Latin America: A destination to consider in your offshoring deal

Latin America continues to capture the attention as an eye-catching destination that offers great value and resources when compared to other offshoring locations, especially for US based customers. It has grown significantly during the past years in BPO, Share service centres and Call centres due to the fact that not only big companies such as American Express, General Motors, Exxon, and others are running their operation here, but also well known reputable BPO service providers like, Accenture, ACS, EDS, Genpact, IBM, Infosys and TCS have opened operations centres in this region.

What does Latin America have to offer?

Some may say that the main reason for shifting operations to Latin America is the proximity to the US, the similarity in time zones that eases up the interaction with their US customers and provides a greater control over the operations in the offshoring location. All of this is true, but certainly Latina America offers more benefits than the ones just mentioned, not only to US based companies but to Europe as well. Some of the key benefits are mentioned below:

• Language capabilities: Latin American countries are known for their strong English skills which allow them to provide services to both English and Spanish customers. Argentina, Mexico and Costa Rica are the countries with the best language capabilities in the region. Other countries also emerging due to their language skills and capabilities are Guatemala and Nicaragua. Many people in Guatemala are good English speakers and posses a neutral accent that allows them to assimilate other Spanish accents. Nicaragua has seen languages skills improve as many of its citizens are returning back to the country, from the US, after they had relocated there for political reasons.
• Costs: Latin America offers an average cost reduction of around 30% to European and US based companies. Argentina is the location with the most favourable cost benefits in the region, followed by Colombia. It must be noted that cost savings do still remain higher in Asia, however it’s hard to predict how long the low Asian costs will be sustainable. Asia is seeing far higher wage inflation than Latin America and the projections do not foresee any reduction in the annual increase in the years to come. This trend is clear not only to offshoring clients but also to Indian BPO service providers such as Infosys and TCS who have recently entered the Latin America market. This new market is an opportunity for them to expand their business offerings and capabilities; and their move here would suggest they see business development in this region. Compared to European offshoring/nearshoring locations, Latin America does provide greater savings. A study from A.T. Kearney shows that Eastern Europe reduces cost from 15%-25% while Latin America is saving from 20% to 40%.
• Cultural Similarity: North America and Latin America have plenty of cultural similarities and they both have European immigrant groups that share their own cultural similarities as well. Europe has influenced countries, like Argentina, that has been heavily impacted by Italian and Spanish immigration along its history. Another point worth mentioning is the massive number of young professionals that applied and migrated to US and European countries to acquire higher educational degrees in order to escape the local economic crisis and high unemployment rates South American countries suffered in the last couple of decades. Most of this labour pool have returned to these countries and have brought with them not only greater skills and experience, but some of the cultural similarities that play a key factor on business relationships. These cultural similarities help improve the business strategy and communication between the retained organization and the outsourcer.
• Talent pool: Latin America has a large pool of young (an average age of 27 years of age) and well skilled workforce for ITO and BPO services. Brazil has the highest number in the region because of its large population size. There are many universities within the main cities and the constant economic crisis South America has suffered over the last decades has made the working market extremely competitive. Professional graduates are getting masters and post graduates degrees just after completing their college courses just to maintain their competitive position within their sector. This has not only improved the labour skills, but has made universities and other education facilities to invest in new and high quality programmes.

Which location is best?

Latin America has many locations on where, depending on the business strategy, companies can look to setup their operations. Popular locations in the sector currently are Argentina, Brazil, Chile, Mexico, Costa Rica and Colombia. The table below identified their strengths and weaknesses. 

There are however other locations gaining more popularity in the offshoring world. For instance Capgemini opened operations in Guatemala in 2005 to provide nearshore services to US clients and in 2008 started F&A Operations for Coca-Cola. Guatemala is a country that has cultural affinity to the US, high qualified labour force with bilingual capabilities (Spanish and English) and, similar to Colombia, it shares a flat accent that allows them to assimilate any Spanish accent, ideal for call centre services.

Latin America vs Asia

So where does it stand in comparison to the Asia market? Although Latin America shows a promising future, is not as mature as Asia is today. Currently, Asia still remains as the most popular destination for offshoring clients due its low labour cost, specialised skills and for being the most developed and experienced outsourcing community. However, Asia is struggling with factors such as terrorism and corporate governance scandals, rising wage costs, increasing Inflation, and currency fluctuation bringing down its charm as a service delivery location. Latin America doesn’t suffer the inflation rates and wage increases Asia suffers with every year and it contains a good mix of labour skills and low operational costs.

When considering an offshoring deal, companies should evaluate all offshoring locations and consider the one that best fits its business strategy and that brings the greatest benefit in the long term. Latin America is an option that certainly should be considered, along with the other main offshoring locations today, when putting together your business case.