by Esteban Herrera

5 reasons Latin America could be the next big thing in IT outsourcing

Jul 10, 2015

Fiscal policies and market barriers have long deterred outsourcing buyers and providers from investing in Latin America. But creative sourcing solutions and a shift in corporate culture are helping to change that. The economic opportunities in the region are on the rise.

A friend recently told me an old joke about Latin America in the context of outsourcing: “Latin America is the next frontier in outsourcing—and it always will be.”

I have long promoted Latin America as an immense outsourcing opportunity—on both the demand and the supply side. But the obstacles are many and real. With a population of almost 600 million people across 26 nations, Latin America suffers from fragmentation of markets, languages and legal systems. Add cantankerous and protective government fiscal policies that lag behind the progress of globalization and either real or imagined political instability, and you have a formula that scares investors and multinational corporations from setting up shop. In essence, buyers and providers have found it challenging to successfully execute a regional strategy.

Many of these barriers still exist, but outsourcing activity has recently surged throughout the region. Here are five reasons why:

  1. Some of the most creative and progressive outsourcing solutions are being implemented in Latin America. Without the benefit of labor arbitrage, the solutions themselves have had to achieve either a significant decrease in cost or a significant increase in performance. Therefore, outsourcing in Latin America is much closer to the bottom line than it is in other regions.
  2. Corporate cultures are changing. Large, family-owned conglomerates are rapidly being turned over to professional management. Moreover, the executive teams in Latin America tend to be younger people from a more global generation ready and willing to work across borders. As increased demand has shown, outsourcing is neither taboo nor strange anymore.
  3. Providers are investing. For a long time, HP and IBM were pretty much the only games in town, with Accenture following an aggressive-but-country-specific strategy focused on the major markets. This is no longer the case. Capgemini, Cognizant, HCL, Infosys, TCS, UST Global, and Wipro, to name a few, have all made significant investments in the region.
  4. Free trade is gaining acceptance. The biggest economic success stories in the region have been those that have leveraged free trade. While Latin America will remain economically more volatile than most markets (there is no central bank like the Federal Reserve or the European Central Bank coordinating monetary policy across Latin America), companies that invest there have more confidence and more options as a result of a slew of free trade agreements signed over the last decade.
  5. Merger and acquisition activity is creating global conglomerates like Vale and Petrobras in Brazil and Cemex and Grupo Bimbo in Mexico. Globally competitive companies need globally competitive outsourcing solutions.

Though anyone would tell you there is much work still to do and that pockets of crisis and disaster still exist, providers and buyers are finding that the economic opportunities far outweigh the risks in Latin America today. We see this in increased investment and in significantly higher deal volume. While, generally speaking, contract values remain smaller than in other parts of the world, the amount of activity seems to be increasing more rapidly than anywhere else.

The most exciting news for the outsourcing industry in Latin America is not the uptick in deal flow, however. It is the nature of the solutions being conceived, the creative integration of emerging technologies, the out-of-the-arbitrage-box thinking, and the move toward a more integrated global economy. Outsourcing in Latin America may well define the next “state of the art” and, in doing so, leapfrog other, more developed geographies that are having a harder time letting go of outdated technologies and commercial models.