By Jerry Durant

Everybody wants ROI from their outsourcing projects. Many (on both the buy and the sell side) claim it. But relatively few have the knowledge or background to calculate it correctly. This not only makes it harder to make good decisions, but saps the credibility of whoever is doing the calculations.

Far too many operations and procurement professionals try to calculate ROI without a sufficient understanding of it.

They also try to convert subjective value measures to quantifiable numbers and fail to relate ROI to business objectives that might not relate to money, but to harder-to-measure benefits such as innovation or the delivery of new products and services to customers.

First, one must understand what ROI is not. Consider a typical outsourcing decision, such as whether to outsource your e-mail infrastructure. Just because Option A costs less than Option B, while delivering similar service levels, does not demonstrate ROI. It just means you have lowered the cost of doing business – the cost of operations. You cannot claim ROI because you have not done anything to generate more revenue.

ROI is the result of the Gain from Investment less the Cost of the Investment all divided by the Cost of Investment. You achieve ROI when, and only when, it supports the operation of a profit center, rather than a support center where any savings are likely to be consumed by other areas.

So where do we stand?

1. Distinguish between investment and operating costs. An investment will produce a yield, in the form of an improvement in a profit-making operation, while operating costs allow you to keep the lights on for less than you otherwise would.

2. Know your objective. If it’s labor arbitrage then a simple comparison will reveal the spread between domestic and foreign labor costs.

3. Ensure ‘like’ comparisons. Are the processes you are comparing both fully optimized? All too often, the function you’re considering for outsourcing is not in best operating form. If it’s a simple “lift-and-drop” situation then cost comparisons would be OK, but if the provider is making changes you need to factor that in. So facilitate process improvement/optimization at some point in the relationship, whether pre- or post-engagement, measure the results and take them into account

4. Take into account all costs. It’s not simply a matter of contract cost vs. prior in-house costs. Take into account other costs that must be amortized over the duration of the contract, such as to transition the function to the provider. Remember new, in-house costs such as for a project management office (PMO) that oversees the outsourced relationship, as well as the need to monitor the quality of the outsourced work.

5. Make sure that you have systems in place that can track operating costs against the estimates you used to make your decision. In some ways this is a bold step because you may wind up finding flaws in your decision making. Don’t use this as an opportunity to find fault, but to improve your estimation and sourcing management skills.

6. Factor in whether you’re getting everything from your service provider you were getting in-house, such as a commitment to environmental efforts or working conditions. This is another way of saying “compare apples to apples,” but in an area that can cause big public embarrassment if you ignore it.

Bottom line: When calculating ROI keep in mind the difference between reducing operating costs and actually improving in business. And, when you’re comparing costs and benefits, make sure you’re doing a fair comparison that takes into account both everything you’re spending and everything you’re getting (or not getting.) The health of your organization – and of your own credibility – depends on it.

Jerry Durant is founder and chairman emeritus of The International Institute for Outsource Management, a trade organization dedicated to the assessment, development, and guidance of outsource service providers in the ITO, BPO, call center, and KPO domain areas.

Choucair: People said software testing is something users do.

Testing firm’s founder overcomes skeptics and machismo with a ‘humanist’ operating  philosophy

By James Bargent

When Maria Clara Choucair founded Choucair Testing in 1999, it was the first software testing company in Colombia and one of only a handful in Latin America. The company started with a workforce of one – Maria Clara Choucair. Thirteen years later, Choucair Testing has 450 employees, branches in Medellin and Bogota and Lima, Peru, and a host of big-name clients.

Maria Clara Choucair first encountered software testing when she worked on a joint venture between software developers Ecosoft and Intuit. “What I learned from the experience,” she says, “is that we Latin Americans are very intelligent but we’re not very methodical.”

When Choucair – who is #10 on the 2011 Nearshore Americas Power 50 Ranking – decided to set up her own company in Colombia, she was met by widespread skepticism. “Testing here didn’t exist,” she says, “they told me I was crazy, they said there was no use for that because the users are the ones who test.”

What gave her the confidence to challenge that prevailing wisdom was her strong belief in the benefits of software testing. “The product was very good for society,” she says.

That type of thinking characterizes Choucair’s approach to both life and business. Choucair Testing, she says, is informed by a “humanist philosophy with ethical roots,” something that has played a key role in the development of the business by establishing trust and confidence with clients. “It’s a business philosophy. I always ask this question: What kind of friend would you like to have? Because for us, a business relationship is like a friendship.”

Despite the global financial turmoil of the last few years, Choucair has continued to grow steadily and has recently expanded into Peru.

Laborwise, Start from Zero

As pioneers of software testing in Colombia, Choucair Testing had to start from zero in developing its human capital; they not only had to fully train their workers, they also had to instill the concept of testing. Choucair’s answer to this was to design technical and personal profiles outlining exactly what level of training and personal characteristics she was looking for in any given role. From there it was a matter of the right training. “We have a method,” she says, “training and tools that help people change their state of mind.”

Today, both software testing and the IT sector in general have grown exponentially in Medellin and in Colombia, and Choucair operates in a much more competitive environment. The Colombian education system has not kept pace with business growth, the founder says, so the company now faces the dual challenges of both training and keeping the best talent. Choucair herself, however, remains philosophical. “We teach them and they go,” she says. “But I think it has also made us more competitive – it is not a bad thing”

Attrition rates are high, but Choucair says “lower than the market average.” She puts this down to creating a working environment where people enjoy their work, have good relationships with their co-workers and management, and see the potential for personal development in the company. The firm tries to achieve this through a range of strategies, from arranging education and training to perks such as meals out. They are also developing personal “projection maps,” plotting an individual’s potential for career progress.

John Jairo Gomez helps them act "more like a corporation."

Intelligence Over Macho

In late 2009, Choucair handed over day-to-day management and business strategizing to her long-time associate and former Choucair customer John Jairo Gomez, allowing her to concentrate on what she loves – software testing. Gomez has brought in a more refined, formal, and disciplined management style, which they both agree was necessary. “Because of the company’s growth,” Gomez says, “we need to behave more like a corporation.”

As a woman, Choucair’s success stands out even more in a country renowned for its culture of machismo. However, sexism has not been an issue for her. “It helps that I work in [a] technical [industry],” she says, “because in a technical market they appreciate your intelligence, your manners, and your way of working.”

The Choucair labor force is evenly split between men and women, while the management team is all women apart from Gomez. According to Choucair, this is not by design. “The only thing I care about is that they are honorable and they do a good job,” she says.

Despite the global financial turmoil of the last few years, Choucair has continued to grow steadily and has recently expanded into Peru. “[Doing business in Peru] is like a university,” Gomez says. “We have learned a lot and we have had a lot of fun doing that job … [it is] a different culture, a different way to do business”

Choucair says her attention, however, remain focused on her home city of Medellin and the IT sector’s ability to help realize the city’s potential. “When I see the comunas [the poverty stricken hillside neighborhoods of Medellin],” she says, “it is my dream to get those people out of there, because we have a lot of opportunities [in IT].”

Choucair Testing currently works in partnership with local educational institutions to help people in the comunas access those opportunities. Even so, Choucair says, more needs to be done. “The universities and the schools have to be faster in capturing these people without resources because this is an opportunity to help get them out of that hole.”

Santiago: Sustained vertical drive.

By Dan Berthiaume

Latin American nations make up about one-quarter of the 2012 list of Top 100 outsourcing locations compiled by global outsourcing research/advisory firm Tholons, and that is no accident. As Manuel Ravago, president for research at Tholons, explains, Latin America is an up-and-comer in the world of BPO. And more agile smaller countries might make the most of that.

“We view Latin America as the next important outsourcing destination globally,” says Ravago. “The world will soon realize Latin America can do more than speak Spanish.”

Latin America possesses several factors that give it an edge over more traditional BPO locations such as China and India, according to Ravago. “First of all, Latin America has Nearshore value due to things like time zone and general proximity, which India and China can’t compete with,” he says. “From an operational perspective those things can make a huge difference.”

Ravago also cites Latin America’s linguistic advantages, but not just in terms of Spanish. “There are a lot of other languages in Latin America,” he says. “There are pockets of many other populations, like Italian and German speakers.”

Furthermore, Ravago says outsourcing certain business processes to Latin America can help US firms better serve the rapidly expanding domestic Hispanic market, which represents the country’s fastest-growing minority group. “If a company is looking to offer Hispanic consumers customer support, can India provide it?” asks Ravago. “No. Can Latin America provide it? Yes.”

In addition, Ravago says China is still relatively focused on serving its domestic BPO market, with “nearshore” for China meaning other Asian nations such as South Korea and Japan. “Those are not markets Latin America has to compete with,” he states.

Latin American BPO Attracts India

According to Ravago, the BPO potential of Latin America is bright enough to attract the interest of many major Indian BPO providers. “A lot of Indian companies want to break into the US Hispanic market, and Latin America is a stepping stone,” he says.

There have already been a number of Indian BPO delivery centers established in Latin America, says Ravago. “They will see the wealth of skills available and move into higher-value services. The number of delivery centers and investments is set to expand in the near term.”

Costa Rica, Colombia: Strong Potential

Tholons’ report on the top Latin American global outsouring locations cites Costa Rica and Colombia in particular as showing strong growth potential. According to Tholons, Costa Rica will benefit from its skilled labor force as the global BPO market moves toward vertical-specific, high value services. Costa Rica is also trying to attract more investments in its creative services outsourcing industry.

Meanwhile, Colombia has enacted a program known as “Transformacion Productivia” which acknowledges IT-BPO as a key growth activity. This effort includes a widescale focus on more effective training and capacity-building programs for its KPO and ITO segments.

Tholons also calls out Santiago, Chile, in particular for a sustained drive to hone expertise in vertical-specific processes.

Brazil, Mexico, Argentina: Internal Risks

According to the Tholons report, three of the most established Latin American BPO provider nations – Brazil, Mexico, and Argentina, need to address internal social, economic and political risks, including inflation, to “regain lost momentum.” If these countries do not counteract internal risks, Tholons warns smaller “upstart” Latin American destinations such as Peru may capitalize on their lost market opportunity.

Ravago added further commentary on Brazil, noting that as an emerging market it offers economic opportunities on par with India and China, but saying Brazilian BPO providers must adopt a less provincial outlook. “A lot of Brazilian BPO providers are ‘eccentric in their outlook; they are not looking for Nearshore or offshore opportunities,” said Ravago.

By Patrick Haller

When making sourcing decisions, a lot of attention is paid to the pricing structure and qualifications of service providers, while their actual location is sometimes a secondary  consideration. However, when assessing a destination, it’s important to realize that what might be favorable today can morph into a nightmare scenario tomorrow. Don’t be caught unaware and unprepared for the ever-changing dynamics of  the Nearshore.

The best-shoring process goes beyond looking at the usual criteria like cost effectiveness, employee attrition and service capabilities, and examines issues such as the hidden aspects of hiring and firing, how non-performance claims are managed, a country’s political stability, propensity for natural disasters, nationalization of businesses, and concerns about infrastructure. It’s dangerous to give these critical factors short shrift when concentrating on which provider offers the best financial deal.

International management consulting firm A.T. Kearney advises that “the best-shoring evaluation process selects the most favorable location by applying a comprehensive set of criteria, which include not only current cost effectiveness and scenario analyses, but also an assessment of service and quality levels, as well as the question of warranty.”

“There are several items that are driving the trends towards best sourcing of solutions,” said Ed Fitzpatrick, director of Managed Services at Charles River Development, during a podcast about IT development, “The key thing is the competitive nature of the industry. Especially coming off the last couple of years in the worldwide financial situation, it’s about proving competitiveness, lowering costs, driving operational efficiencies, getting more value out of their investments in technology and systems, better aligning costs and values, and of course, reducing the strain on limited internal IT resources.”

Looking deeper than immediate cost savings, buyers should take into consideration driving factors, such as:

• Available Talent – How big is the current qualified labor pool? Will the operation be able to scale-up over the next five to ten years? Who are the competitors for the same talent? What are the strengths and weaknesses? Are wages expected to increase from year-to-year? Do the labor laws favor workers or employers?  For example, even though Brazil has the largest population in South America, can the country offer better software developers than Colombia? Can Colombia compete on the wage scale with Chile? Will Chile produce enough qualified candidates for contact center work over the long-term than Argentina? Will wage inflation and restrictive labor laws in Argentina have an adverse effect on the ability to continue operations there? Which nation is known for a strong work ethic as compared to the others?  When it comes to hiring and firing, every aspect of the country’s employment law should be examined carefully.

• Soundness of Infrastructure – Just because a country was known for having solid infrastructure in the past does not mean it will be true in the future. For instance, Chile was thought of us being relatively sound in this regard, but recently President Piñera warned executives that Chile would face an energy crisis during his administration due to an estimated annual demand increase of up to 7%. Other nations too might face energy crises, or an inability to keep up with the need for improved telecommunications technology and internet access. Safe roads and highways, efficient and adequate transportation systems, accessibility to international airports are also major considerations. El Dorado, the main international airport in Colombia’s capital city, Bogota, is being completely rebuilt in order to accommodate the heavily increased passenger traffic. However, observers have noted that by time the new facility is completely operational it will already be inadequate. Therefore, plans are under consideration to build a second airport.

• Natural Disasters – No country on earth is safeguarded from nature’s wrath. However, some are more prone to disasters than others. As charted by PreventionWeb, Chile is more prone to earthquakes than flooding, Colombia can suffer from flooding and earthquakes, Argentina is also susceptible to flooding whereas drought is the biggest threat to Brazil. Whatever the hazard, be sure redundant systems are in place and assess how quickly business can resume.

• Claims for Non-performance – Even though the contract might contain very specific clauses relating to non-performance issues, what jurisdiction will the contract be enforced in? If in the provider’s home country is there a enough of a history of similar cases in order to establish a precedence, and if so, who have they favored? If not, how would such a case be handled?

• Political Risk – Are foreign business entities welcome to operate freely within the selected country? Does the country have a history of nationalizing private enterprises, or are there indications to suggest this will start happening? Can the government close down an operation that is deemed contrary to their philosophy? Will a foreign entity, or a company hired by a foreign entity, be abruptly shut down? These are very real concerns, especially in Latin America where the political dynamics change rapidly in some nations. Closely examine the policies of countries such as Venezuela and Argentina who have been shown to be volatile environments, whereas Chile and Colombia stand as recent examples of political stability.

• Immigration Policies – Providers might need to hire employees from other countries, even on a temporary basis, in order to ensure they have the right individual in the right position. Also, companies that have shared services or captives most likely will want at least some high-level personnel from established business centers to oversee their operations. What countries are more welcoming to foreign workers? Where are the least restrictive immigration policies? Can foreign employees be arrested or deported without cause? Be sure to research these policies in-depth and gain an understanding of a particular country’s record, and pay attention to the “writing on the wall.”

Do not underestimate the importance of digging into these fundamental aspects of sourcing. Remember that the relationship is not only with your provider, but also with their country.

By Katy Demong

Companies that want to grow their bottom line while saving money by speeding software cycles are turning increasingly to Agile development. But how can companies combine the cost savings of Agile with the economies of Nearshore while protecting themselves from miscommunication and the mismanagement of time and resources?

Traditional development contracts include terms such as cost-per-hour and date-of-deliverable and include an addendum with a long list of requirements, says Russ Fletcher, who has managed IT efforts at Global Systems and XanGo and currently works as an Agile coach and trainer at Davisbase. “The challenge with that is, what happens when the world changes?”

Since Agile development involves many iterations of work on sub-units of software, rather than a smaller number of hands-off of larger chunks of work, “the ideal contract would say, I will make you happy for X amount of money,’” says Fletcher. “But of course, you can’t say that. The best you can do is try to define what ‘making you happy’ looks like and then assign a value.”

True Cost

With Agile development, value is not produced when an idea is developed, but when the code to implement it is delivered. Thus, charging by the hour encourages developers to work less efficiently, says Fletcher. Instead, he suggests results-oriented labor costs, through a contract that allows the client to charge by the number of story points (specific functions within the software) the team delivers. “This changes the labor cost paradigm to create value by producing visible results,” he says.

Peter Stevens, a self-described “Corporate Thawing Agent,” and author of the blog Scrum Breakfast, warns that in Nearshoring, “long communication lines can create inefficiencies which cancel out the price advantages.” While the best co-located scrum teams have been documented to be 10 times more productive than the average team, he warns that if you have only an “average capability” offshore team you must carefully consider whether offshoring will provide a financial benefit.

Timeline Estimation

Contacts can go awry when development teams fail to meet deadlines or inaccurately estimate the amount of time and staff required to complete a project. A major benefit of Agile is the ability to measure the “velocity” of a development team’s output, says Fletcher, by evaluating the working product as it evolves and providing constant feedback to the team about the users’ (perhaps) changing expectations. “This creates a healthy dialogue that a traditional contract doesn’t allow for,” he said.

To maximize this benefit, Stevens says, “it makes sense to contract experienced teams rather than individuals, and as a supplier, it makes sense to keep teams together over longer periods of time.”

 Unambiguous Reporting

Checking progress has always been an integral piece of ensuring a project is on track. With Agile, say both Fletcher and Stevens, unambiguous reporting can be simple when compared to traditional development methods.

Development teams demonstrate the working functionality of the software following every Sprint (or two-four week development interval). Meanwhile, progress for the entire project is measured on a burn-down chart. Stevens explain, “If a feature is finished, the team may deduct the estimate for the feature from the total time estimate of remaining work to be done. So a Scrum project is considered 50% done when 50% of the features are complete. If 50% or less of the time has passed, then everything is in good shape.”

A significant paradigm shift with an Agile project, where you no longer have the flag at the top of the hill, is that progress reporting boils down to whether you are on track or not on track, adds Fletcher. “It’s not everything or nothing, but just asking ‘Are we still on the path?’”

Better Processes, Better Contracts

While both Fletcher and Stevens are proponents of Agile methodologies, they agree that contract processes must change to make the most of it. “For me the most important sentence of the Agile Manifesto is the first one: ‘We are uncovering better ways of developing software…’” says Stevens. “It’s a voyage and you can always learn and improve. ‘We are uncovering better ways of writing contracts…’ would be just as true.”

“When we write traditional contracts and use Agile methods to achieve them, what we have is a constant project schizophrenia,” says Fletcher. For Agile to truly work, customers need to create contracts that reflect Agile processes, he says, but there are very few attorneys that understand this. “It’s the next biggest hurdle to overcome,” he says.

By Dan Berthiaume

Labor arbitrage, or the moving of jobs from more expensive to less expensive locations, has long been seen as one of the chief potential benefits of BPO. And while reducing the cost of labor by shifting it overseas certainly remains an appealing option for many BPO customers, with the assistance of technology the BPO model is starting to evolve to a point where, in many cases, labor can be removed from the equation entirely.

“BPO is migrating to a continuous-improvement model where technology solutions take the labor out of the cost of BPO,” says Marc Tanowitz, principal of Pace Harmon, a consulting firm specializing in outsourcing advisory services. “Taking labor out is a better solution than labor arbitrage.”

Tanowitz says the removal of labor costs from BPO via automated technology solutions makes the whole cost of BPO go down. “There is market saturation [of labor-based solutions],” he says. “The next wave of BPO solutions will leverage technology to drive costs of BPO down.”

Delivering BPO via Platform

Using technology to minimize or remove the labor factor from the BPO model also allows BPO vendors to create a new, platform-based model of delivering services that resembles the traditional model of delivering IT services.

“Platform-based BPO solutions create a competency- and utility-based BPO model with variable, transaction-based pricing,” says Pace Harmon senior associate Dave Borowski. “Back-office processes are still very labor-intensive, but there is a new interest in creating an incentive for the BPO vendor based on outcome.”

Borowski cautions that delivering BPO via a platform model is not a simple task. “It takes a lot of work to move BPO toward becoming a truly managed service,” he says. “There is a lot of talk about it, but it’s a less proven model.”

End-to-End Process

Tanowitz says that removing the labor cost from the BPO model and creating a platform-based means of delivery can also help evolve BPO into a truly transactional “end-to-end process,” as opposed to the traditional less flexible, labor-based model.

“The typical BPO approach looks at how many people are performing a process today, assumes there will be that many throughout the process, and provides a cost based on that amount of labor. We are moving away from this model towards a transaction-based model.”

Borowski estimates that by integrating technology into BPO solutions, approximately 50% of its savings compared to in-house process management is driven by increased efficiency and automation, and 50% of its savings through leveraging low-cost labor location(s). He also notes that Pace Harmon does not necessarily advise a client having business process issues to pursue a full-blown BPO solution.

“We go into an assessment without a predisposed conclusion that outsourcing is the best answer,” he says. “That could mean we advise re-engineering processes or migrating to a captive shared-services delivery model, rather than outsourcing.”

Second Annual Nearshore Nexus Comes to New York City this April

Nearshore Nexus, the only North America investor conference focused entirely on the Caribbean and Latin America IT and BPO sector, will take place on Thursday April 19, 2012, in New York City.

Nearshore Nexus will feature the best minds in global services to examine the growing role Latin America is playing in delivering quality outsourcing services to businesses across the Americas. The outsourcing sector in Latin America has been growing at over 20 percent per year – noticeably higher than the global average. The theme for the 2012 edition of Nexus is: “Intelligent Analysis of Outsourcing in the Americas.”

“I’m very proud of the fact that we will attract delegates and sponsors from over 15 countries in Latin America. This testifies to the strength of our business and the appeal of this topic,” said Kirk Laughlin, CEO and Founder of Nearshore Americas, the company staging the conference. The event brings together CIOs and IT leaders, global sourcing decision makers, procurement heads and country representatives. Besides analyzing complex ideas and generating stimulating debate, Nexus is also a place to enjoy something different. Musical entertainment will be provided during the event, and multiple networking opportunities are built in.

”The Nearshore outsourcing market is extremely robust,” noted Laughlin, “yet a good percentage of U.S. buy-side sourcing customers continue to lack sufficient knowledge of Latin America to make good business decisions. Our conference is all about accelerating that awareness and generating high-value connections.”

Nearshore Nexus features a list of top tier speakers from organizations such as GE, The McGraw-Hill Companies, Pace Harmon, Pegasus Solutions, UBS, HfS Research, Tata Consultancy Services, Ci&T and A.T. Kearney. Topics range from the current state of outsourcing in Latin America, getting smart about site selection, and how to manage vendors in a multi-vendor, multi-location environment.

Sponsors include Tata Consultancy Services (Diamond); Ci&T (Platinum); BRASSCOM, MexicoIT and Pro Mexico (Gold); Belatrix Software Factory, Common Sense, Invest Pacific, Nearshore Call Center Services, Neoris, ProBarranquilla, VSI Nearshore Outsourcing and Wipro (Premier). Partners include Avasant (Advisory Partner) and HfS Research (Research Partner).

This year’s conference will be held at the elegant Crowne Plaza Times Square Manhattan, which offers a luxurious oasis in the middle of Manhattan’s most vibrant and iconic neighborhood. Nearshore Nexus has secured a special room rate for attendees of $309 per night. This rate expires on March 16, 2012.

Nearshore Nexus is an invitation-only event. Individuals who are outsourcing services decision makers may request an invitation to the conference by sending an email, with your title and company name to invitation@nextcoastmedia.com . After submitting your registration request, your qualification status will be verified for eligibility. Qualified invitees are granted complimentary access to the entire conference. Vendors, service providers, business parks and government/private promotion and investment agencies may obtain access to the conference through sponsorship.

For information about Nearshore Nexus, visit www.nearshorenexus.com or contact the conference office at (516) 277-1108. Nearshore Nexus social communications can be found on Twitter and LinkedIn.

Prakash: Customers want "mobility, big data, business intelligence."

By Robert L. Scheier

Days after Tata Consultancy Services (TCS) announced a 14 percent growth in quarter-over-quarter revenue, Ankur Prakash, Vice President and COO for TCS-Latin America talked with our affiliate Global Delivery Report about prospects for the Nearshore amid continued economic uncertainty.

Prakash, who is ranked number 15 on the Nearshore Americas Power 50 list, lauded for being “a strong supporter of Latin American services,” does not see the slowdown in demand for outsourcing that some analysts are forecasting.

Some observers are predicting slower demand this year. Are you?

Prakash: I don’t see any sluggishness. We have seen good momentum in the last couple of years, and I do not see the momentum is going to decline over the next 12-18 months.

There’s also some talk that larger service providers are seeing stronger demand than smaller or mid-size firms. Your thoughts?

Prakash: In general, providers like TCS who can offer stability, certainty, and flexibility will always be in demand. That’s what I’ve seen over the last four to five years, not just the last few quarters.

Several analysts have recently said they see a trend toward customers doing smaller, less complex deals. Is that true for TCS?

Prakash: I think it’s relative. I have seen deals…ranging from $200,000 to more than $25 million.

Attrition is always a concern for customers. In the earnings call, TCS said attrition had fallen to 12.8 percent. Is that true across all the Nearshore geographies?

Prakash: Attrition for Latin America also fell to below rates in the overall Nearshore market. We were not as close to the TCS overall number, but [throughout Latin America] we were lower than market attrition… [which is] in the range of 16 to 17 percent.

In the recent earnings call, the company also said “Latin America showed significant momentum followed by India and Asia-Pacific.” Was this demand from the domestic market or for global services provided by Latin America service centers?

Prakash: Almost 70-75 % [of the demand came from] the local market, the remainder in global services. All the markets showed consistent growth, within a few percentage points [of each other].

Specifically in Latin America, how quickly are you growing revenue for testing, remote infrastructure management, and agile application development?

Prakash: We’re growing quite fast in infrastructure services, followed by assurance services such as testing. Another area where there’s a lot of momentum and growth is in enterprise solutions such as ERP [where we are doing] application maintenance and management, implementation, hosting, and remote management

What is top of mind for customers these days?

Prakash: They are asking for innovation, and things like mobility, big data, and business intelligence, more often than they have asked in the past.

TCS has also said that pricing is stable and its pipeline is strong. What could change that? What danger signals are you watching out for?

Prakash: [Laughs] I always get this question. I believe a business has to be run with the same fundamentals [all the] time, not because today there is no crisis, so we can expand everything, or tomorrow, there is a crisis, so there [will be no] investment. The basic fundamentals of a business cannot be drastically changed [without], some way or another, choking the business.

< Watch our interview with Prakash here. >

By Reshaad Durgahee

Lima, Peru: Surprisingly emerging.

In the period 2003 through 2010, Europe and Asia were the largest recipient regions of foreign investment projects in shared services and BPO activities, accounting for 46% and 29% respectively. Meanwhile, interest in Latin America has clearly been growing. The number of shared services and BPO foreign investment projects in Latin America rose year on year until 2010, when the total number of projects entering the region decreased by 15%.

However, in terms of jobs created by these investment projects in shared services and BPO, 2010 saw the highest number in the Nearshore region since 2006, increasing by almost 10% over 2009.

After the Asia-Pacific region, Latin America is now seeing the largest-size centers being set up, and indeed, the region continues to be characterized by a number of labor-intensive shared-services projects, with on average 350 announced jobs per center in 2010.

General trends in announced shared services jobs by world region, 2003-2010

Typical destinations for shared-services establishments in Latin America, such as Colombia and Costa Rica, continued to lead the rankings in 2010, representing 22% and 14% of regional shared-services job announcements. Brazil and Argentina – as dominant markets in the region – also continue to attract their share of investments.

Top ranking SSC/BPO destinations in Latin America & the Caribbean by estimated jobs, 2003-2010

However, it is the emergence of newcomers in the rankings, such as Nicaragua and Peru, that piques the interest of the observer of the outsourcing industry. These two countries attracted large-scale investments in shared services, demonstrating the widening of investor confidence across the region. Companies are now seeing the potential of previously untapped labor markets. Countries such as Nicaragua and Peru offer companies that are willing to take risks a first-mover advantage in terms of potentially lower labor costs, lower levels of competition from similar operations, and the opportunity to become the major player in a new market.

This would be in contrast to already well established shared-services locations in the region, which offer a more experienced labor pool and potentially higher-quality level of infrastructure, but are also starting to experience side effects such as increased levels of competition and elevated attrition rates.

The Rise of the Second Tier

In 2010, leading agglomerations in Latin America in terms of job creation through foreign investment in shared services and BPO included Bogota, Lima, San José, Guadalajara, Managua, and Medellin, the first four of which make the Global Top 20 ranking. Examples of new investments include Sitel, which announced 450 jobs at its new contact center in Managua; National Instruments, which has announced the establishment of a shared service center in San José creating 200 jobs in CRM, finance, IT, and sales; and Convergys, which has established a bilingual contact center and back-office support site in Bogota, creating up to 1,000 jobs.

The appearance of Bogota and San José, as now-seasoned shared services destinations comes perhaps as no surprise. The Mexican city of Guadalajara and Colombia’s second city Medellin highlight the potential of such second-tier cities in the region to operate shared services at lower cost than their capital cities, whilst still maintaining suitable operating environments desired by investing companies. Recent investments include West Customer Management’s bilingual contact center in Guadalajara and HP in Medellin.

Function-wise, investment in this sector into Latin America has been focused on contact centers (primarily to serve the local market and Spain, but also increasingly bilingual centers to serve the United States). In addition, in recent years, more and more companies have seen the potential for more value-added shared services operations in the region’s more mature locations, where there are now multiple finance and IT shared services, for example.

Sources of Investment

By far and away the largest source country of foreign investment in shared services operations in Latin America is the United States, which between 2003 and 2010 accounted for more than half of the jobs created in the region in this activity, generating almost 70,000 positions. Although Europe and Asia remain the most popular regions for US companies setting up shared services and BPO operations, Latin America remains a key market, in particular for nearshoring activities due to factors including timezone advantages and natural availability of Spanish language skills.

Between 2003 and 2009 Spanish companies (such as Telefonica and Banco Santander) accounted for about 20% of jobs created in shared services and BPO in the region, solidifying Spain’s position as the second largest investing country in this sector in Latin America.

Top source countries for SSC/BPO foreign investment into Latin America & the Caribbean, 2003-2010

Much has been written on the rise and dominance of India as a destination for shared services and BPO, but it is also interesting to note the rise of India as a source of such activities. Globally, Indian companies created over 15,000 jobs in this sector in 2010, continuing the year-on-year growth witnessed since 2005, accounting for 12% of all jobs created worldwide by foreign investors in this sector. From a Latin American perspective, in 2010, Indian companies such as Wipro, Genpact, and 24/7 Customer created just over 10% of shared services and BPO-related jobs announced by foreign investors in the region – a 60% increase from the previous year. It all represents a move to get closer to customers in a new market, highlighting the rise of India as an outward investor in shared services and BPO activities.

Profusion of Possibilities

Latin America continues to succeed at offering attractive options for companies wishing to establish shared services and BPO activities, as demonstrated by the increasing number of jobs created in the sector from foreign companies in recent years. These options come not only in the form of mature, well-established destinations, but also up-and-coming locations that companies are now finding worth investigating for outsourcing activities.

That is not to say that the mature shared services locations of the region are in decline. On the contrary, mature locations such as Costa Rica, Colombia, Argentina, and Brazil continue to attract their fair share of investment. In today’s economic climate, many companies have become increasingly risk-averse, and are content with opting for tried-and-tested options in the region, where costs may be slightly higher but where there is an availability of highly experienced shared-services profiles to recruit from. On the other hand, emerging Nearshore destinations offer those companies willing to be pioneers the opportunity to tap into new sources of talent and at a lower cost base, resulting in these locations now appearing next to traditional shared services locations in our global rankings.

Latin America’s profusion of location possibilities – both mature and emerging – means that it continues to develop as a strategic region that companies are considering for their shared services and BPO operations. Be it North American firms using the region as a nearshoring solution, Spanish companies cementing their presence in countries with similar linguistic and cultural affinities, or companies from emerging countries such as India wishing to extend their global footprint and gain a foothold in a new market, Latin America is sure to remain “on radar” for companies for the foreseeable future.

Reshaad Durgahee is a Senior Consultant at IBM Global Business Services’ Plant Location International (PLI) division. More analysis of location trends is available by download here.

By Daniel Berthiaume

A crucial aspect of many IT outsourcing and BPO initiatives is internal staff reduction. Despite the cost savings and more efficient operations that might result, few managers look forward to determining who stays and who goes when a department outsources certain functions. But properly evaluating employees in the event jobs need to be terminated is absolutely critical to BPO success.

Michael D. Brown, a corporate speaker, coach, and trainer who specializes in personal and professional development, has a few tips for managers trying to successfully execute an outsourcing-related staff reduction.

Think of the Customer

Although reducing staff is an internal process, Brown advises managers to begin with an external focus. “Define the experience you want to create for your customer, and then assess whether you have the right skills to deliver it, to be competitive, and to stay fresh and take it to the next level,” he says. “If you have some folks who can’t deliver this kind of customer experience, that’s your first filter.”

Doing the Job Is Not Enough

Brown also advises managers to be leery of employees who are willing to “do the job,” but little or nothing else. “Let go of people who never went above and beyond their job and never proactively went outside the job’s parameters to take things to the next level,” he says. “You want people who seek personal growth and have a hunger for more. People lacking these qualities or who are myopically focused on their jobs, you can do without.”

Brown warns that employees who strictly adhere to the official boundaries of their jobs don’t provide the necessary bandwidth for a company to grow. “You can’t pay for every piece of an employee’s contribution. Something has to come from passion and loyalty,” he says. “You want to keep people who say, ‘I know this isn’t my job but I really like what I’m doing,’ and develop their own skill-set on the job that they can also use in other areas of life.”

Be Honest and Open

Frequently, companies will shroud staff reductions in a veil of secrecy, leaving employees who will potentially be affected nervous and prone to gossip and innuendo. Brown says by maintaining an honest and open approach, managers can minimize disruption in the workplace.

“Be transparent early, quickly, and frequently,” Brown says. “Don’t let people hear things someplace else. If there are things you aren’t in a position to reveal, inform your employees, ‘I can’t tell you everything now.’”

Brown also recommends that managers help keep control of the inevitable office rumor mill by maintaining an open door, which can include making information available online or via a phone hotline. He further advises managers to provide transparency by holding meetings with individual departments or small groups of employees, in addition to large corporate meetings.

“Some people won’t want to ask questions in a big group setting,” he says. “People can deal with change but they cannot deal with uncertainty.”

Treat Everyone with Dignity

While Brown is clear about which employees should be the first targeted for a staff reduction, he is just as adamant that everyone, especially those whose jobs are terminated, be treated with dignity and respect throughout the process. “Don’t damage your brand with layoffs,” he says.

“The people you let go will eventually become your customers or have influence on your customers. They understand things happen and will get over it [if reductions are handled correctly], but with the effect of comments on social media like Twitter and Facebook, brand damage from disgruntled former employees can cost you more money trying to undo than the cost of creating a dignified process with features like help lines, extended benefits, retirement planning seminars, and resume workshops that help employees have a smooth exit.”

Move Forward

After reducing staff, managers must then act to assuage any fears or concerns remaining employees might have. “Reinforce why your business strategy required layoffs,” Brown says. “Don’t get into reasons why individual employees were terminated. Instead, explain why the employees who kept their jobs were chosen and how they can make themselves more competitive.”

And finally, Brown says managers should provide a direct answer to any questions about possible future staff reductions: “If people ask whether this will happen again, you need to be honest. Say, ‘We’re in a dynamic and changing marketplace and will respond accordingly.’ You can’t promise it won’t happen again.”

This article was originally published on BPO Outcomes