Latin America Grows as Global Sourcing Location

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<p><strong>London</strong><br />The use of global delivery models is now common practice within the business process outsourcing (BPO) market, and Latin America is becoming an increasingly popular destination for IT services and BPO vendors looking to provide low-cost services to clients, reveals a new report by independent market analysis firm Datamonitor, titled &ldquo;Global Delivery Locations for BPO: Focus on Latin America.&rdquo; <br /> <br />The report looks at the factors driving this trend, discusses the main players currently active in the market and analyzes possible strategies for including Latin America in a coherent global sourcing model. It also investigates the key BPO delivery locations within this region and the main business factors that will help companies choose the destination that best suits their needs.<br /> <br />&ldquo;The last two years have seen a marked increase in the number of outsourcing vendors utilizing Latin America as a low-cost delivery location,&rdquo; said Ed Thomas, associate analyst for BPO at Datamonitor and author of the report. </p><p>&ldquo;Key examples include major players such as IBM, EDS, Tata Consultancy Services and ACS, all of which have significantly increased their presence in the region since 2006, while providers such as Infosys and Cognizant have opened centers in Latin America for the first time.&rdquo;<br /> <br /><strong>Advantage Due to Proximity and Linguistics</strong><br />Due to its geographical proximity, Latin America can be used as a near-shore location to serve customers in the U.S. This enables the client and vendor to maintain a close relationship, including more face-to-face meetings, and also means problems can be solved in real time, without the delays that inevitably occur when work is offshored to more distant locations such as India or China.<br /> <br />Operating in Latin America gives clients access to a major pool of native Spanish and Portuguese speakers. Particularly in the case of customer-facing BPO functions, this offers the potential to provide better and more efficient services to the Hispanic community in the U.S., as well as opening up the Spanish and Portuguese markets in southern Europe. Providing local language services also improves the quality of services offered to end users, increasing customer retention.<br /> <br />Thomas points out, in the past, IT services vendors tended to pick one offshore location, usually India, and deliver a range of services from there. &ldquo;Now, more and more companies are adopting a multi-shoring strategy, whereby they set up centers in a number of countries in different geographic regions. This not only allows them to provide services from closer to the customer, but also reduces the risks associated with housing all their operations in one location.&rdquo;<br /> <br />Many vendors have expressed a fear of &ldquo;putting all their eggs in one basket,&rdquo; mindful of the chaos that could be caused should India&rsquo;s economy crash or wage inflation in the country hit new peaks. In this context, Latin America is an attractive alternative location for vendors with a presence in India.<br /> <br /><strong>Skill Shortages Will Hinder Region&rsquo;s Growth</strong><br />One of the main drivers behind the rise of India to its position as the pre-eminent global sourcing location was its vast reserve of skilled labor. Similarly, up-and-coming locations such as China and Russia offer large untapped labor pools, enabling vendors to scale up a delivery center quickly. <br /> <br />Customers may find that Latin American countries are unable to deliver the kind of scale available in these other, more populous regions. This is partly due to simple population size, but it is also the case that regions such as India and Russia churn out more technical graduates than their counterparts in Latin America.<br /> <br />Latin American countries can circumvent this potential problem by offering highly skilled services in niche areas. Also, the region&rsquo;s positioning as primarily a near-shore location necessitates a different operating model from the one utilized in India, for example, in which scale is of lesser importance.<br /> <br />Thomas noted that Latin America also still has some perception challenges to overcome in its development as a sourcing location. &ldquo;Concerns about stability (both economic and political) and security continue to hang over many Latin American countries, including Brazil, Mexico and Colombia. This may cause vendors to think twice before setting up there.&rdquo;<br /> <br /><strong>Recent Activity Will Continue</strong><br />All the vendors indicated they expected the recent expansion of Latin America&rsquo;s IT services and BPO sector to continue for the foreseeable future, with more vendors moving into the market.<br /> <br />The investment by international IT services and BPO providers has tended to focus around certain countries (most notably Mexico, Brazil and Argentina) and certain locations within those countries (including Mexico City, Monterrey and Guadalajara in Mexico; Sao Paulo and Rio de Janeiro in Brazil; and Buenos Aires, Argentina). There are many other cities within those tier-one countries that could be tapped.<br /> <br />The second-tier Latin American countries identified by Thomas in the report (including Chile, Colombia, Costa Rica, Panama and Uruguay) in some cases still represent relatively unknown quantities for many within the IT services and BPO industry. These locations each have their own unique set of strengths and weaknesses, but are all viable sourcing locations, many of which have yet to be fully utilized.<br /></p>

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