A stormy macroeconomic landscape has led to a downsizing of nearshore/offshore delivery center setups in the Americas. While the trend is far from spelling certain doom for the region’s future as a hub for the delivery of BPO/ITO services, it does raise questions about its immediate future in the global services sector.
Everest Group’s latest data shows the impact of recent macroeconomic concerns and years of virtual “permacrisis” on the global services industry. Service center setups fell from an estimated 340-360 in 2019 to 150-170 as of the first half of 2023.
This downsizing has led to a higher concentration of service centers in the Asia-Pacific (APAC) region, which saw its share of setups in the market jump from 45% in 2019 to 53% in 2023. In contrast, Nearshore Europe saw its share decline sharply during the same period: from 29% to 21%.
The case of the Americas (Latin America, the Caribbean and Canada), while not as alarming as Nearshore Europe, does point to stagnation. The region’s share of center setups grew steadily between 2019 (14%) and 2022 (19%). Nevertheless, it has seen a considerable decline during the first half of 2023, falling back to 14% of global share.
Everest pointed to Mexico, Colombia and Costa Rica as the leading ITO-BPO destinations in Latin America. Maersk and OnProcess recently announced big plans for expansion in Mexico and Costa Rica, respectively; plans which include service center setups.
While center setups are declining in the Americas, the prevalence of those three countries as top players might be pointing to a further concentration of offices in the most popular regional locations.
This could raise fears of market saturation, yet it must be noted that businesses have been experimenting with their location strategies, exploring smaller cities that are still within reach of major urban centers. According to Everest’s data, the share of center setups in tier-2 and tier-3 cities grew from 29% to 34% over the past four years.
A Hunger for Workers
Although service center setups fell sharply in the Americas during the first half of 2023, the trend is the opposite for the demand for talent.
Everest identified considerable hunger for Latin American BPO and ITO workers during the period, with interest distributed in several labor markets from the region. An increase in demand was registered in Brazil, Chile, Mexico, Argentina, Uruguay and Costa Rica. Interest in Colombia and Peru declined.
“This is primarily due to increased instances of nearshoring by North American enterprises to these Latin American destinations,” explained Sumit Kumar, Practice Director of Global Sourcing at Everest during a webinar organized by the firm. “A lot of the volume that has moved to Latin America from North America comes from the business processes side.”
Signs of this trend have been manifesting more and more over the past year. Remote hiring platform Deel registered a 50% increase in US companies hiring from Latin America, quarter-to-quarter, as of the first quarter of 2023. Mainstream media articles have been springing here and there, pointing to an increase in remote hiring from Latin America. At NSAM, we’ve reported extensively on the hot demand for the region’s talent.
What to Expect
The trends in service center setups and worker demand in the Americas might seem contradictory. Nevertheless, they exist within the same dynamics and point to a bigger trend: the tail end of a market slowdown and the first signs of small revival.
“Center setup is typically a lagging indicator while talent demand is a leading indicator,” explained Sumit Kumar in a written interview. “While in 2022 the center setup did decline in the Americas, high talent demand in 2023 is a positive indicator, implying that in 2024 or ahead there can be a potential increase in the share of new center setups, driven by high talent demand in 2023.”
“In 2024 or ahead there can be a potential increase in the share of new center setups, driven by high talent demand in 2023″—Sumit Kumar, Practice Director of Global Sourcing at Everest Group.
“Many existing service centers have been trying to optimize their Americas operations and move towards higher-value services by hiring at scale, thereby driving demand,” Kumar added. “Some companies are moving away from large, generalized service centers and instead focusing on specialized or niche services. This may not require the same volume of centers but can still result in a higher demand for specific skill sets/functions”
Comments made previously by other market players reflect Kumar’s perspective. Several local operators –particularly in the tech services space– have told NSAM that, though they saw a slowdown in contracts during the first half of the year, demand for talent kept relatively steady. IT vendors in Latin America expect to see a pickup in business during the last quarter of 2023, at the latest, with an almost complete return to “normalcy” by 2024.
It must also be noted that businesses are experimenting more and more with their location strategies. Hub-and-spoke models and satellite arrangements seem to be the preferred setups currently, particularly for more mature service providers.
This will undoubtedly show its effects on center setup distribution, as well as on talent sourcing. As stated in previous reports of ours, talent is driving location strategies now. Service providers choose where and how to set up operations depending on factors such as skills available, scalability and how much they can leverage remote hiring to increase their reach.
We expect 2024 to be a more optimistic year for nearshore service providers in the Americas. Nevertheless, interest by US clients will probably remain on the possibility of access to talent pools more than in the opening of new facilities in the region.