Uribe highlighted positive social, political and business developments in the Latin American/Caribbean region

Kirk Laughlin, CEO of Nearshore Americas, kicked off today’s Nearshore Nexus Conference at the Crowne Plaza in New York City by stating nearshore outsourcing has gone from “novel to mainstream.” Laughlin promised that conference speakers would illustrate how outsourcing destinations in Latin America and the Caribbean are “no longer in the shadow of India or China,” but have instead become vibrant providers of sophisticated IT and business outsourcing services in their own right. The first speaker, former President of the Republic of Colombia Mr. Alvaro Uribe, delivered on that promise.

Uribe Highlights Positive Developments in Latin America

Rather than focus exclusively on Colombia (although he did touch on how Colombia has transformed itself into a stable, secure democracy which attracts foreign investors), Uribe highlighted positive social, political and business developments in the Latin American/Caribbean region as a whole. The region has about 600 million people with an average age of 28. While 170 million people are in poverty, another 40 million have left poverty in recent years and Uribe classified 64% of the region’s population as members of a “progressive middle class.”

Uribe stressed that with a few exceptions, Latin American countries now abide by the “rule of law” rather than dictatorships. “Public indebtedness, defaults and hyperinflation are the province of the past,” he stated. Uribe also highlighted Latin America’s extensive natural resources, including 30% of the world’s oil resources, 26% of the world’s beef, and a potable water supply expected to account for half the global total in 2030.

Moving to human and political resources, Uribe stressed that with a couple of exceptions such as Venezuela and Ecuador, Latin American countries are following the example of Colombia in creating a “triangle of cohesion” based on security, free investment, and social cohesion. Uribe’s prepared remarks led directly to a Q&A session with CNN Senior Latin Affairs Editor Rafael Romo, who began with a question about the message Argentina’s recent decision to nationalize its leading oil company YPF.

“Maybe Argentina has made mistakes,” said Uribe. He said Argentina is privatizing key elements of its oil industry because of concerns there is not enough exploration, but would have been better served by discussing the matter with private industry. “In Colombia and Brazil there is a middle ground,” he said. “The government has an important role in oil production, not a monopoly.”

During his conversation with Romo, Uribe also discussed some of the specific ways Colombia has bolstered its BPO industry. “We consulted with private industry and identified five or six sectors where Colombia would become world class (including BPO),” he explained. “We had 2,000 BPO jobs and now have close to 100,000.” As part of its efforts to boost Colombia’s BPO industry, Uribe said the government eliminated the value added tax (VAT) on business services and is working on advancing education to provide workers with skills BPO and ITO buyers require, including by offering free university education to poor citizens.

Uribe also said he thinks Latin America should approach education on a regional, cooperative basis. “Twenty-five years ago, economists recommended countries in Latin America needed to change from commodity-based to knowledge-based economies,” he said. “They need to do the same today to add value to commodities.”

Eliminating the Software Factory

In the morning keynote, Leonardo Matiazzi, VP of International Business for Ci&T, said it is time to eliminate the “factory approach” to software development. “IT is the one industry that can change the world,” he said. “The mental model organizations use to develop software is optimized for mediocre results. It won’t be a total failure, but will be mediocre.”

Matiazzi compared developing software to writing a book. “Can you write a book by copying the first page 250 times?” he asked. “Try and come up with a book writing factory. You can’t. Writing software is the same as writing stories. You’ll end up with a dull book nobody cares about, just like you end up with dull software nobody uses.”

Matiazzi acknowledged moving away from the “software factory” model will be difficult, but necessary. “It’s not easy to throw away,” he said. “The concept has been part of the IT culture for so long.”

By Clayton Browne

There is a growing consensus among international economists that Argentina’s decade-long economic boom is rapidly becoming an out-of-control inflationary spiral. Real inflation has grown at 20+% annually for over three years, and the Argentine government is clearly in denial or even cover-up mode regarding the situation.

Many businesses in Argentina are already struggling from the double-digit inflation, especially industries like outsourcing that rely largely on income from outside of Argentina, and things are only going to get worse as most sources expect Argentina’s inflation rate to approach 25% in 2012.

Like many Latin American countries, Argentina has a long history of economic ups and downs. The most recent major economic bust occurred just a little over a decade ago, as Argentine unemployment hit 21% and 60% of the population fell below the poverty line in 2002 just before Nestor Kirchner and the Peronist party came to power. However, the resulting devaluation of the currency, and the default/renegotiation of national debt under very favorable terms as well as the expansionary monetary policies promulgated by Kirchner and the Peronists (led by Kirchner’s wife and protege President Cristina Fernandez today), has created a multi-year boom in the Argentine economy.

It is a basic law of macroeconomics that expansionary economic policies cannot continue indefinitely without causing an economy to over-expand and leading to inflationary pressures, and the evidence is mounting that Argentina is no exception to the rule. The bad news is that the current Argentine government is showing no signs of changing its expansionary policies, and worse yet has responded to criticism by resorting to intentionally misrepresenting the official inflation figures and instituting price controls as well as protectionist policies in a number of industries (including effectively nationalizing the Argentine operations of the Spanish oil company REPSOL on April 17).

The official Argentine inflation index listed inflation as ranging between 8.5-10.9% in the period from 2007 to 2011, whereas a wide range of private sources all calculated inflation at rates ranging from 16-27% during that same time span. The official inflation rate was 9.5% in 2011, as compared to 22.8% estimated on average by half a dozen private sources. Furthermore, there is no evidence that the inflationary pressures are easing. A number of economists have forecast that real inflation in Argentina will exceed 25% in 2012.

Cesar DOnofrio, CEO of MakingSense, a software development company with offices in Argentina, says that everybody knows that inflation is really 20+%. “Everyone knows the government inflation index is not correct. If you bought one pound of meat for 20 pesos in 2010 and you are paying 40 pesos today, it is obvious.”

However, the Argentine government has ramped up the programs in its social safety net significantly over the last few years, and is providing a generous inflation-pegged stipend to many lower income families. According to DOnofrio, this means that it is not the poor, but the middle class that is really getting squeezed in the current inflationary economy.

Wage inflation has become a huge problem for businesses in Argentina. Argentina is a highly unionized country, and the unions have contracts with annual wage increases tied to the inflation rate (based on private source figures, not the government inflation index). Furthermore, most non-union businesses (including the outsourcing industry) peg their wage increases to those of the unions. This has resulted in wages in Argentina doubling in the last three or four years in many cases.

DOnofrio reports that at MakingSense they gave employees 25% annual raises in 2010 and 30% annual raises in 2011, and that was just enough to keep them competitive in the industry. DOnofrio also mentioned the inflation-related phenomenon of “rotation” that is actually working to his benefit right now, as he has recently hired a couple of top-line, highly experienced software engineers who formerly worked for larger outsourcing firms whose corporate policies did allow them the flexibility to increase wages fast enough to keep up with inflation.

DOnofrio continued on the subject of inflation in 2012. “I have spoken to several people in the government off the record, and they all agree that the annual inflation rate is likely to remain close to 25% in 2012.”

Maintaining Margins in an Inflationary Environment

It is not easy to run a business when you have to deal with 20%+ inflation. While there are obviously a number of steps you can take to reduce costs and keep overhead down, margins inevitably get squeezed when wages double in three or four years. There is only so much you can save on the overhead side of the balance sheet, and businesses have to start thinking strategically.

DOnofrio emphasized that businesses, smaller businesses in particular, have to be nimble and seize opportunities to scale up business whenever they present themselves. It boils down to expanding revenues sufficiently so that you can survive on lower margins.

Another strategy DOnofrio discussed was adding more value to your products and services so that clients are willing to pay more. “At Making Sense, we are adding more value to our services by developing expertise in specialized areas like agile development and improving user experience, areas not yet dominated by the bigger outsourcing firms.”

DOnofrio concluded with the thought that undertaking this specialized value-added niche strategy is obviously easier said than done, and it requires long-term planning, but that creating value for your clients is almost always a win-win situation.

Effect on Argentine IT Industry

The Argentine IT/software development industry entered a rapid growth phase in 2003 as the country began to emerge from the economic chaos of the previous three or four years, and has grown at a 15-20% clip ever since. In fact, Argentina, along with Mexico, has become one of the largest software outsourcing destination in Latin America today. However, the IT and software development industries are certainly not immune to the out-of-control inflation that is driving up the cost of all businesses in Argentina, and DOnofrio commented that he has seen signs of a slow down in the industry already. And beyond that, many of the more savvy human capital providers have focused their sales efforts on still-growing local Argentina markets as an inflation hedge.

Source: MercoPress

Argentina must solve the controversy over the measurement of inflation which has significant economic and political costs, said Eugenio Diaz-Bonilla the Inter American Development Bank, IADB, director for Argentina and Haiti.

“We need to solve the conflict surrounding inflation stats”, said Diaz-Bonilla during discussions at the Inter American Dialogue in Washington. “The controversy has many political, economic and institutional costs” added the economist who revealed he has addressed the issue with Argentine officials.

According to Argentina’s discredited National Stats and Census Institute, Indec, inflation in 2011 was 9.5%, but private consultants put the figure at 22%, and this is the percentage on which for example the unions negotiate salaries. Likewise some provinces ruled by the opposition also have similar two-digit measurements.

Last week The Economist said it would no longer take into account Indec stats and clearly called on the government to ‘stop manipulating percentages” because they are not to be trusted.

“20% it too high, we would like to see a one digit inflation”, said Diaz-Bonilla. “We must move towards an inferior convergence in prices”. He also admitted that the IADB takes into account the private estimates.

Last February the IMF established a six months period for Argentina to adapt inflation and GDP measurements to ‘international criteria’.

On request from the Argentine government, IMF last year made a series of recommendations to implement a new national index of prices, but the proposal did not receive much support or advance.

The United States has also criticized the Argentine position regarding the measurement of inflation, GDP and its policy on holdouts of the 2001 massive sovereign default.

However Diaz-Bonilla also praised Argentina’ current growth period with minimum volatility, which he said is helping to set the foundations for the country to become a developed economy in a decade’s time.

During the discussion on “The Argentine economy in the short and medium term”, Diaz Bonilla said the current eight years of sustained strong growth are “the second best in the 200 year history of the country”

“We have to go back to the end of the XIX century for a similar period of sustained growth, but even so that period, according to the historic stats, was far more exposed to volatility”, said Diaz-Bonilla.

Source: MercoPress

Argentina limited the use of cash in the country’s financial markets as President Cristina Fernandez tightens oversight of currency transactions to help contain capital flight and prepare for what is anticipated a ‘difficult’ year for the Treasury and the Argentine economy.

The government will restrict daily cash transactions to 1.000 Pesos (231 US dollars) per person, down from 10.000 Pesos, according to a statement in the Official Gazette. The measure affects activity in the stock and bond markets, investment funds and in the futures markets. Operations above the limit will have to be done through Argentine bank accounts that are authorized by the central bank.

“They are forcing a higher level of formality in the economy, as cash transactions allow more irregularities,” said Felipe Hernandez, an analyst at RBS Securities Inc. in Stamford, Connecticut. “This is in line with other measures to prevent money laundering, for which the government has been under a great deal of pressure.”

The move is aimed at combating money laundering and terrorist financing, according to the statement in the Official Gazette.

Since winning a second, four-year term in October, Cristina Fernandez has ordered the tax agency to review all foreign currency transactions, required pre-approval for the importation of goods and raised capital requirement on banks in a bid to limit dividends and slow capital flight.

Outflows totalled 18 billion collars in the first nine months of 2011, double the same period in the previous year, and accelerated to the fastest pace in at least a decade in the third quarter. The Argentine government measures have slowed outflows, allowing the central bank to rebuild its international reserves.

Confirming the impact of the latest measures trading in Argentina’s foreign- exchange market has plunged to a five-year low, down 47% last month from a year earlier to 3.8 billion dollars, lowest since October 2006.

Volume in the foreign-exchange market dropped to 5.2bn in October and 4.4bn in November from 7.1bn in September, after the Cristina Fernandez administration required companies and individuals to get authorization from the tax agency to purchase dollars.

The government also made trading in the unregulated currency market a crime punishable by as long as eight years in prison as part of an anti-terrorism law.

The measures have allowed the central bank to buy a record amount of dollars, injecting pesos into the economy and pushing the benchmark bank deposit rate down 525 basis points, or 5.25 percentage points, to 14.75% since CFK won a second term.

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 Bill Huber, Partner, ISG, and Kristen Elvinger, Research Associate

Concerns exist over the capacity of Latin American service providers to absorb rapid growth. Several global providers currently have a presence in Latin America, and tax and other trade incentives will help attract more outsourcers to the region. And, many Latin American countries are positioned to further develop emerging areas of specialization. Indeed, lessons learned from India, China, and some Eastern European countries suggest that specialization and quality-focused differentiation will be the keys to success, especially for countries with small populations.

Following is a review of major outsourcing destinations in Latin America, including assessments of strengths and business environments.

Mexico’s Head Start

Mexico benefits from a ten-year or so head start in the outsourcing business (primarily in call centers), proximity to the United States, membership in NAFTA, and a large pool of English speakers. Additional pluses: high-quality telecom infrastructure, good quality road and railway networks, and many airports. Mexico’s growing IT and BPO offerings are expected to increase 10% year-on-year, according to a study by HfS. Several cities offer a variety of trade incentives, including cash grants of up to 50% of total investments, and tax credits up to 30% of R&D expenses. Indeed, competition between states and cities to attract clients is helping to drive Mexico’s outsourcing maturity. While some have expressed concern about Mexico’s ability to develop higher value offerings, a number of initiatives – such as the Programa para el Desarrollo de la Industria del Software (PROSOFT) – are in place to develop skills for the workplace. On the downside, myriad security risks, both real and perceived, have hurt Mexico’s reputation.

Brazil Is Bigger

With the largest IT market in Latin America and the world’s second largest pool of COBOL programmers, Brazil boasts formidable outsourcing resources, characterized by a the presence of several global providers, well-established call center business, many R&D development centers, and a strong global services industry. While English fluency rates are low at 5%, that figure still represents approximately 10 million people, meaning Brazil has the ability to scale. Brazil also has very good telecommunications infrastructure, wide use of broadband, and the second highest number of airports in the world.

With a history as a quick adopter of new technology and methods, Brazil anticipates significant growth in high-value BPO and ITO in the next two years. Labor and export regulations, however, are a negative. And while incentives such as reduction in social security contributions and tax deductions for technology transfers are attractive to IT companies, exports of services are taxed heavily. Moreover, unfavorable labor laws and associated employment costs can be a concern. This paired with their large potential talent base gives them the opportunity to become a large nearshore destination if the government can create better trade incentives and bureaucracy.

Argentina’s Infrastructure and Bilingualism

Argentina boasts the best telecommunications infrastructure, the second-largest IT market, and the largest pool of bilingual employees in Latin America. Following the devaluation of the peso in 2001, Argentina took an economic hit that drove down wages and office real estate, which in turn attracted outsourcers. Responding to the opportunity, the government implemented a plan to develop the IT industry, focusing on software development and technical call centers. The initiative was characterized by a range of incentives for IT companies, including a 60% income tax exemption for software companies, 70% reduction on social contributions, and no restrictions on wiring foreign currencies for imports.

Argentina’s more progressive standards and data protection laws, moreover, are attractive. While Argentina is well-positioned to attract further outsourcing activity, bureaucratic hurdles are an obstacle, as with many other Latin American countries. Also, Argentina is implementing new trade restrictions . To address the challenges, many foreign companies are initially partnering with local providers when entering Argentina’s market.

Chile Seeks Higher Value

Chile’s stable government and currency, well-developed telecommunications infrastructure, and easy immigration policies make for an attractive destination for outsourcers. Recognizing that its small size requires a quality-rather-than-quantity-focused approach, Chile has created longer, more extensive IT education programs geared to high-value KPO, ITO, and shared services. The Chilean Economic Development Agency (CORFO) created InvestChile to provide investment incentives in more high-tech fields. Free trade agreements with the US, Canada, Australia, and China, as well as agreements to avoid double taxation on exports, are also attractive. Although approximately a ten-hour flight from the US, Chile shares time zones with the US. ChileiT is also actively working to promote its members to the international market.

Other Nations on the Rise

Other Latin American countries growing their outsourcing offerings include Costa Rica, Panama, Uruguay, El Salvador, Colombia, and Nicaragua. Most offer a few tax incentives and relatively good language skills. Key requirements will be to improve telecommunications infrastructure, grow English speaking populations, and develop IT skills. At present, most activity is in call centers, with a focus on specialization as a differentiating factor. Costa Rica, for example, touts its expertise in financial services.

Latin American countries are working hard to gain market share and raise their profiles as outsourcing destinations. Years of developing workforces, improving trade incentives, and building political stability are paying off. Concerns over scale are being addressed through pooling across multiple locations. Providers who are pursuing this strategy include Accenture, Capgemini, IBM, TCS, HCL, Cognizant, and Wipro.

Specialization can help Latin countries gain further advantage aside from being a nearshore destination. Although this strategy includes some risk, as outsourcing trends can change, many large destinations got their start using this approach. So far, Latin America has taken great steps in developing better skilled workforces and better business environments to support their Nearshore advantages of shared time zones, cultural affinity with the US, and more accent-neutral English skills. With proper identification of processes to outsource and the appropriate matchup of location and company, US companies can benefit greatly from Nearshoring to Latin America.

Bill Huber is Partner with ISG, a leading technology insights, market intelligence, and advisory services company. Kristen Elvinger is a research associate.

Source: MercoPress

President Cristina Fernandez has more power than Juan Domingo Peron “ever had” and Peronism in Argentina is guarantee of governance, according to Carlos Corach a former Interior minister from the former President Carlos Menem administration and a respected solicitor and political analyst.

“Cristina Fernandez is probably the president which has enjoyed more power in the history of Argentina. I’d say even more, she has more power than what Peron had. Peron had to deal and negotiate with very strong corporations, and economic and political sectors”, said the former minister.

Corach added that Peron (the Army Colonel who was president from 1946/1952, re-elected in 1952 but ousted by a military coup in 1955, to return triumphantly in 1973) had to learn to live with the Armed Forces, a very powerful Catholic Church and an opposition that also had strong and charismatic leaders”.

“Currently the majority of those players don’t hold such positions. So the conclusion then is that CFK is the most powerful (elected) president in Argentine history”. However “a democratic and political system need of counter balances for a political equilibrium and that today is non existent”.

Corach admitted that the evolution of policy in recent years has led to this situation and recalled a famous Peronism party congress back in 2001, which he identified as “the beginning of the very strong institutional deterioration process” suffered by Argentina.

Asked specifically about Kirchnerism and its quest for power concentration, Corach said that political science shows “that power leads to the concentration of power” and admitted that Peronism “has in its DNA a strong tendency to concentrate power”.

“All of us Peronists have committed mistakes, in the government of Peron, in Menem’s and under the current administration. We all committed mistakes but nevertheless the Argentine electorate continues to vote for Peronism and this is because it has internally engraved that Peronism is the guarantee for governance” in Argentina.

Likewise Corach said that there are “great similarities” between Menemism and Kirchnerism, and Carlos Menem and Nestor Kirchner “had much in common”.

“They both implemented socio-economic plans that were prevalent in the economic thinking at the global stage of their time. Likewise and I said so on leaving office in 1999, ‘Menemism’ does not exist because they are political currents which nurture on the charismatic personality of a leader or the political boss at the time. What remains is the essence of Peronism and it’s very close link with the trade unions’ movement”, added Corach.

Finally he recalled that when former president Nestor Kirchner was governor of the province of Santa Cruz “we had regular and standing contacts, he would come regularly to my office, many times with (Federal Planning Minister Julio) De Vido, and I have travelled many times to the province and Rio Gallegos. We shared lunch quite often at the Governor’s residence, with his wife and my wife”.

Source: The Next Web

Telefonica‘s startup accelerator Wayra and the Massachusetts Institute of Technology (MIT) signed a global partnership, the two entities announced. The agreement was signed during the launch of Mexico’s Wayra Academy.

As we reported, Wayra is an initiative promoted by Telefonica Digital to foster entrepreneurship and innovation in the ICT sector. Wayra works as a startup accelerator, selecting ten projects in each country in which it operates, which then receive mentoring and other resources at one of the newly opened Wayra spaces.

Initially launched in seven Latin American countries (Argentina, Brazil, Chile, Colombia, Mexico, Peru and Venezuela), Wayra is now expanding to Europe, starting with the imminent launch of a Wayra Academy in Madrid.

Following Wayra’s agreement with MIT, the two entities will collaborate on a series of initiatives in Latin America. Wayra academies in Mexico, Colombia, Peru, Venezuela and Argentina are the first to join the partnership, which in 2012 will be extended to Chile and Brazil. Going forward, the upcoming academies in Europe may be added to the agreement, Telefonica said.

The main result of this partnership is called “Wayra Entrepreneurship Lab at MIT” (Wayra@MIT). Thanks to this joint venture, Wayra’s accelerated startups will get access to MIT’s training and mentoring ecosystem.

However, acceleration is only one side of the project. Says Wayra’s global manager Gonzalo Martín-Villa:

“We want this partnership to last and we want to explore ways of creating and promoting a quality entrepreneurial ecosystem in Latin America, where there is a wealth of talent, and generating wealth in the home countries.”

According to its website, “Wayra@MIT’s core activities within the Institute consist of an action-learning seminar at the Engineering Systems Division, a series of joint-events both in Latin America and the US, and resources that enable MIT students to learn about the challenges of new enterprise creation in emerging markets while ensuring that their engagement provides substantial value to Wayra portfolio companies.”

This is not the first time MIT has been developing initiatives in Latin America. As we reported, its Technology Review has recently launched a competition in Mexico. A local edition of MIT’s global TR35 awards, it will identify ten Mexican innovators under 35. With this new partnership, the institution is expanding its reach across the region:

“This agreement expands MIT’s technological innovation and entrepreneurial mission to Latin America alongside a partner that has proved its commitment to the region’s development,” said MIT’s Jhonatan Rotberg, responsible for overseeing the initiative.

As a matter of fact, the MIT’s partnership with Wayra is led by MIT NextLab, which focuses on how information and communication technologies can improve the lives of people in emerging countries. One thing is for sure: bringing expert knowledge to a growing accelerator like Wayra is a good start.

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.

Source: Merco Press

Brazil’s government is ready to respond to Argentine trade restrictions introduced this week but will evaluate the impact of the measures before making any retaliatory moves, trade officials said Friday.

Argentina this week said that beginning in February it will require all importers to file an online affidavit with its tax agency, Afip, before importing goods, providing the Argentine government an instrument to delay imports or determine what goods enter the country.

In response to the measure, Brazil’s Trade ministry issued a statement expressing worry over the effects of the move on trade with its largest regional partner.

“The trade ministry received notice of the measure with concern and established contact with the Argentine government to better evaluate the possible impact on Brazilian exporters,” the ministry said in a statement.

According to a trade ministry official, discussion of the new Argentine measure has already been introduced into the agenda of regularly scheduled talks between the two countries. Argentine trade negotiators sought to give assurances that the measure won’t slow imports of Brazilian goods to Argentina or adversely affect trade, though Brazil remains wary of the move.

“There is no way to evaluate the impact of the measure until it takes effect,” the official said.

Earlier in the week Brazil’s Industry National Confederation (CNI) harshly criticized the new regime of imports and warned that it could contribute to a plunge of sales to that country. The CNI qualified the measure as a “backward moment for the Mercosur trade”.

“The new measure applied by the Argentine government, which is aimed to control the trade balance, will have a negative impact in Brazil,” the CNI stated in a communiqué. The statement adds that the measure increase the judicial insecurity of Argentina’s trade policies and “it’s a threat” to the Brazilian companies that have subsidiaries in the neighbouring country.

Private-sector analysts, meanwhile, have said the measure signals the creation of a non-tariff trade barrier that could further cool already chilly trade relations between the largest Mercosur region partners.

The latest measure comes after Argentina last year stirred up relations with its main trade partner by suspending automatic import licensing on a number of products, including automobiles and parts. Bilateral trade last year was over 40 billion dollars with Brazil exporting 23 billion to Argentina and importing 17 billion.