Although recent potential challenges related to the foreign exchange rate in Brazil will probably bring some level of volatility, in general, the environment is very optimistic. The same applies to Mexico. Despite the challenges we see in the media related to security issues, we still see a lot of interest in both foreign direct investment as well as Mexican domestic demand.  The only question mark I have in terms of Latin American growth right now is Argentina. Argentina is somewhat challenged due to risk of high inflation. However, due to the fact that it is an election year and candidates will not want the peso devalued, we don’t expect too much turmoil.

As for the rest of Latin America as a destination for global services, our position remains the same in terms of the 4 main countries from where we deliver. These countries continue to be: Mexico, where we are headquartered, Costa Rica, where we are focused in R&D for high tech companies, Argentina, which, ultimately continues to be promising given the aforementioned caveat of inflation, and Brazil. Brazil features a huge in-country domestic demand, and a great talent pool to draw from –but without much surplus. Our global delivery center in Brazil is growing, as is the demand from many domestic companies as well as for many MNCs, augmenting their strategy with a Brazilian component. Brazil, moreover, works seamlessly with our delivery centers in the US and Mexico – and the on-ground expertise we have there is necessary to address local needs related to taxes and regulations.

The calling card of Latin America is still risk diversification. Although we’ve been preaching the same message for 15 years, there is still a big market segment that is just now embarking on this strategy. De-risking is becoming ever more critical, as risk becomes a key factors driving company value. As buyers begin to do their homework looking for a risk mitigation alternative, what they’re finding in some cases – to their pleasant surprise – is a very dynamic, strong talent pool in Latin America.

Pointers Buyers Need to keep in Knowledge

You cannot treat Latin America as one singular region but rather as complementary and diverse entities. Buyers must try to match their strategic goals to each country’s strengths in the region. We still see some companies that view Latin America as one region, but companies are increasingly committed to more due diligence on the specific contexts of each country. Buyers must develop local contacts and coordinate with them to get the most up-to-date and factual information about each country’s realities as is possible. The value of these local contacts cannot be underestimated. If buyers do not have local contacts, they might try reaching out to global suppliers for advice, on a national context they may not know well.

With respect to Mexico specifically – buyers need to do more due diligence beyond what the media portrays. They need to understand that coverage of violence is also a reflection of a media’s business objectives. As such, one must really separate myths from realities. Additionally, just like Latin America is not one entity, Mexico is comprised of many different cities and regions, all with their own political, economic, cultural and business landscape. Thus, one cannot treat Mexico as a single city or region either. Each region has different strengths and weaknesses, and you must find someone trusted to shed light on any grey areas in question.

In terms of Costa Rica, it’s really a scale issue. Buyers must make sure to plan what they want to achieve in Costa Rica in such a way that they are not planning for a huge presence. This is because the demographics in Costa Rica are simply not present in the same quantity as in countries like Mexico or Brazil.

Finally, it’s a good point to remember that generally, in the Latin American context, election years mean that government officials face uncertainty in terms of the long term viability of some programs. Thus, new programs may need to wait until elected leaders draft and execute their own agendas. It’s likely that during election years, one cannot expect much decided support from governments.

Make sure you do consider the locals. Most offshore-centric providers are focusing on domestic markets across Latin America, and not that much on global delivery from the region. Those that are beginning to offer services from Latin America to the U.S., still have a learning curve to master because they are not used to operating in an environment where cost is not the primary lever, as it is in India. As I already commented, each country has different regulations, governments, characteristics, laws, culture, and putting all the pieces together means that local understanding is key to getting the most out of each country or city’s potential. Finally, the country strategy must consider the issue of scale, and influence the decision making progress early on. It possible to make adjustments to strategy, but it’s very expensive to relocate a center, so starting with an understanding of scale and how to achieve it is a key factor where experienced vendors and advisors can provide hands on validation on setting operations in the region.

Service providers approach to the market

The best approach is to remember the tried and true saying, “You must walk before you run.” Providers need to understand that each country in Latin America deserves and demands its own strategy. If a provider is thinking of setting up a delivery center for the U.S., it needs to think of language offerings, complexity and scalability. For example, in Brazil, tax implications have a large-scale effect on cost that one must keep in mind and account for.

Important Differentiators that help deliver business value in this region

With regards to Nearshore, the most important asset is experience.  In addition to experience, it helps to have a well-defined business strategy that focuses on local knowledge and knowledge of your client’s major markets and operating culture. For instance, not only is it important to know the ins and outs of the economic, political, cultural, technological and business landscape in Mexico, but it is equally as important to have the same knowledge in the U.S. for a U.S.-based client, and so forth. In this sense, the most important attributes to help deliver business value in the region are: experience, local knowledge and buyer market understanding.

Benigo (Beni) Lopez is the chief globalization officer at Softek.

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