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Off-shoring Destinations: LatAm gets Muy Caliente!

Posted by Hemant Puthli on November 8, 2009

Research reports released in the recent past by two top-tier global consulting firms — one by A T Kearney prepared on behalf of ‘Invest Chile / CORFO’ (the Chilean Economic Development Agency), and the other by KPMG , indicate that Latin America is rapidly becoming a preferred region for outsourcing / off-shoring.

According to both reports, the main factors that are driving this trend are:

  • Geographical proximity of Central and South American countries to North America (impact: reduced travel time for client and service provider personnel)
  • Compatible time-zones (impact: overlapping business hours leading to less disruptions of daily routine for client and service provider personnel)
  • Common languages and cultural affinity with North America (impact: promotes quicker and stronger team cohesion between client teams and service provider teams, and smoother communications on an on-going basis)
  • Lower attrition rates (impact: reduced ‘leakage’ of knowledge and expertise, resulting in better cost / benefit ratio for investments in knowledge transfer and training, and better response time)
  • Improved telecommunications and other technology infrastructure (impact: reduced infrastructure risks, resulting in greater business continuity)
  • Favorable business environment including political stability and tax incentives in several countries (such as the ones mentioned below) (impact: financial attractiveness, reduced geo-political risk)

Top Locations in Latin America (source: A T Kearney)

As we had noted in an earlier post in this blog, these are more or less the same factors that underpin the weaknesses of destinations like India (as also China and other Asian countries), and the more aggressive players in the Central and South American region are clearly positioning their advantages in these areas as complementary to India and China. However, there continue to be concerns in a few key areas — particularly with regard to team size and scalability. In order to overcome this drawback, several countries in the region are actively working towards improving the quality and quantity of their resource pools, by focusing on education and training in technical as well as soft skills. Clearly, the more aggressive players have recognized the criticality of growing a scalable, highly skilled workforce that is adept at innovation. Other challenges include the need to change client perceptions about countries in the region as being politically unstable and their main cities as unsafe or even dangerous. In that respect, it is useful to note that recent terrorists attacks in India and the authoritarian regime in China have rendered the latter destinations less attractive.

Service providers with a global vision will benefit significantly by investing in expansion in key Latin America destinations. As regards Indian ITO and BPO shops, the future will reward those who think beyond their domestic boundaries, venture into the global arena, embrace new cultures, learn to leverage the advantages of these destinations and learn to share their knowledge and expertise. Conversely, the ones who are less open and flexible, or who are too strongly rooted in the Indian geography and/or ethos, will be relegated to the position of helpless bystanders, as they watch their market share dwindle and see their survival threatened as the domestic competition for a diminishing slice of the pie becomes even more fierce.

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4 Responses to “Off-shoring Destinations: LatAm gets Muy Caliente!”

  1. Monisha Advani said

    For the sustenance of the Indian outsourcing industry that depends on offshore strategies of international clients, the priority will be to improve work force attitude, costs and outputs. Process innovation, to my mind, is secondary. The malaise of more for less that seems to have corrupted our nextgen will cost us their future. Speaking of course, entirely from my HR-centric view point!

    • I agree, on most counts. Definitely on workforce attitude, for one. And yes, innovation is not going to be the main keystone for a competitive strategy – it’s just table stakes. It cannot be a differentiator if everybody is doing it!

    • Aashwina Mouli said

      Europe is also overtaking India in offshoring ( specifically the Czech Republic , Romania etc). Their proximity to Western Europe , data security considerations , time zone overlaps and concerns on Indian IT expertise and sustainability have made them attractive to Western Europe as well as the UK. This is in spite of higher costs associated with such outsourcing when compared to India

      While we cannot win on data security considerations , we should again look at the issues that they have with our IT expertise and sustainability and see why they are willing to spend more on a nearshore destination.

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