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How Latin America became an Outsourcing Hub

Latin Americas emergence as an outsourcing hub has occurred over the last few years as U.S. companies turn to their closest neighbor. There are several...

Freddie Pierce
|Jul 30|magazine10 min read

Latin America’s emergence as an outsourcing hub has occurred over the last few years as U.S. companies turn to their closest neighbor. There are several reasons why American organizations, and European businesses too, are relying on Latin America for many of their offshore outsourcing needs. Proximity is one reason why U.S. firms in particular have outsourced closer to home, but value, skills and resources are all significant factors as well.

From a European perspective, the Latin American population has the advantage of being mainly Spanish-speaking. This means the lines of communication are often better than those between European or American and Asian countries.

LATIN AMERICAN WORKFORCE

Communication is the key to a successful outsourcing, so speaking the same language is an invaluable advantage. There is also a growing number of the Latin American workforce who are English-speaking. From a call center perspective, that is yet another benefit. In fact, Colombia’s call center and outsourcing industry is today considered one of the fastest growing industries in the country, according to a report by TMC.net. The Contact Center and BPO Colombian Association (ACDECC) revealed that in 2009, the income generated by the industry was nearly $1.2 billion, up 18 percent on 2008. It estimates that by 2012, income from the sector will reach $2 billion, opening up the number of employment opportunities to an additional 150,000 positions.

With a total population of 566.1 million in Latin America (World Bank, 2009), there is a large skills base readily available. Even those countries within the region that have a smaller population, such as Costa Rica, can provide sufficient outsourcing resources. In a study by A. T. Kearney, Costa Rica was reported to be one of the region’s “nearshoring pioneers”. Christian Callieri, Principal, A. T. Kearney, referred to it as an “attractive market”, despite its relatively small population. In contrast, Brazil is the continent’s most populated country, supported by solid infrastructure, which means it is highly appealing for IT outsourcing in particular.

In another report by A. T. Kearney, entitled ‘Destination Latin America: A Near-Shore Alternative’, the percentage of the population in the 15-29 age group is recognized as an indicator of the available workforce for ITO and BPO global service centers. In a population of 43,593, Colombia has 20,520 people in the 15-39 age range. Meanwhile, Argentina has 15,340 people in that age bracket out of a total population of 39,922.

Argentina also benefits from offering the lowest costs for outsourcing out of the region’s four largest economies. However, the report points out that the country does have a record of instability. So far though, this has not proved much of a deterrent for companies.

ECONOMIC INSTABILITY

In fact, India’s own volatility has been more of an issue. Following the attacks in Mumbai in 2008, there has been concern about the country’s safety. Distance has also gone against Asia as an outsourcing hub. For some companies, it is proving difficult to manage operations and workers as far afield as India and China. Again, it comes back to proximity.

Asia’s popularity has not worked in its favor as the region has been increasing workers’ wages over the last couple of years. In India, wage inflation reached 15 percent for IT services in 2006, A. T. Kearney reported. Latin America, however, has been able to keep costs down, meaning that companies can achieve better cost savings. A. T. Kearney’s report found that U.S. and European companies have typically achieved cost savings of between 20 and 40 percent in a Latin American location.

Mexico is one of the countries in the region that remains an attraction due to cost, as is Chile. Like India, could Latin America’s wages be subject to rising inflation in the future?

As with any region that becomes a hub for outsourced services, there is always the risk that this will force prices up, driving American and European organizations away and onto an alternative low cost region. At the moment, there is no indication of this trend in Latin America. It is currently revelling in its status as an outsourcing hotspot and ensuring it remains an attraction to corporations large and small from Europe and the U.S.

Supply Chain Digital will certainly be keeping a close eye on this fast-moving continent and its relationship with the Western world.