Recent times have witnessed this region draw ace players of the outsourcing world - American Express, General Motors, Intel, Genpact, Sitel, Wipro, Citibank and more. Business process outsourcing (BPO), shared service centers (SSC), call centers, offshore delivery centers have grown significantly in the region. For example, Wipro currently delivers finance and accounting services to the largest beverage company in Latin America from a service center in Curitiba, Brazil. For years, TCS had had significant presence in Uruguay. Similarly, many of the global leaders have presence in countries like Chile and Colombia.
Still, many potential areas beyond call centers and IT have been untapped. Areas like HRO, FAO and procurement outsourcing have still not started to make best use of the available resources.
Juan Diaz, consulting manager, Wipro Consulting Services, author of the recent report (by Wipro Consulting Services) titled Latin America- A New World Option for Offshoring said, “When clients look at Latin America they look for Spanish language skills, geographical proximity, and also cost effectiveness. For example, if you look at India which is the most developed sector in outsourcing or shared services, there is a lot of wage inflation going on, and inflation is on the rise every year. In that comparison, Latin America is more stable. If you look at long term in that case, it is going to be probably same cost for some years and these are the kind of things companies are looking at. So, probably if you have the same cost, if you have the same talent and it takes you the same to go from Europe to India or from Europe to go to Latin America, then Latin America is also a good option.”
Allure of Latin America
H Karthik, vice president, Everest Group stated four drivers apart from the obvious:
1.Language Skills: Especially, in terms of Spanish and Portuguese it becomes a potent force as you think about the Spanish population in the US. There is probably no other region in the world that offers the combination of language skills at scale plus cost savings.
2.Domestic Regional Opportunities: In addition, to Latin America being a region to serve the US, it also offers a fairly significant domestic or regional opportunity especially in large countries like Brazil and Argentina where the domestic market is also fairly large. Ou estimate suggests that between 60-70 percent of the work in the region is focused on the region itself and 30-40 percent is focused on offshore, primarily the US. So domestic market is a large opportunity.
3.Same Time Zone: The same time zone with the US and Canada.
4.Domestic Business Opportunities: If you are to look at large global companies, they also see domestic business opportunities in Latin America. This is irrespective of outsourcing.
Speaking of how Genpact's client feels about their chosen locations -Juarez, Mexico and Guatemala. Mary Korthuis, vice president and operations lead, Mexico and Guatemala, Genpact said, “Drug cartel-related violence and related media stories has caused concern with some customers and their own security organizations have limited/eliminated their travel to Juarez. Other customers are fine and continue to travel in and out with no concern. Besides the city issues, customers are pleased with the near shore location; easy access for mail pick up/drop off; facility literally within a “stone’s throw” from the US; easy hiring of English speaking resources who go back and forth across the border themselves so they are integrated into US culture. Technology is all in the US, so for all intensive purposes – on-shore functionality at near-shore prices.”
Strategy of companies that see Latin America as a destination of choice should reflect on the following elements:
Rather than a company-by country approach, companies should adopt a regional, networked approach. They need to capture the right skill in the right cities.
Differentiated advantages should encapsulate cultural similarities and the physical proximity part. These advantages should be promoted aggressively on how they can translate into real business value.
Don Berryman, general manager of Americas at Sitel said,“You must remember this is not a domestic US location. There are many cultural and sociological similarities but they still don’t have the infrastructure of the typical U.S. location. So customers will not have the same experience they would with a US call center. Expectations have to be aligned to the uniqueness of the environment, similar to when we developed our presence in the Philippines or India.”
Focus on the services that are best provided in this region and also carve out new niches that may do well.
Compete vigorously in the local market and the global service delivery playing fields to mitigate risk and enhance economic benefit.
Diaz stated, “I would recommend a company that is looking at setting up their operations is that they need to have local support. As they are the ones who are operating in this location, they are the ones who know the region and they are the ones who know which are the countries that bring the best benefit depending on what you want to do.”
Recommendations for buyers
Location strategies must place a high priority in identifying market saturation as Latin America is not one location, but several unique countries.
Buyers need to keep in mind that there are significant differences across the region in terms of cost and labor pool. For example, between Brazil and Argentina, Brazil is almost 40 – 50 percent more expensive than Argentina. There is cost dissimilarity across the region, this is something companies need to keep in mind while zeroing upon locations.
Also, there are significant variations in the scale of talent pool in skills and language capabilities across the region. For example, countries like Argentina and Brazil support large scale, but countries like Colombia, Costa Rica can only support small scale centers. Also, in terms of scale there are contrasts, Brazil has fairly evolved in terms of IT skills such as SAP but countries like Costa Rica is more favorable for contact center work in Spanish and English. Differences in language skills - Brazil is more suited for Portugese work; Argentina, Chile, Mexico are more on the Spanish side. Broadly, all locations offer some advantages, there are differences across the region both across countries and cities in the countries, which companies need to keep in knowledge.
Karthik said, “Most countries in this region have issues of fluctuating currency. For example, in recent months, Brazilian and Chilean currency are becoming less competitive, while Argentinian currency is becoming more competitive.”
Diaz added, “Buyers need to have a clear overview of where they want to get to and what each of those countries offers to them. It comes to what they want to do in the country; if you want to do just plain call centers, then just go for a cheap location and if you want to go further and into operations across all the US and other places and company processes like procurement, then you need to be very careful where you set up those operations. They need to talk to the local people. Companies are already operating here and they have done the homework.”
Recommendations for services providers
Services providers should approach this as an integral component of their global strategy. In other words, think about what complementary roles that Latin America or the cities/countries in Latin America can play to their network of existing centers. For example: Are you thinking of Latin America as a location to do very niche work focused on the US market, or are you thinking about Latin America as a location to get certain skills?
Karthik stated, “Overall, the strategy on how Latin America fits in the global play needs to be very clear and there are lots of differences across the cities and countries so people need to be very clear on how they need to use Latin America. If you are thinking of it on both the grounds of domestic opportunity and offshore opportunity, then some of the larger countries are more favorable to locate in. Also, in terms of strategies, acquisition can be a powerful mode of entry.”
Don Berryman, general manager of Americas at Sitel states questions service providers should be cautious and ask before approaching the Latin American market:
What kind of business am I planning to put in Latin America?
What kind of agents am I looking for?
Is there support in terms of workers, education level, service or sales experience and English speaking skills?
How will this location benefit my overall global location strategy?
Failing to answer these questions is a common mistake that outsourcing providers have made in new markets. Added Don, “Also, there are countries in Central and South America that might not make good call center locations because they don’t have the workforce in place, so service providers need to carefully assess what kind of business they want to put in there, what kind of work experience the local people have, and can the business model sustain a long period of time to be a viable investment.”
Talking about the major challenges Genpact is facing, Korthuis shared, “The main challenge is the drug cartel-related violence and the related media stories. That said, this violence has not disrupted our operations there at all and we ensure that our employees are safe at all times.”
Diaz shared, “If we take an overall assessment where you just mix what you have in terms of talent, what you have in terms of cost, infrastructure, countries been stable.. if you take all that and mix it then I'll say Colombia and Brazil are best option. Brazil is the best option because it is where the biggest market is and most developed next to Mexico in the region. And Colombia is the one as it is the cheapest one and most business friendly and it is here where all the big players are actually going because there is huge potential there.”
The report, A New World Option for Offshoring, states Wipro has developed a ranking methodology to help organizations decide which of these countries would offer the greatest benefits based on their needs and priorities. The ranking method is based on three primary business criteria, each composed of a group of key factors namely cost effectiveness, talent and resource availability and business catalyst.
Here is the combined score (5= Best Ranking)
1. Colombia: Ranking: 3.34
Negative publicity about guerrilla, drug cartels and high crime rates has slowed investments by corporations. However, during Alvaro Uribe’s presidential period, security and crime rates have improved significantly. Today, countries like Brazil and Mexico are ranked as even more dangerous and risky locations. With a good combination of low cost, talent pool and government support, Colombia is becoming among the best options in Latin America, especially in Call Centers. The number of local and foreign BPO suppliers operating in Colombia and the significant growth the sector has had in the last couple of years, show the country is gaining the confidence of foreign companies.
2. Brazil: Ranking: 3.08
• Largest call centers industry in the region. Very strong telecom network (150 million mobile phones in operation and 50% of households linked to broadband by the end of 2011.
3. Chile: Ranking 2.98
Chile is ranked as one of the best Spanish-speaking delivery locations. It’s pushing to grow in the sector by covering operations as an offshoring location for companies in Spain.
4. Argentina: Ranking: 2.91
Inflation in 2009 was 13% and it is predicted that Argentina will suffer higher inflation increases in 2010, which adds an additional risk when offshoring to this location. It is key that these projections are assumed in the business model to ensure benefits realization in the long term.
5. Mexico: Ranking: 2.70
Biggest call center industry in the region after Brazil. Proximity to US attracts US customers.