Peru, Puerto Rico, Brazil, and Colombia drive forward with big projects

By Clayton Browne

Latin America has long been considered a laggard in terms of global infrastructure development, but that perception should be changing. Countries such as Brazil, Mexico, Chile, Peru, and Puerto Rico have all begun major long-term infrastructure projects ranging from roads to dams to telecommunications towers to airports. Infrastructure development in the areas of energy, transportation and telecommunications have seen the greatest recent growth, with estimates ranging as high as $450 billion, to be spent on infrastructure in the area between 2011 and 2015.

Up until 2009, Latin American infrastructure spending was on a rapid growth track and there were dozens of major projects planned in almost every country in the hemisphere. The global recession has put a little damper on the pace of the growth, and a number of projects have been delayed or revised, but overall the impact of the recession on infrastructure expenditures does not seem to have been as bad as feared. Several countries such as Brazil and Chile have just announced new projects and updated schedules for planned and ongoing projects in 2012 and beyond.

Public Sector vs Public-Private Initiatives

Large-scale private-public partnerships for infrastructure development have been rare in Latin America until relatively recently due to a combination of cultural and business factors. There is a deep suspicion of private involvement in large public infrastructure projects in many places in Central and South America due to the fact that graft and misappropriation of public funds has been endemic in many such projects in the past. And in some countries such as Venezuela, there is outright hostility toward private enterprises being involved at almost any level in government projects.

The other side of the coin is that historically many public sector infrastructure projects in Latin American countries have also been inefficient graft-plagued projects where a few politicians or their friends and family greatly enriched themselves at the public expense.

But all of this is changing as the 21st century gets under way, and many countries like Brazil, Chile, Puerto Rico, and Peru have crafted innovative new regulations to encourage public-private partnerships (PPPs) for infrastructural development. A few have even created quasi-governmental agencies to encourage PPPs, such as the Puerto Rico Public-Private Partnerships Authority.

That said, there are still a good number of ongoing and planned Latin American infrastructure projects such as airports that are deemed to be of sovereign interest, and are being developed solely with public funds.

Energy Infrastructure Supplanting Telecom

The development of telecommunications infrastructure has been a high priority throughout Latin America since the late 1990s, and there were more projects and more money spent on telecommunications infrastructure in Lain American countries than any other category for almost a decade. The trend continued until 2009, when investment in telecommunications declined by 37% compared to 2008, and no major new projects were undertaken.

The energy sector has seen rapid growth in the last few years in many Latin American nations, with energy infrastructure investment jumping by 127% with 43 new projects from 2008 to 2009. Brazil has been especially active in the energy sector since 2008 with two new hydroelectric plants and half a dozen major electrical transmission-related projects.

Major Projects in Selected Countries

Brazil

Brazil was one of the leading per capita infrastructure dollars to GDP spenders in the world in the 1970s and early 80s, but infrastructure expenditures dropped off significantly for the next decade or so after that. But Brazil has recently kicked off a massive campaign of new infrastructure projects of all types, dubbed the Growth Acceleration Plan. Many of these projects are being developed through the Brazilian National Development bank (BNDES), and BNDES estimates that Brazil will spend a minimum of $145 billion in the three-year period from 2010-2012. While the fact that Brazil is becoming the largest economic engine in Latin America is clearly behind most of the current surge in infrastructural development, a good bit of it is certainly related to the fact that Brazil is hosting the 2014 World Cup and the 2016 Summer Olympics.

Ongoing/Near-Future Infrastructure Projects

• Recently completed a three-year, $30 billion roads and highways improvement project.

• Almost 50 stadium, road, airport and train-related infrastructure projects slated to be finished on time for the 2014 World Cup.

• A high-speed train linking Rio de Janeiro and São Paolo due to be completed by the 2016 Olympics.

Colombia

Colombia has taken great strides in both sociopolitical and infrastructural development in the last decade or so, but it was very much needed and a great deal that remains to be done. Colombia’s current National Development Plan estimates spending $17 billion between 2010-2014 to develop the highway and railroad system, with up to half of the money coming from private funds.

Ongoing/Near-Future Infrastructure Projects

• Nearing completion of the multi-year, three-phase Ruta del Sol, a major highway project designed to connect the interior of Colombia with the Pacific Coast.

• The Central Railroad System, a project linking the two regional hub cities of Honda and Chiriguana, is under construction.

• Development of a new program to encourage the investment of private capital in infrastructure investment projects that helps link up the various parties involved, including the headquarters of the Superintendent Notary and Registrar.

Peru

Peru began a major infrastructural development push in the late 90s and continues to make steady improvements in infrastructure in the first decade of the 21st century. In Fact, the 2010 Infrascope, an index created the Economic Intelligence Unit (EIU) ranking countries by political, legal and economic policies encouraging infrastructural development, ranks Peru as the third best country in all of Latin America (behind Chile and Brazil).

Ongoing/Near-Future Infrastructure Projects

• Peru currently has over $8 billion in public infrastructure projects planned or in construction

• Several regional projects to develop areas selected in coordination with the petrochemical industry

• Long-term plan to develop the island of San Lorenzo, located 4 km off of the coast of Lima, into a “satellite city on the sea, with special areas for production or recreation with the latest technologies.”

Puerto Rico

The last couple of decades of the 20th century saw Puerto Rico make great strides to catching up to most of the rest of the U.S. in terms of public infrastructure in terms of electricity productions, roads, hospitals and so forth. However, the school system and low-income housing lagged behind and were the most pressing infrastructural needs of the island nation. Fortunately, the American Reinvestment and Recovery Act of 2009 provided a $7.2 billion stimulus funding to Puerto Rico.

According to José Basora, the Executive Director of the Puerto Rico Infrastructure Financing Authority, “The government decided to put most of the stimulus money to work in a variety of new infrastructure-related projects, and to date we have spent over 88% of the funds allotted.”

Ongoing/Near-Future Infrastructure Projects

• The Schools for the 21st Century Program has built or remodeled 103 schools throughout Puerto Rico for a total cost of $756 million. This program has improved the education facilities of over 45,000 students and 3500 teachers.

• Ongoing public and public-private weatherization and energy conservation programs that have resulted in major home or building energy-efficiency upgrades for over 15,000 homes of senior citizens and low-income families as well as 600 government and private buildings.

• PPP projects developed through the Puerto Rico Public-Private Partnerships Authority include a recent $120 million education and training initiative to which Intel contributed $12 million as seed money.

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.

São Paulo: Making Manhattan look cheap.

By Filipe Pacheco

High costs are one of the prices international companies must pay for doing business in Brazil– especially when it comes to the services industry. Now one of the most plugged-in financial institutions in the world, the International Monetary Fund, has released numbers that demonstrate what many suspected anyway: The cost of living in Brazil in 2011 rose to slightly higher than that of the United States.

Considering a list of 150 emerging economies, Brazil is basically the only one that had an expected GDP forecast for last year based on purchasing-power-parity (PPP) lower than the real GDP – which means the prices converted to American dollars are higher than in the United States.

The IMF estimates that the Brazilian GDP was US$2.51 trillion, which makes the country the 6th biggest economy in the world. Emerging economies typically have a higher PPP GDP than their real GDP, which means that, even though they might produce less than the United States, the same amount of money can buy more within their boundaries.

Brazil is essentially the only exception. Here, you can buy less than in the United States with the same amount of money. The other BRIC countries – Russia, China, and India – are all cheaper in the same comparison. Just four other emerging economies had results similar to those of Brazil, according to the IMF, but the comparison is not quite fair. They are St. Vincent & The Grenadines, a small archipelago in the Caribbean; Zimbabwe, with a hyperinflation economy that has destroyed the national currency; and the oil-rich regions of Kuwait and the United Arab Emirates.

What brings the prices higher in Brazil is the cost of services, since they cannot be imported. If national industry comes up with high prices for goods or machinery, for example, there is the possibility that competing goods or machinery can be imported, even though there are taxes that fall upon them. Those prices have become considerably lower recently, due to a depressed economic situation in the rich countries and China producing lots and lots of everything.

The Real Problem

Added to that is the value of the Brazilian real – today traded at about R$1.80 to every US$1. That price is affected by the exportation of commodities – Brazil is among the biggest exporters of iron ore in the world, for example – and the large inflow of foreign money that enters the country to take advantage of the high interest rates that still prevail here and the good prospects for the local economy. Another reason pointed to as an explanation for the high cost of living is a problem that is also considered a barrier for the IT industry as well: the high rate of taxes.

“This inversion shows that things here do not fit the normal pattern, because the currency rate is completely out of synch with historical activity, with a huge valuation in the past few years,” Armando Castelar, economist at Fundação Getúlio Vargas, one of the most recognized economic institutes in the country, told the newspaper O Estado de S.Paulo.

“Either Brazil gets cheaper and improves its productivity or we will become a services economy at an early stage,” argues Júlio Sérgio Gomes de Almeida, director of the Institute of Studies for Industrial Development (or Instituto de Estudos para o Desenvolvimento Industrial). He warns there is a risk of Brazil becoming an expensive country based only on a services industry, and without a strong industrial base.

Office Space Deluxe

Research done this month by the consulting company Cushman & Wakefield South America has shown that renting a business office in Itaim Bibi, in São Paulo, or in the charming neighborhood of Leblon, in Rio, is often more expansive than in fancy commercial areas of Manhattan or Washington DC.

In Leblon, the price for a square meter of commercial rental space is US$69.4 a month, while in Midtown Manhattan, a square meter may cost around US$63. In São Paulo, in the business regions of Avenida Faria Lima, Jardins, Avenida Paulista, or Chácara Santo Antônio, the average price for a square meter is about US$60.

In the past year, Brazilian office-space prices have risen 22.6% in comparison to the same period of 2010, according to Cushman & Wakefield. Even though the prices are high, the vacancy level is quite low – in Itaim, only 0.9% of the offices are vacant.

When it comes to services, a few other examples can give you a good sense of how expensive some things can be in the big Brazilian cities. Going to work out at a Rebook Center gym in São Paulo costs R$690 (US$385) per month with an annual membership, while in New York, the average price for the same chain is around R$382 ($US210).

Going to the movies costs, per person, R$28 (US$16), while in a good movie theater in New York, that would be R$24 (US$12). A cheeseburger with soda at the local unit of PJ Clark’s is around R$37 (US$21), while in the States that would be about R$32 (US$18). On your way back home, a ride from Avenida Paulista, in the heart of the city, to the International Airport at Guarulhos may cost R$108 (US$60), one dollar more than going from Manhattan to JFK – R$107 ($59). The numbers are drawn from research done by O Estado de S.Paulo.

“São Paulo scares me more and more each time I am here,” Raphael Quintella, who has lived in New York for five years, told the newspaper. “Going to a good restaurant in the city costs me more than going to one of the same level in New York. That is applicable to a good Japanese restaurant or to a churrascaria [typical Brazilian barbecue house].”

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.”

By Luke Bujarski

High employee turnover is something that sourcing managers have learned to put up with when offshoring IT and BPO tasks to India. But now the Philippines has also begun showing signs of overheating. Given Latin America’s relatively small labor pools, we worry that the region might follow suit and succumb to the same pressures that have pushed the Philippines to its limits. So far, rampant turnover has not been a major problem with LatAm markets. But just in case, we decided to take another look at some of the details around attrition and other symptoms of hot labor market conditions.

What we found is that while Latin American labor pools are fewer and often smaller, sound management practices at the company level, greater company loyalty, and slower, more organic industry growth have kept attrition rates lower than what has been seen in both India and the Philippines.

What’s Up with the Philippines? 

“BPO firms [in the Philippines] are experiencing difficulty in hiring and retaining “capable employees,” thus, resulting in higher attrition rates and an increase in hiring and retention costs,” noted global consulting firm Tholons in a recent report. Other sources suggest that up to 75 percent of the Philippine people speak good English, so it’s no surprise that the BPO industry (in revenues) has been growing at 20 percent annually. Market research firm XMG Global also expressed concern over the growing “talent problem” in the Philippines – not only with today’s labor force, but also with high dropout rates in the labor pipeline in primary and secondary school. As a result of this and other factors, labor costs are expected to go up by 25-60 percent over the next five years.

Despite these warning signs, the Business Process Outsourcing Association of the Philippines, in a joint report with Everest Research, anticipates the industry to almost double by 2016 to 900,000 employees. For those service providers already battling it out with runaway training and recruitment costs, wage inflation, disrupted project workflows, and inconsistency in service level quality, those projections may be a hard pill to swallow.

LatAm Sensitivity to Demand Pressures 

When it comes to contact centers and BPO, English-speaking labor pools in Latin America are relatively small and hence tend to be more susceptible to demand and supply misalignment. Central American countries are a case in point as is currently being witnessed in Guatemala, where a growing price war for bilingual agents is forcing companies like 24/7 Customer to diversify their coverage base into Nicaragua. Going forward, as even smaller markets like Belize and Honduras grow into the BPO industry, service providers should take care not to over promise and under deliver on total cost and service level agreements. Likewise, government officials should be careful not to ‘over promote’ their regions’ capabilities, without backing up their initiatives with matching training and education dollars.

Concern over employee churn also has a lot to do with the type of business that you’re in. According to Tony Mataya from Think Solutions, on the whole, Mexico’s IT services industry has not seen the type of attrition rates experienced in India. Chris Snyder CIO of Hulcher also said that it has a lot to do with the fact that just like Americans, “Indians don’t want to work the third shift if they don’t have to” – referring to the 12-hour time zone gab between the US and India. This is particularly true when dealing with agile, scrum and other live-time software development methodologies. “We tried agile with India, but turnover got to the point of ridiculousness.” Snyder also noted that they’ve had much better luck in Brazil, although they’ve found it increasingly difficult to retain and recruit talent since signing on with Stefanini Solutions three years ago.

Market Fundamentals: Mexico vs. India vs. the Philippines 

When looking at macro-level data there are a couple of things to be mindful of when analyzing labor markets. Consumer price inflation is perhaps the most indicative of rising wages, since employers typically need to adjust salaries annually in line with overall inflation. Below we see that the cost of living has more than doubled in India over the last five years, while Mexico and the Philippines have seen lower inflation year on year. GDP per capita is clearly much higher in Mexico, which puts a premium on wages. Likewise sheer market size in terms of population emphasizes India’s dominance as an offshore hub to both Mexico and the Philippines.

Attrition Boils Down to Economics, Management, Culture

Personal expectations and the promise of higher wages is what ultimately cause BPO employees to jump ship. However, work culture and company management style also has a lot to do with it. Eric Simonson Director of research at Everest pointed out that “the Indian work mentality is focused more heavily on ‘getting ahead’, rather than subject matter expertise. We’ve seen good things coming out of Poland lately partly because the work culture follows a more artisanal approach focused on mastery and domain expertise.” Mataya from Think Solutions also backed up this claim and mentioned that it is “not uncommon to see BPO workers in India move companies for ten cent raises”.

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. >

Speed is of the essence, DeMent says.

By Patrick Haller

Success of a shared-services operation depends upon more than just a good plan and solid execution – like any good relationship, it requires constant monitoring and regular maintenance. Without a serious, ongoing commitment by the CEO, CFO, CIO, and managers throughout the company, shared services will implode. The entire corporate way of thinking has to change.

With a shared-services approach, support functions such as finance, HR, IT, and supply chain are run as if they were outsourced even though they are still internal to the company. “You change the mindset from being aligned to corporate offices to being aligned to business units,” says Brad DeMent, partner at management consulting firm ScottMadden.

One of the first fundamental decisions to deal with when developing a shared-services organization is whether the center will serve a single function or multiple functions. The former has been more common in the US, where a company might have a financial services center in Tennessee and its HR services in Missouri. Whereas the trend in Latin America is to open combined centers so that all of the shared services are operated from one location and under one manager, who most likely will report directly to the president of company.

That is the case with Alpina in Bogota, Colombia, which has about 300 employees working in the same location, as opposed to a company like Pfizer, which has centers throughout the US. DeMent recommends the same-location approach. “By combining all of these functions, you can instill one culture, under one leader. You can even build a shared services center within a shared services center,” he says.

Not only is it easier to coordinate various areas in a multifunctional center, there are also economic benefits and the ability to cross-train employees, enabling them to become a resource across the organization as opposed to being rooted in one area.

There Will Be Resistance

When considering opening a shared services center, those involved should be prepared to confront the “big change barriers.” Getting over the hurdle of the corporate headquarters not wanting to relinquish control is one of the greatest challenges. DeMent points out that friction can be especially heated when it is time to release people from existing business units, and hire new people at a remote location. Having strong executive support for such a momentous organizational change is integral or else the shared-services operation can become fragmented.

“Speed is your friend; there are a lot of things that can happen, such as turnover and a change in executive leadership,” says DeMent. “We were working with a pharmaceutical company in Bogota, they got through initial phases, then the company sold off a large business unit. You want to knock these things out as fast as you can – in less than a year.”

Rather than trying to build a shared operation all at the same time, it is more efficient to phase it in. Start with the functions or departments that are more isolated, such as finance, which is very transactional and doesn’t touch everyone in the company. Save things that affect everyone, like HR, until later. For example, during a two-year timeline, Alpina went live with finance after seven months, HR four months after that, and IT one month later. This approach allowed the organization to adjust to the idea of a shared-services operation and react to any problems as they arose.

Take a Tiered Approach

DeMent recommends using tiers to create the most beneficial shared arrangements:

Tier 0 – Provide as many self-service, automated, on-line procedures as possible so that people can get as much done by themselves without interfacing with a human.

Tier 1 – Establish transactional procedures, move fast and automate.

Tier 2 – Provide excellent customer support; the shared services center should treat the business unit as a client (this is part of what distinguishes it from corporate operations).

Tier 3 – Establish centers of excellence made up of very small groups of people who know specific areas, to establish uniform policies and procedures.

From Internal to Outsourcing

Shared services are growing to include legal operations, engineering, marketing, corporate communications, and plant maintenance. Some companies, when they feel they are competitive as an outsourcer and when the corporate office gives the green light, have been offering their services to others. Doing this creates another profit stream, but it can also create a situation where the services center becomes too focused on making money and loses sight of its primary client – the parent company.

DeMent suggests that companies set up a mirror organization that can market and provide outsourcing while the core operation still concentrates on the business units it was created to assist. Procter & Gamble had such an arrangement with its hemispheric employee services center in Costa Rica. That facility caught the attention of IBM, which took it over and started offering those services to P&G and other clients.

Organizations tend to make the mistake of thinking that once their shared-services operation is up and running that it will take care of itself. There is always the possibility of self-sabotage if the company slips back into a duplication of efforts, or the type of corporate oversight that was in use before the center was established. One productive way to help prevent this from happening is to create a unit dedicated to continuous improvement. This would involve a staff member who is designated as shared-services quality champion; he or she attends conferences, learns about new practices, keeps up with and tests new technology, and stays abreast of any developments in the shared-services space.

Complacency is the enemy of an effective shared-services operation. “Stagnation will kill you,” DeMent warns.

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

By Patrick Haller

Positioned in Colombia’s lush Coffee Triangle region, the city of Pereira has been called “Paradise.” However, it has probably not seemed that way to some of the local population. In 2009 the city was hit by the highest unemployment in the nation at 24%, despite being home to a Suzuki motorbike plant, Busscor (the main manufacturer of vehicles for Colombian mass transit systems), textile plants and, of course, coffee production. As a possible remedy to that situation, the government of Pereira – like that of its smaller sister-city Manizales – has created a stream of incentives to attract IT companies and call centers.

Starting with Spanish call center Telmark, which established operations there in 2009, the BPO sector has begun to take root, employing 2,000 people from the burgeoning metro area of an estimated one million residents, according to Santiago Angel Jaramillo, Director of Invest in Pereira (IIP). With an average age falling between 25 and 35 years old, a respected higher education system that currently serves 37,000 students, low operational costs, solid infrastructure, and an eager workforce, Pereira would appear to be paradise for call centers.

In addition to the government offering attractive financial incentives such as property tax deductions, waiving of the Industry and Commerce tax for a ten-year period (if certain criteria are met), and employee training credits, Jaramillo points out, the World Bank ranked Pereira as one of the easiest Colombian cities to do business in.

Those are all indicators of a potential outsourcing paradise, but if the location lures more providers, fully bilingual English-Spanish workers are in danger of becoming scarce. Local IT professionals are already in short supply.

English Is a Must

As more companies such as American Assist (formed in Mexico 20 years ago to provide emergency assistance to travelers) show an interest in Pereira, bilingual capability has become an urgent issue. “We have to set up the right strategy to provide the BPO sector with bilingual talent,” Jaramillo says. Part of this strategy is working hand-in-hand with the companies in order to understand their specific needs. IIP is partnering with public schools in order to improve English education at the primary level, and universities to develop specialized courses. “Most investors for call centers need to receive special training depending on the operation (outbound, in-bound, etc.),” Jaramillo says. “SENA normally works on this and we tailor-make the program to meet the investor’s needs.”

The majority of universities in Pereira, including the University Tecnologia de Pereira, considered one of the best in Colombia, already require students to be fluent in English in order to graduate, Jaramillo says. IIP is also studying policies established by other investment agencies like Invest in Bogota, which implemented the Talk to the World program, and ProBarranquilla, which links public schools with the BPOs that work in English to provide intense language training. Jaramillo says that IIP has recently confirmed that a new ITO and a call center have committed to establishing centers in Pereira.

The outsourcing services in Pereira also include IT development and website design. One example: With a staff of 250 (and a target to scale up to 400), UK-based Yell Adworks builds 2,000 websites daily, in addition to ads for yellow pages.

Pereira is open to foreign workers, and has an international population that includes people from North America, Japan, Spain, Venezuela, Mexico, and the UK. Around 1988, the city saw an emigration of its citizens due to the increased violence in the region and the majority of Pereirans went to the Northeast US and Spain. Now, as the economic tides turn, Pereira – and Colombia in general – is seeing a return of those people or their children who have been educated abroad.

Group Effort

American Assist, which has offices in 18 countries, including across Latin America, changed its operation model two years ago when it closed its individual country headquarters and consolidated. An Argentine firm that specializes in call center functions did a study of several countries and advised American Assist to create its new center in Colombia. “Once the decision was taken, we went through various cities in Colombia looking at the possibilities,” says Mauricio Vega, President of American Assist – Colombia, “and it coincided that the best location would be Pereira.”

An accord was signed by the Governor of Risaralda, the Mayor of Pereira, Invest in Pereira, the Chamber of Commerce, SENA, the Technical University of Pereira, ANDI and American Assist’s corporate managers. “Each of these parties brought something to the table,” Vega says. Among the incentives were tax exemptions and specialized training provided by the university and SENA. “An entire city made itself available for the international investment to take place,” says Vega. “One of the Argentine advisors said, ‘This is the promised land.’”

Today the company employs over 400 people in a telemarketing call center where they assist callers from the 18 countries in which American Assist has locations. The center operates out of a 3,500-square-meter building that was adapted to its specifications. Vega said there are plans to fill all 700 workstations and add 300 more by the end of 2012, and to possibly open a second location in Pereira in about four years. The costs are very different than those found in Bogota, and the building is located right next to a Megabus (mass transport) station, making it very convenient for employees.

Sourcing Employees

For now, qualified contact-center workers are available. “It was much easier than we thought to find qualified people,” Vega says. “We needed 20 people who were completely bilingual to attend to US callers and we found them very easily.” Being in a second-tier market also helps from a cost standpoint. “Given the high unemployment, compared to Bogota or Lima, we found qualified people at lower cost.” The talent pool and related costs enabled American Assist to start operations with 100 people and to scale-up from there.

Vega says he has found that the universities and the national training school, SENA, are good recruitment sources, in addition to traditional methods. Most favorably, SENA provides people who have already been trained in call center work. According to Vega, in Pereira the attrition is no higher than 5% whereas in other Colombian cities it is over 20%.

Connectivity and Competition

Connectivity is especially important for a company like American Assist that provides emergency services. Fortunately, Pereira has an extensive fiber-optic network and has redundancy set up in Lima.

“Finding expert technological personnel has been difficult,” says Vega, “but we found professionals from other cities who are happy to move to Pereira. There are no other problems that you wouldn’t find in other cities.”

That said, if more English-speaking call centers enter the market here, the competition for qualified candidates will heat up, putting the pressure on the primary schools and universities to increase their language curricula. The area would be smart to also boost its number of IT professionals, which are already in short supply. If there are not enough people, attrition rates will likely rise, and the ability to scale will be hindered further. Pereira needs to manage the growth of the call center sector carefully in order to avoid falling into a hole that would be difficult to climb out of.