IT Outsourcing: Study Ranks Best Nearshore Locations for U.S. Customers

A new quarterly ranking of Latin American countries rates Mexico, Chile, Costa Rica and Argentina among the best locations for nearshore outsourcing.

By Stephanie Overby
Thu, October 06, 2011

CIO — U.S. outsourcing customers seeking nearshore alternatives to offshore outsourcing hot spots need not look far for the leading options. Mexico is their best bet, according to a new ranking of Latin American outsourcing locations by outsourcing consultancy ThinkSolutions.

"It was no surprise to see Mexico at the top of the list," says ThinkSolutions partner Tony Mataya. "NAFTA makes trade with Mexico very financially viable, and the cultural influence that comes from sharing a border with a country simplifies business relations."

Indeed, America's neighbor to the south boasts 2,000 IT companies, 550,000 trained IT professionals, and a growing labor pool, according to ThinkSolutions.

More unexpected was Chile, Costa Rica and Argentina, given the size of its labor pool and the attention it has received as a source of IT and business process services. "We were somewhat surprised to see Brazil so low," says Kate Shearer, a consultant for ThinkSolutions who conducted the research. "[But] at present, Brazil doesn't offer what Chile or Costa Rica does in terms of cost, language skills or work force availability. Chile and Costa Rica offer stability—both political and economic—although Brazil has pure size of labor pool."

Brazil's success in IT and business process outsourcing has its drawbacks for customers—namely demand for labor beginning to outstrip supply. "Particularly in the larger cities, the scarce talent that is available will be expensive," says Shearer, adding that language and cultural compatibility are also an issue for Brazil. The Portuguese-speaking nation has fewer proficient English speakers and Spanish speakers than its neighbors and "markedly less U.S. influence on its culture compared with the other countries in our top five," Shearer says.

Meanwhile, Chile's outsourcing industry is attractive for many reasons. It's among the most politically stable countries in the region, ranks just behind the U.S. on the annual Corruptions Perceptions Index produced by Transparency International (a non-governmental organization that monitors corruption in international development), and its outsourcing industry has strong government and private sector support, according to the study.

Chile's main issue is distance—the country is at least a ten-hour flight from North America.

The main appeal of location number three, Costa Rica, is its embrace of Western business practices along with English language proficiency, talented software developers, and an established call center industry, according to the research. But Costa Rica lost points for its relatively tiny labor pool.

ThinkSolutions ranked nearshore service locations based on their financial incentives, people and skills availability, and business environment. It put the least weight on cost-related factors.

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