Nearshore Americas

Despite COVID-19 “Red Zone” Status, Nearshore Rides a New Wave of Popularity

In recent weeks, confirmed coronavirus cases have surged across Latin America, leaving existing healthcare deficiencies and economic vulnerabilities exposed. Earlier this month, the World Health Organization (WHO) described the region as the new “red zone” of global Covid-19 transmissions.

But even as Latin America’s caseload mounts, most analysts remain optimistic on the long-term prospects for the Nearshore services industry. With major IT firms benefiting from the sudden spike in tech usage, the demand for talent south of the border looks likely to soar. The crisis has also forced IT outsourcers to shift to work-from-home (WFH) models, which could reduce costs.

Marc Tanowitz, Managing Director at Pace Harmon

“We’re seeing that enterprise clients are focused on making sure they have redundancies across their service delivery capabilities throughout multiple delivery locations,” Marc Tanowitz, Managing Director at Pace Harmon, told Nearshore Americas. “For clients not already utilizing the Nearshore region, they have a new opportunity to diversify their locations and may be thinking about what services to put there in order to have a sufficient level of redundancy.”

While this geo-diversification could benefit Latin America, the region is still facing a period of great uncertainty. Brazil – the largest Latin American country in terms of both population and economy – has suffered nearly 50,000 fatalities to date – the second highest figure in the world. Mexico has documented more than 160,000 coronavirus cases and 20,000 deaths. Experts in both countries also agree the real figures are higher.

Covid 19: The Economic Fallout

The pandemic has also had a devastating impact on business. The World Bank expects economic activity in the region to shrink by 7.2 percent in 2020. Falling oil prices, the shutdown of tourism and mobility restrictions have all taken their toll.

But even with the overall economy declining steeply, the Nearshore model looks set to gain. The consultancy firm Everest Group estimates that Covid-19 will further accelerate growth in the digital contact center outsourcing market. The company estimates the total market value of the sector will grow to 17 billion by 2022, a 42 percent jump from 2019.

Nearshore hubs in Latin America are well-placed to take advantage of accelerated digital transformation. According to Everest Group, three in four company leaders believe the economic fallout of Covid-19 will trigger a talent shortage for key IT and analytics roles over the next six months to a year. Given that specialists in those areas can be both costly and difficult to find in the United States, Nearshore outsourcing could increasingly emerge as the logical path forward. But to take advantage of this opportunity and to stay attractive to clients, IT vendors will have to commit to a sustained period of upskilling.  The online learning platform Udemy offers more insight into the latest trends in skills. It projects that the need for AI and data science skills will remain strong throughout this year, alongside the demand for web development frameworks, cloud computing and IT certifications, including AWS, CompTIA and Docker.

The process of upskilling regional tech talent has already begun:

However, there is still an abundance of untapped potential in Latin America.

“The Nearshore region and its service providers will need to build up a base of resources with the requisite capabilities if they expect to be able to deliver these types of services at scale,” Tanowitz warns. “Local education systems will need to evolve to support these needs, including local universities providing training in the areas where skillsets are in high demand. Public partnership is necessary to help service providers build up resources and sufficiently develop services that aren’t currently core to their locations.”

Facing the Uneven Consequences of WFH 

The Covid-19 pandemic has also forced IT outsourcing vendors to rapidly adopt WFH models that could ultimately lead to cost reductions and more flexible working conditions for employees.

A recent survey by the accountancy firm Grant Thornton found that eight out of 10 companies in Guatemala were open to continuing with the WFH model once the Covid-19 crisis had ended. The study revealed that managers planned to reduce their office facilities and save on costs.

Employees reported that WFH had initially generated difficulties. However, after two months, most had adapted to the change and more than 60 percent reported a better work-life balance.

The “new normal” may force others to reconsider their reliance on traditional office spaces, as social distancing measures will ultimately increase costs per office worker. However, WFH also presents a host of challenges that could negatively impact productivity.

“When staff members shift to WFH, they may not have a dedicated workspace,” Tanowitz said. “They will likely encounter a variety of noises from others working in the home, children present without childcare, etc. Additionally, their work equipment can be problematic – ranging from non-ergonomic chairs, lack of a proper desk, or an insufficient monitor at the wrong height.”

Transitioning to WFH also requires increased investment in data security. The spread of the Covid-19 pandemic has led to a sudden explosion in connectivity. That has created a wealth of new opportunities for attackers, as millions of workers access business data from home. Deloitte’s Cyber Intelligence Centre has already reported a spike in phishing attacks, Malspams and ransomware attacks, as cyber criminals use Covid-19 as a bait to impersonate brands. Given that increased threat, Nearshore companies will need to spend more on security software such as VPNs and log management systems, as well as hire dedicated cybersecurity professionals.

Sharp Regional Variation

Recent media reports about the pandemic in Latin America have largely focused on the contagion hotspots. But it is also worth noting that some countries have had considerable success keeping coronavirus under control. The IT sector is still hiring and expanding in Costa Rica, which has recorded less than 2,000 cases and 12 deaths. In Uruguay, the government encouraged early voluntary isolation but has not declared a mandatory lockdown. So far, it has recorded 850 cases and 24 deaths.

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The Nearshore model even stands to grow in countries such as Brazil or Mexico, where the number of cases is rising exponentially. “Overall, enterprises that are looking for geographic diversity will likely consider whether Nearshore opportunities present the right value proposition for them – and this is certainly the case now,” Tanowitz said.

A world map tracking Covid-19 outbreaks

Nevertheless, much work is still to be done to secure the region’s position in the era of digital transformation. According to Tanowitz, education and upskilling will be the keys to future success.

“The question is whether qualified resources exist at the level needed to be sustainable,” Tanowitz said. “To sustain turnover, enterprises – and the Nearshore region for that matter – will need to focus on building [tech talent].”

Stephen Woodman

Stephen Woodman is an independent journalist based in the Mexican city of Guadalajara. He has six years’ experience covering business and culture in Latin America. Stephen has been published in numerous international media outlets, including The Financial Times, BBC News and Reuters. To share story ideas, drop him a note here

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