Let Data Drive Decisions Not Wrong Perceptions, Says J&J Sourcing Chief

Q/A With Julia Santos, Director, Worldwide Strategic Outsourcing Johnson & Johnson

There is a reason why Fortune 50 companies like Johnson and Johnson have embraced nearshoring – it serves a larger strategic purpose. Julia Santos, who is global strategy chief of outsourcing at the company, is passionate about the important role Latin America plays in supporting the company’s offshore R&D services and has become one of the better known and respected customers of nearshore services over the last several years. We caught up with her last week:

In your role at J&J, how has your understanding and awareness of Latin America culture and particularly the business environment evolved?

Julia: Johnson & Johnson has been in Latin America for decades. We started operations in Brazil in 1933 and now have one of the largest J&J plants in the world. Our products are sold in practically ever Latin American country. We have seen the Latin American consumer in a better place financially today than a decade ago. Economic growth is a certainty for the region and with growth comes a better way of life.

Because Latin America is so diverse, generalizations may not be totally accurate, but broadly speaking, Latin America has found better economic stability and social progress. Some countries still remain under a dictatorship, but for the most part the Latin American region is under a democracy. Democracy brings growth and attracts increased investments from the outside. We have seen a major shift particularly in Brazil and Colombia, where the governments are promoting these countries as major business hubs.

Countries like Brazil and Argentina, however, need to address it’s tax barriers to offshoring in order to leverage the outsourcing model to its full advantage. One crucial element in Western companies willingness to invest in off-shored or outsourced services is the predictability (political and economic stability) of the target country. The region suffers from crime and violence. The security issue needs to addressed with urgency and purpose. The education and health systems have improved significantly.

Latin America was and is not ready to go toe to toe with China or India on cost arbitrage but Latin America recognizes that it may have other elements that attract investors that China and India do not have

Many U.S. sourcing decision makers – to be perfectly honest – simply don’t know much about Latin America despite being neighbors in the Americas. What do you think the root cause of this is?

Julia: I think it stems from the perception of Latin America not being educated. I believe India and China have done a great job of promoting their talent as second to none by improving their educational system and marketing the English language capabilities. In addition, the cost arbitrage component in China and India is simply an argument that cannot be proven false. Latin America was and is not ready to go toe to toe with China or India on cost arbitrage but Latin America recognizes that it may have other elements that attract investors that China and India do not have, such as, same or close time zone, cultural affinity, innovative spirit, massive population (not only China and India), economic stability and quality of labor pool in some Latin American countries. Nearshoring is attractive because of the following reasons:
• Dramatic Hispanic/Latino demographic shift within the United States
• Cultural Affinity – Latin America more similar to the US than India or China
• Same Time-Zone (easier to conduct business)
• Educated work force
• Reduced costs compared to the US
• Strong IT Infrastructure (widespread availability of high-speed Internet)
• Proximity – Companies can keep an eye on long term projects rather than offshoring to far away destinations
• Employee turnover is not as high as in India or China
• Huge growth potential – Brazil is the world’s 5th largest population

Personal safety often comes up as the chief concern of decision makers like yourself. What do you make of that and how much does it factor in to your own sourcing decisions?

Personal safety is always a concern for western companies when trying to invest in foreign ground. If the country is not safe, investments are unlikely, however, I believe that most false perceptions are due to lack of awareness or exposure. If safety is compromised in one particular country, this does not mean the entire Latin American region is insecure or not safe. We need to let data drive the decisions not perceptions. For example, many perceptions still exist that Colombia is not safe due to the drug cartels. Not the case. Personal experience and data has shown that Colombia is one of the most safest countries in the region and ranks high on financial attractiveness, service maturity, quality of labor pool, infrastructure strength, and business environment. Colombia rates very high on overall future attractiveness for doing business. The World Bank Doing Business Report rates Colombia as the number one country with the best business environment.

As far as the individual countries and promotional representatives, what practices have you observed that you believe are helpful in breaking through common myths and misunderstandings?

Julia: I believe the countries that they represent must be willing to significantly invest in promoting the region as a prime location for business. The educational system is paramount and will need to be improved in order for growth to be sustainable. In turn, these promotional representatives have to entice western businesses with tax incentives, trade-free zones, top quality talent to drive growth in productivity, and awareness of infrastructure improvements.

Additionally, these representatives must truly believe that the political stability within their country/region is secure and they must convey a sense of confidence that bringing business to the region makes sense from a business perspective. Clearly articulating the strengths of their country in a business context will win over the prospective buyer.

What kind of future do you see in store for the Nearshore outsourcing industry?

Julia: The Latin American region, primarily Brazil, Colombia, Chile, and Peru will see tremendous growth in nearshore outsourcing. As multinationals face difficulties in China, companies will be looking to Latin America (i.e., Brazil and Colombia) as an alternative. As the region continues to grow, the income per person will grow and the purchasing power will be stronger than most emerging or under developed regions.

The Gross Domestic Product (GDP) will grow twice as fast in emerging and developing countries than in advanced economies. The Latin American region will experience a boom in 2011 but only if it addresses its tax barriers and works on advancing its educational system. Providers will need to be smarter about productivity commitments, process excellence, global process models, managed services, virtual captive models, joint ventures and revenue sharing relationships.