical proximity to the US and existing cultural similarities between the two has increased the importance of the region. In recent times, leading BPOs/outsourcing companies like Capgemni, TCS, Aegis BPO etc have expanded in the region not only with an aim to hedge their operations but also to exploit the local market. Some of the key factors that make the Latin American region attractive are as follows:
The LAM region is a significantly large market with 20 countries, 550 million people, 4.4 trillion dollars of GDP, and 8000 dollars per capita income. Brazil alone is expected to account for an estimated USD 128 billion worth of IT end-user spending in 2013, according to IT research firm Gartner. Sonda, a Chiliean IT major is a key example of consolidation in the domestic market. The company has acquired Telsinc - a Brazilian IT services provider, NextiraOne – a Mexican IT company; and Bogota-based software developer Red Colombia. It plans to further invest USD 500 million in acquisition till year 2012.
Local Talent Pool
A Heidrick & Struggles report indicates that of the ten LAM countries analyzed, for the report, Brazil, Chile and Costa Rica would be the leaders in terms of availability of local talent pool in 2013. Similarly, a TMC.net report indicates that Colombia’s call center and outsourcing industry is one of the fastest growing industries in the country - a testament to the availability of local talent. A majority of the countries in the region have a good education system in place with the top few countries having a literacy rate of over 90%. Currently, Mexico, Chile and Brazil have the best talent pool in the region. Chile is widely regarded as the most attractive environment for talent while Brazil has the best universities in the region.
Spanish and Portugese are the two main languages spoken in the region which abodes well for companies that aim to target non English speaking clientele. For e.g.: the US has a fairly large Hispanic community, which can be targeted through this near shore alternative. The multilingual workforce in Argentina can also be effectively tapped for not only the U.S. but also for markets in Europe. The number of non-indigenous European languages spoken in Brazil, Mexico, Argentina and Chile is very high.These include Spanish, Portuguese, English, French, and even some German (in Argentina). It is also noteoworth that many Japanese and Chinese migrated to Peru in the late nineteenth century as rural labourers, and now form an integrated part of Peruvian society.
Latin American countries such as Brazil, Mexico, Chile and Argentina, have competitive wages and a good educational system. A KPMG-NASSCOM study titled “Emerging Destinations for Indian IT / ITES Industry” (2007) revealed that the minimum wage in the region was pretty low and rose from USD 2.8 per hour in 2005 to USD 3.2 per hour in 2006, with Brazil being the highest at USD 5.6 per hour. However, the IT wages were significantly higher at USD 8.7 per hour, with Chile and Mexico paying more than two times the rates paid in India. As wages keep rising in India, they could soon be at par with those in the LAM region, thus making it a much more level playing field.
In conclusion, Mexico, Costa Rica, Brazil and Chile are the main countries to watch for offshoring related activities in the LAM. These countries have large number of investments coming in, a good availability in terms of local talent and enjoy the increasingly important near shore advantage.