While both the total number of outsourcing transactions and the establishment or expansion of global in-house centers (a term that is beginning to replace captive centers, though it means essentially the same thing) dropped in 2012’s third quarter, Latin America fared better than many other regions in these respects – especially in the area of call centers, according to new research from Everest Group.
There were 380 global outsourcing deals in Q3, according to Everest, down from 472 in the year-earlier quarter. Eric Simonson, of Everest, attributed the decline to several factors, including a climate of continuing economic uncertainty and a trend toward smaller and simpler deals, in which many outsourcing clients are “breaking larger solutions apart” and opting for best-of-breed approaches, especially in IT infrastructure.
The number of offshore global in-house centers (GICs) also dropped, from 20 in Q3 2012 to 15 in the most recent quarter. The decline crossed industry sectors and geographies, Simonson said, though clients are increasingly considering Latin America for GICs focused on customer-facing activities.
India Still on Top
Somewhat surprisingly, given all of the recent talk about diversifying global service portfolios, India remains far ahead of other countries, Everest found. H. Karthik, vice president and leader of Everest’s Global Sourcing practice, noted that India’s share of the global services market grew from 48.2 percent in 2008 to 50 percent today.
During the same period, the Philippines’ share rose from 6.7 percent to 7.8 percent. China and central/Eastern Europe grew slightly during this period, as did “other” regions including Latin America. In fact, Latin America accounted for much of the recent growth in the “other” category with a 15 percent market share in 2012.
Latin America on Call
The largest growth category for Latin America was in English voice BPO, Karthik said. Not surprisingly, this is also the area in which India saw a significant decrease in market share in the last three years, falling from 39 percent in 2008 to the current 31 percent.
Echoing Karthik, Anupam Govil, a partner in the global management firm Avansant, last month told Global Delivery Report, a sister publication of NSAM, that the call center business is growing in Latin America due largely to demand for bilingual services (Spanish and English) from North American companies.
Govil said North American clients appreciate the close cultural affinity they tend to enjoy with Latin American countries like Mexico, which means training call center agents tends to be relatively simple and inexpensive. The geographic proximity also makes it easy to visit centers and monitor operations. In addition, Govil said, call center costs are rising in both the Philippines and India due to both upward wage pressure and currency fluctuations.
Outsourcing work to Latin America is also often viewed as less politically charged than outsourcing to India or China, Govil said. “There is not the same sense of going offshore.”
The Language Factor
Language is a key advantage for both Latin American and central and European countries in other areas of BPO as well. According to Karthik, while the share of “other” countries in English non-voice BPO fell from 33 to 23 percent over the last three years, both regions are growing in popularity when bilingual and multilingual support is desired.
India and the Philippines both saw fairly large increases in English non-voice BPO during the period, with India increasing from 58 to 63 percent and the Philippines from 9 to 14 percent. According to Karthik, India’s share grew due to expansion into more sophisticated areas of BPO such as data analytics while the Philippines picked up share thanks to companies diversifying their more transactional BPO portfolios.
In IT services, India grew its market share from 57 to 60 percent, while the Philippines remained flat at 1 percent and the share of “other” countries dropped from 42 to 39 percent. “Few locations can match India for its mix of IT skills,” Karthik said.
This article first appeared in Next Coast Media’s Global Delivery Report