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Outsourcing : Latin America Challenges India and China

Latin America is catching up fast in the area of outsourcing. India is still the leader with 60% of companies outsourcing to this country; China takes the second place with 27%. Latin America comes next with 25%. The important countries of Latin America are Argentina, Brazil, Chile, Guatemala and Mexico. Though India and China are still the popular destinations, the staffs here have the problem of accent, which is a major factor in publication relations dealings and information dissemination. Many of the Fortune 1000 companies that are not outsourcing to Latin America at present are actively considering such an option in the immediate future.

Why Latin America scores: Some of the decided advantages are:

  1. Cost of labor cheap.
  2. Infrastructure and technology capabilities.
  3. Availability of skilled labor.
  4. Economic stability.
  5. Proximity  to USA
  6. Time-zone alignment.
  7. Region’s increasing value to the global economy.
  8. Business dealings are much easier in this region as compared to other parts of the world.
  9. Language proficiency–an important reason.

The challenges to India/China are real:

Proximity to USA and free trade agreements has changed the entire perspective of outsourcing position in Latin America. These countries have visualized the advantages of building modern outsourcing infrastructure as they see substantial long-term advantages that may go a long way to solve the unemployment problem.

Disadvantages India:

  1. Rising global competition.
  2. Spiraling costs and low efficiency. Software outsourcing has turned out to be less attractive in cities like Bangalore.
  3. Outdated infrastructure—the country is losing fast the competitive advantage.
  4. All-round downward push in costs in other countries, importantly the countries of Latin America.
  5. Human resources and training not up to the mark.
  6. Costs in all metropolitan cities like Chennai, Bangalore, Kolkata and Mumbai are rising on all counts; land-wise, the cities have reached the saturation point, with exorbitant cost of land and sky-rocketing rentals.
  7. Education system in India doesn’t match with the skills needed by the outsourcing industry. A graduate from most of the universities in India doesn’t possess the required communication skills in English or any other foreign language and doesn’t own the background and flexibility to grasp the global issues that are needed by this type of service.

The Mexican example

The proximity advantage is seen by Mexico, the next-door neighbor of USA. The North American Free Trade Agreement of 1994 made it possible for companies in USA and Mexico to do business with each other with mutual benefits. With the time zone advantage, a company executive can fly down to Mexico in 3-4 hours, do business and return to his headquarters the same day. Time and substantial travelling expenses are saved.

Softtek, a software company in Mexico took up the outsourcing initiative with great results. They trademarked the term NearShore. The company bought General Electric Mexico-based IT operations. It took 1000 engineers’ into its fold. The company’s revenue has been increasing @ 40% annually and it has about 3500 employees, mostly engineers.

USA companies have the decided advantage to go to Mexico and Latin American countries than India and China. Comparatively, as on date, the labor costs are high in Mexico. But the efficiency factor scores from working close to USA and being in the same time zone. 95% of the work in Mexico can be done off-site in Mexico in comparison to 60-65% in China and India providers.

Argentina is another Latin American country that has one of the best-educated workforces in the region. The authorities are aggressively promoting software development centers. They have also realized the importance of technological growth which is the key for global competition.

Chile has also arrived aggressively into the picture. Its political and economic stability are the plus factors. It has the state-of-art telecom structure. It has free trade agreements with a number of countries. Multinationals like Citigroup (C), Unilever (UN), Eastman Kodak (EK), and Delta Air Lines (DALRQ) have set up outsourcing centre.

Taking in to consideration the overall ground realities, the going is tough for China and India. But will these countries accept the fate-accompli? …….Perhaps not! The wise saying goes, “When the going is tough, the tough gets going!”  Both India and China are technologically advanced countries and are modernizing the infrastructure. But the countries need to take a serious note from almost all the Latin American countries and plan their future strategies to retain the existing outsourcing business and to attract new ones.

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One Response

  1. Only a few LPOs in india are making a lot of money by bringing in work from US and UK law firms and corporations. Many companies now look into the LPO business as a juicy apple, only to realize that it is not that easy to get work to India. A huge amount of marketing effort is required and an US or UK presence has almost become a necessity. I am in the LPO industry since 2006 and have been round the block a number of times.