Custom Made Latin

Latin America 2010: A Destination To Consider In Your Offshoring Deal

 

Latin America: An Offshore destination worth exploring?

 June, 2010

What benefits does Latin America offer?

 

Most associate to the benefits and advantages the region offers to US based companies. This is true; its proximity and the similarity in time zones eases up the interaction with US customers and allows greater control over operations. But certainly Latin America offers much more than that, not only to US but to European based companies as well. Below are some of the key benefits the region offers:

 

Costs: Latin America offers a wage arbitrage opportunity of circa 30% when compared to the US and Western Europe. Specifically, Colombia provides the most favourable cost benefits in the region, followed by Argentina. Cost savings still remain greater in Asia, however it is hard to predict how long those savings 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 (inflation in India has reached 14% in may 2010 while countries like Chile reached 1%). The trend is clear, not only to offshoring clients, but also to Indian global BPO service providers such as Wipro, Infosys and TCS who have recently entered the Latin America region. This market is an opportunity to expand their business offerings and capabilities and by moving there, it confirms they see great business development in the region.

Compared to European offshoring/nearshoring locations, Latin America certainly provides greater savings. A study by A.T. Kearney shows that Eastern Europe provides wage arbitrage opportunities of 15%-25% while Latin America can deliver labour wage cost savings of 20% to 40%.

 

Below are the overall cost effective scores for popular locations based on three key factors (Compensation, Infrastructure and Tax & Regulatory):

 

Some of the key cost components included in the calculation of the effectiveness score above, are broken down in the tables below:

Skills: Latin America has a large pool of young and well skilled workforce (an average of 27 years of age) for ITO and BPO services. Brazil has the highest number in the region because of its large population size (198.7 M), but availability of this pool is higher on other locations. 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. This has not only improved the labour skills, but has forced universities and other education facilities to invest in new and high quality programmes.

Language Capabilities: Latin American countries are known for their language skills which allow them to provide services, to both English and Spanish speaking customers. Argentina, Mexico and Costa Rica are the countries with the best English speaking capabilities in the region. Other countries that are currently emerging on that front are Guatemala and Nicaragua. People in Guatemala have a neutral accent that allows them to assimilate other Spanish accents and are very good English speakers. Nicaragua, on the other hand, has experienced a massive migration of people to the US, caused by the political instability the country has been suffering from. This, and the fact that many have migrated back, has improved the availability of English speaking labour in the country. However, political instability still remains and continues to hold back foreign investments that could potentially develop this sector in the country.  

 

Cultural Similarity: North and Latin America have plenty of cultural similarities and they both have European immigrant groups that share their own cultural similarities as well. Countries in the region have been influenced by European migration over the past decades, like Argentina for example, where it has been heavily influenced by Italian and Spanish immigration. Additionally, a significant pool of qualified people migrated to US and Europe, either to apply to various Post-Graduate degree programmes (such as MBAs) or to seek new opportunities in order to avoid the local economic crisis and the high unemployment rates South American countries suffered in the last couple of decades. Many from this labour pool have returned to their home 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 are key in a BPO environment and helps improve the interaction between the retained organisation and the outsourcer.

 

 

Which location brings the best benefits?

 

Latin America has various locations where, depending on the business strategy, companies can look to setup their operations and reach a more efficient operating model. Popular locations in the region today are Argentina, Brazil, Chile, Colombia, and Mexico. To provide a qualified raking between these locations, they were measured and compared in three different areas, each composed of a group of key factors:

 

1.   Cost effectiveness: Accounts for 40% of the overall ranking and is made out of three factors, as mentioned in the benefits section above, with their own percentage weight:

• Compensation cost (40%): It consist of the average wages and average salary of BPO professionals.
• Infrastructure cost (40%): This includes the average cost for internet, real estate, utilities, telecoms and airfare cost to major destinations.
• Tax and regulatory cost (20%): Made of tax burden, currency fluctuation and corruption perception rate. 

  

2.   Talent & resource availability: Accounts for the other 40% of the overall ranking and is made up of two factors with the following percentage weight: 

• Educational and language skills (40%): It consists of number of graduates per year, adult literacy rate, mean scores on available tests (i.e. TOEFL) and quality in science, mathematics & management programmes.
• Business process experience and skills (60%): This includes availability of qualified labour, workforce size, IT-BPO market size and number of CMM/CMMI certified centers.

 

3.   Business catalyst: Is the business environment and accounts for 20% of the overall ranking. Is made out of two factors with the following percentage weight:

• Country environment (40%): It consists of business risk, political stability, quality of living, personal safety and employment rigidity.
• Infrastructure – (40%): This includes quality of overall infrastructure, availability of internet bandwidth, quality in telecoms and quality in utilities.
• Security of IP – (20%): Made of property rights and software piracy

The combined score of these three areas provides a consolidated ranking per location. The table below lists the ranking results and describes some of the key strengths and weaknesses for each country. 

There are however other locations gaining 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. Genpact, who currently employs around 1,000 people, is also looking to expand their F&A operations in the country by setting up a second delivery centre. 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 neutral accent that allows them to assimilate any Spanish accent, ideal for Call Centre services.

 

Uruguay is also looking to grow within the BPO and SSC sector. They have opened in March 2010, a free trade zone (Aguada Park), which consist of 600,000 square foot area, aimed to provide high-tech infrastructure to companies delivering Contact Centres, BPO and SSC services (among others) in a well located region and with low infrastructure and labour costs.

 

Perú is another location that has managed to catch the attention of global BPO service providers like Tata Consulting Services (TCS). TCS holds today the biggest presence in Latin America, compared to its Indian competitors (employing around 7,000 people across delivery centres in Argentina, Brazil, Chile, Colombia, Ecuador and Uruguay) and has recently announced the opening of a service delivery centre in Lima, as part of their growth strategy in Latin America.

 

Latin America vs Asia

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

When considering an offshoring approach, companies must assess all regions/locations and target the one that best fits its business strategy and brings the greatest benefit in the long term. Latin America is an option that should certainly be taken into consideration when building your business case for offshoring operations.

 

About the Author

Juan is a business advisor specialised in SSC, BPO and Transformation programmes. He has worked with large multinationals to help them achieve greater efficiencies in their operating models by applying consolidation and optimisation strategies. He has been part of global organisations such as Andersen, ACS, Alsbridge and Wipro Technologies (currently), where he has led transformation initiatives across Europe and transition of services to consolidated delivery centres to locations around the globe (India, Philippines, North America and Eastern Europe). Juan is a Consultant Manager at Wipro and can be reached at juan.diaz@wipro.com.

What is the name of this show??

Its the show that is about this woman that travels to latin american countries. Some episodes I remember were when she went to the "Island of the dolls" and another where she went to a zocalo and got custom silver earrings made.
Does anyone know the name of this show??
It can't be passport to latin america, the show I'm thinking of is at least 5 years old, but most likely older. and comes on the public channels (for those who live in NY metro area, channel 21, 23 or 25 i beleive.)
ITS DEFINITELY NOT SAMANTHA BROWN. (believe me I checked when she was first suggested) The series I'm thinking of looks like its from the 80's if thats of any help.
Found It!!!--- Globe Trekker with Justine Shapiro.
Question Closed.
If someone wants the points just answer it so I can close this question.

do u mean Passport to Latin America on travel channel

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