Breakdown: BPO Pricing Has Plateaued in the US. Will Onshore Shine Again?

BPO pricing for domestic services from the US seems to have hit a wall. Meanwhile, Nearshore rates have been steadily climbing since the start of the Covid-19 period.

With rumblings of saturation encircling the most popular and tried Nearshore locations, is it time for US clients to give domestic operations another shot?

The state of things: 2023 has been a year of cooldown for BPO prices coming from domestic US providers, according to market observers consulted by NSAM.

• “I would say that labor prices have stabilized in the US,” Site Selection Group CEO King White commented in an interview. “I do believe we will see labor and BPO billable rates to stay flat for the next few years.”

The first signs of a downslope in US BPO pricing were noticed by market observers last year. 

• Between 2020 and 2021, rate increases were caused mostly by climbing domestic wages, which shot upwards under the pressures of high inflation and government stimuli. US-based providers had to offer better salaries to catch up.

• By the end of 2022, US prices seemed to have plateaued,

Coming down?: Some market players pointed out to a downward trend in pricing.

• John Walter, COO at outsourcing consultant firm ZMAXINC, told NSAM that prices have been decreasing (on average) between 9%-10% during the period covering January and May 2023.

• Large BPO providers in the US were charging over US$35 per FTE at the beginning of the year, John Walter said. As of May of 2023, rates had come down as low as US$29.

In the Nearshore: Pricing in top Nearshore destinations such as Mexico, Colombia, Costa Rica and Jamaica has seen an increase of between 8%-10% since January, several market sources told NSAM.

• “These changes are being caused by many US companies moving work nearshore to accommodate budget cuts,” John Walter explained.

Saturated?: The word “saturation” is thrown around constantly in reference to some of the most popular nearshoring destinations. Nevertheless, it is seldom used with accuracy.

• There are ample location options in the region. Even the most solicited countries (Costa Rica, Mexico, Colombia) provide alternatives to capital cities and other popular sourcing/investment destinations. 

• “There are pockets in Mexico that are very cost competitive,” commented Jonathan Ellsworth, SVP of Customer Engagement at Ignition Group. “The markets close to the border are more expensive as is Mexico City. Other outlier cities are the cost competitive ones.”

• At NSAM, we’ve advocated for investors to look beyond the “obvious” Nearshore investment options.

Still competitive:  Nearshore rates remain considerably more attractive than what can be found in the US. 

• Pricing by quality, mid-sized BPOs in the region is half (even less, in some cases) of what’s offered in US geos.

NSAM’s Take: Even though some US businesses might feel the urge to pack their bags and go back to the motherland, decision makers are still feeling the heat of an uncertain market landscape. Inflation remains high, the demand for talent outpaces the immediate supply and the rumblings of an economic recession continue to be heard.

Cost cutting remains among the top arguments for companies to take at least part of their operations offshore or nearshore. Under such a challenging scenario, businesses have few reasons to steer away from their Latin American and Caribbean options.

Those bothered by current Nearshore pricing will probably try luck in less crowded geos, which will only help develop the region’s capabilities and its reputation as a diverse hub for business opportunities.