by Stephanie Overby

IT Outsourcing in Latin America: 9 Things Your Vendor Won’t Tell You

Apr 06, 2011

The Latin American IT services market is heating up, but buyer beware: There are hidden costs and issues that could affect your nearer-shore outsourcing deal.

The IT and business process outsourcing market is heating up in countries throughout Latin America. Outsourcing analyst firm HfS Research estimates that the region’s outsourcing industry will grow 15 to 17 percent this year. Indigenous providers are offering more sophisticated services. U.S. multinationals have a large local presence. And Indian providers are building or buying their way into the market.

Some U.S. corporate IT leaders are looking beyond India to countries like Brazil, Chile or Mexico as nearer shore alternatives.

can improve collaboration and reduce management overhead. Cultural affinity can make for more compatible outsourcing relationships. And some companies are eager to use outsourcing as a stepping stone to entry into the local markets.

Although the Latin American outsourcing market has matured over the past five years, there can be significant trade-offs that may not be immediately obvious—even after your exploratory vendor visits in the region. Here are nine things your potential provider (local, American, Indian or otherwise) won’t tell you about outsourcing to Latin America.

1 . We’re slow. Some customers report a lack of urgency from Latin American outsourcing providers and their employees. “Americans often get frustrated with a perceived lack of ‘get-up-and-go’ from their Latin American co-workers,” says Esteban Herrera, COO of HfS Research. “Some of our clients tell us more follow-up is needed with their IT and BPO providers in the region [than in other geographies].”

2. Our political situation could threaten your business. Much of Latin America is reasonably stable. However, anti-business and anti-American governments currently hold power in Venezuela, Bolivia, Ecuador, Nicaragua, and to a lesser extent, Argentina. “Each country’s differences must be seriously considered as they can be quite substantial,” says David Rutchik, partner with outsourcing consultancy Pace Harmon. “Considering outsourcing in violence-ravaged Guatemala is quite different from outsourcing in Panama, where the business climate feels similar to the U.S., or in Brazil, which has become one of the world’s largest economies.”

3. Our prices have risen fast. “Labor arbitrage has faded, especially in countries with smaller populations like Chile and Costa Rica,” says Herrera. Salaries and taxes are highest in Brazil, while Colombia offers the best value today. It’s especially important to understand currency and inflation issues, as they can vary greatly from country to country and can affect the TCO of an outsourcing deal, adds Rutchik.

4. You might get a better deal across the border. “Andean countries [such as Columbia and Chile] can be quite different from Mercosur countries [such as Argentina and Brazil], just as Central America can be quite different from Chile,” says Rutchik. “A big difference in approaching an outsourcing engagement in a Latin American country versus India is the vast array of business climates, laws and economic conditions at play in each country.”

Significant variations in tax, free trade zones and other incentives may make one country or city potentially more attractive than another, whether you’re setting up a captive shop or shopping around for a provider. Even if you’re dead set on locating in Argentina, for example, research neighboring countries for negotiating purposes.

5. We’re not afraid to say no. Early entrants into the offshore IT services market in India or China noted local IT service professionals’ reluctance to push back or say no to the customer. Not so in Latin America. “Latinos are not shy and are more likely to challenge something they feel is wrong,” Herrera says, “which can be jarring to clients used to hearing ‘yes’ to just about everything.”

6. Our English could use some work. “Don’t be surprised if spoken English isn’t as clear and accent-free as advertised,” Rutchik says, even within call center providers. Pay close attention to language issues during site visits and other due diligence.”Make sure to request the ability to listen to a good cross sampling of actual service desk calls,” Rutchik advises.

7. Process is not our strength. India built its IT services reputation on repeatable processes and quality initiatives. Providers in Latin America are less rigid. “Most of the people we talk to recognize there’s a tradeoff of a little discipline for some additional creativity,” says Herrera.

Indeed, it might be a welcome change for IT customers who themselves are less disciplined. “Enterprises with ad-hoc processes and practices are far more likely to find success in Latin America, since most Indian providers require a significant degree of standardization to keep their well-oiled machines running,” Herrera says.

8. We lack scale. Not one country in the region has the potential scale that India provides. Costa Rica, for example, has just 4 million inhabitants, 300,000 of them already working in the IT and BPO sectors. Chile has a population of 16 million. Both nations have proven difficult places to recruit for recent corporate multi-national arrivals, says Herrera. Mexico and Brazil boast the bigger talent pools.

9. Physical security concerns could pose a problem. Recent violence—and even the perception of violence—in countries such as Mexico and Guatemala could have near- and long-term impacts on the IT services industry. “U.S. company client personnel may be less inclined to make site visits in general, reducing important local training and vendor management time,” Rutchik says. “This adds risk to service delivery and long term success that can be otherwise fostered by cross-pollination of U.S. clients and offshore providers.”