Those investors looking for opportunities during high Nearshore demand are eyeing Peru with interest. As competition in both the business outsourcing operations and IT services industries heats up in key Nearshore markets, interested parties are looking to those countries who have not yet made quite the impact on the Nearshore that they may have.
Peru fits into this category.
It’s youthful. the country’s 33 million inhabitants have a median age of 31.
Outsourcing is a growing industry. According to the Commission for the Promotion of Peru for Exports and Tourism (PROMPERÚ), the BPO industry grew at a rate of 12% annually in 2018 to a value of US$9.6 billion, with 65% of those services being exported.
National companies are investing in modernizing efforts and supporting the type of services that Nearshore requires. According to EY Perú, 55% of companies have increased their investment for digital transformation, strengthening the outsourcing and BPO industries in the country.
Major companies are already present in the country. In the IT services arena, Tata Consultancy Services employs 1,300 workers across three offices. In an interview with Nearshore Americas last year, TCS Peru Country Manager Sangram Sahoo highlighted Peru’s exceptional performance in TCS’ global coding competition, CodeVita. IMB and Indra are other household names already in the country.
There are around 50,000 workers employed in the BPO industry in Peru, with an additional 40 ITO-focused enterprises
Meanwhile, in the call center and BPO space, Spanish BPO company Atento is present, and may be employing close to 10,000 people in the country, a source told us. Another huge European presence is Webhelp, which recently acquired Lima-based BPO Dynamicall, and 4,500 employees in the capital.
So far, so good. But Nearshore stakeholders, expecting services in English and the ability to scale at pace, require specific characteristics from a country. Will increasing interest in lesser-known Nearshore markets finally put Peru on the map for US-based buy-side clients?
Diamond in the Rough: Peru’s Comparisons with Colombia
King White, CEO of Site Selection Group, a global location advisory firm, believes that competition in Latin America’s traditional Nearshore markets is reaching a level that is approaching saturation.
“Companies are trying to find some more emerging geographies, and that’s why I think Peru has really started hitting the radar,” he said.
“Peru remains an emerging market, and there’s a lot of in-region and Spain-specific working coming out of the country. But Honduras used to be an emerging market, and Colombia didn’t look too different at one time. Ten years ago, Colombia was mainly servicing European markets and look what it has become now,” he added.
There are hurdles to overcome before Peru hits these heights, however. One frustration for outsourcing stakeholders is that not all of those hurdles can be overcome by their efforts alone.
Peru’s devastating 11.12% decline in GDP in 2020 was among the steepest in Latin America. Even for an economy that is familiar with peaks and troughs, the impact of Covid-19 was strong. The informal job market accounted for 73% of all employment in Peru in 2019, and with the pandemic, that number has increased even further. Low investment rates are often associated with high employment in the informal job market, and the consisistent growth that BPO and ITO outsourcing industries showed over the last several years has been constricted. Jorge Muguerza, president of the Peruvian BPO & ITO Association (APEBIT).
“Prior to the pandemic, there was a healthier formal versus informal mix. Now the figures are around 80% informal. It’s difficult, it’s hard, but it’s our reality,” he said.
Despite that, there are around 50,000 workers employed in the BPO industry in Peru, with an additional 40 ITO-focused enterprises. With a young population, there is much room for growth.
English-language skills are an essential pillar of the Nearshore. Peru, though, is not quite up to standard.
“There are 250,000 students enrolled at Lima’s universities alone. There’s a very solid education system in the country,” said White. “But finding English at B2 level is definitely not easy.”
At the moment, 50% of the BPO market is focused on Ibero-America, Muguerza explains. English-language abilities are undoubtedly a problem to be solved before Nearshore growth, he says.
“There are 250,000 students enrolled at Lima’s universities alone. There’s a very solid education system in the country. But finding English at B2 level is definitely not easy.” — King White
While there isn’t a great deal of central government effort to push English skills as a major education tool, interest in English from Peru’s general population appears to be growing. A 2015 Educational Intelligence report by the British Council noted that the rapid growth of the country’s extractive industries had promoted the learning of English and “the country’s efforts to raise the level of English reflect its goal to further expand and internationalize its economy.”
Politics is another problem. Uncertainty over the course of the country since the election of President Pedro Castillo, who, owing to a mixture of “internal struggles in the government and attacks by right-wing groups” according to Al Jazeera, has just sworn in his fourth cabinet since taking the position some six months ago.
Reasons to Be Cheerful
That said, there are many other areas where Peru shows strengths.
The country’s cost point is very attractive for potential investors. According to PROMPERÚ data, the base salary for call center operators is between 993 and 1,107 Peruvian Sol monthly, around US$262 to US$291. As expected, Lima demands higher wages. Annual labor costs, based on 350 employees carrying out 10 different roles, puts Peru as the third-cheapest destination in South America.
“This is a real opportunity for growth,” said Muguerza. “The cost-quality ratio is very strong in Peru, better than Chile and Argentina, and perhaps Colombia too.”
The country’s telecommunications infrastructure, once a genuine obstacle to attraction investment, is no longer a major concern. Initiatives like the The National Fiber Optical Backbone Network, completed in 2017, have helped to reduce these worries.
Renewed efforts at investment promotion by actors like PROMPERÚ, which has 31 foreign offices in key investor nations, are also helping the country get noticed. While PROMPERÚ does not yet have a department solely focused on BPO, this is a target for the future, a source said.
To replicate the success of neighboring markets will be a long road. Economic and political uncertainty aside, there is one key decision that could be taken for outsourcing’s promotion, says White.
“The government needs to determine that outsourcing is a target industry that they want to pursue. They then need to offer funding, develop a base of experts and people who can resonate with needs, and then understand local market conditions to articulate it to investors. From there, it becomes about promotion. It’s standard economic development practice,” he concluded.