Six Reasons to Give Up Believing there is a Perfect Moment to Invest in Nearshore

Timing is crucial for investment anywhere, but waiting for the exact moment to make a perfect shot might actually kill your possibilities for making the best out of your bet. Same logic applies for Nearshore investment.

Latin America and the Caribbean have a complicated relationship with foreign investors. Though marred by scandalous levels of socio-economic inequality and seen from the outside as a politically unstable and even dangerous territory, the region has been able to maintain the interest of investors –known for their risk-sensitive noses– for decades. Lately, with a booming startup ecosystem and the reconfiguration of supply chains worldwide, foreign capital is paying even more attention. 

Still, the Nearshore hasn’t been able shake off the concerns that have come to define it in the eyes of potential investors. A rising “pink tide” of left-leaning presidents, protests in the streets and the lingering economic fallout of the Covid-19 pandemic keep marking Latin America and the Caribbean as an interesting yet risky prospect. In other words, the region isn’t an entirely perfect bet. 

But should it be? Though it’s understandable that investors would prefer the water temperature to be just about right before they dive in, waiting for too long might be a mistake.

Here are some reasons why waiting for perfection in the Nearshore can be counterproductive.

Incentives Can Become Less Attractive

Government incentives are among the main drivers behind foreign investment by BPO firms in Latin America and the Caribbean. From Colombia to Jamaica, government institutions in the region tend to understand the benefits that come with BPO-related FDI in their territory and the role they as public entities play in drawing that investment.

But you can’t count on those incentives to remain unaltered. They can be modified by future administrations or even by the ones that implemented it, taking the rug from under investors’ feet. Take Belize, for example. Back in 2018, the government began to dismantle tax incentives that benefited BPO firms in an attempt to comply with World Trade Organization (WTO) rules.

The [Nearshore] region isn’t entirely perfect. But should it be?

In Mexico, energy companies have been clashing with president Andrés Manuel López Obrador (AMLO) over new rules for the sector, this after the previous administration opened up the industry after decades of state control. Though the whole industry is having trouble with AMLO’s policy, those who signed contracts before his presidency began have more solid legal footing to defend themselves than newer players.

Markets Become Popular… and Crowded

Considering the region’s potential, the Nearshore remains relatively unexplored by foreign investors. Nevertheless, there are parts of it that have grown quite popular and, some would say, too crowded over the past years. 

Cities such as Bogotá (Colombia), San José (Costa Rica) and Guadalajara (Mexico) shine now as clusters for BPO and IT investment. While that’s great news for the cities themselves, it translates into a market that is tougher to get into due to the abundance of players.

In a context of rising capital expense, climbing wages and a tighter job market, moving early into a promising territory becomes an attractive prospect. 

Labor Laws Change

Investors can’t expect laws to remain static, especially when it comes to labor, and even more so in an age of rapid technological development and transformation. Governments in Latin America have taken a second look at their law books, and some of them are reconsidering the validity of the text. 

Honduras recently took down a long-standing law that allowed hourly contracts for workers, changing the rules of the game for contact centers and other industries that tend to rely on outsourced employees. 

Mexico also readjusted its laws when it comes to outsourcing, making them more strict and forcing companies to bring hundreds of thousands of workers into the lists of the officially employed. The country is now working on new regulations for remote work, and from the look of things, the changes will be important. 

The Rising of the Pink Tide

Latin America is going through another “pink tide”, a term used to describe the emergence of left-leaning governments in the region over a short period of time. From Gabriel Boric in Chile to Gustavo Petro in Colombia, and the possibility of another Lula presidency in Brazil, it’s clear the region is seeing a coalition of leftist presidents with an agenda that is less business-focused and that leans heavier on social issues.

A lot has been said on whether foreign investors should fear a lefttist Latin America or not. The fact is that many of these governments arrive to power with a promise of radical change that could translate into a different landscape for private enterprise, which would be tougher to navigate for new players.

Polarization has worsened so acutely across Latin America that the sky-high approval ratings enjoyed by leaders in the late 2000s are now far more difficult to achieve. https://t.co/HH8oHm3ebI

— Americas Quarterly (@AmerQuarterly) July 19, 2022

Petro, AMLO and Boric have focused their agenda of change mainly on the energy and mining industries, so the jury is still out on how that could impact the BPO and IT sectors. Nevertheless, the risk remains for those who wait for too long.

Missing Out on Innovation

A storm is brewing on the horizon for the US economy, and it is expected to cause trouble for the whole continent. With that in mind, investors have become understandably weary about putting their money into risky ventures, like Latin America and the Caribbean. Nevertheless, they could be missing out on an opportunity to be among the innovators that position themselves at the top of the game when the storm is over.

“Recession gives long term opportunities to the firms that are proactively ready in terms of having the systems for innovation, because those are the times when you can fix a problem through innovation,” said Rajeev Gupta, head of the Nearshore/Latin America region and Mexico Country Head at Tata Consultancy Services (TCS), during a Nexus 2022 panel.

Firms remain optimistic in the Nearshore in spite of the dark clouds crowding above. Ibex has plans to continue its expansion in Jamaica, said Jaime Vergara, Senior VP of Operations for the company, in a recent interview with NSAM. “I would say they’re missing out”, he said, citing growth of almost 50% over the past five years for the outsourcing industry in Jamaica. Felipe Bitro, Partner CI&T, assured in another interview that the company maintains a bullish outlook for Latin America and expects to continue expanding in the territory.

It’s Never Too Early to Make Friends

Contacts are important when it comes to business, and it’s never too early to meet the right people in a territory of interest.

The Nearshore can be a complicated turf to navigate, and getting to know the right people (partners, analysts, government officials, etc.) soon can help you establish shop faster and with fewer headaches, increasing your possibilities of success.

Investment promotion organizations and industry groups are well known allies of foreign investors in Latin American and Caribbean countries. Partnerships with Jamaica’s JamPro and with Colombia’s ProColombia, for example, allowed for the rapid and strong growth of the BPO industry in both countries.

In Mexico, the manufacturing sector has a long history of successfull lobbying in its own favor, which allowed the country to position itself as a very strong partner of the US when it comes to manufacturing. Agribusiness has been following a similar route over the past decade.