How is Latin America doing as a sourcing destination compared to the rest of the world? We sat down with Fabrizio Opertti, Lead Specialist for Integration and Trade at the Inter-American Development Bank (IDB) to get an objective opinion. He tells us how to increase Latin America’s share of the outsourcing market, what buy-side companies are desperately looking for, and the growing prospects for regional cooperation. Investment promo agencies, listen up.
The IDB held an event in China last month. What were your goals for that summit, and how do you see China positioning itself in relation to Latin America?
Opertti: China joined the Bank last year, and we organized the China-LAC Business Summit in Chengdu to find out what opportunities there are for increased trade between China and Latin America as a region. It was a very successful meeting of almost 1200 people including a large presence from Latin America, and export promotion agencies from every country that is a member of the bank. Bilateral trade between China and Latin America has really taken off in the past ten years, and we saw many substantive presentations on business and investment between China and Latin America.
Admittedly, a lot of that trade is still concentrated in natural resources or commodities, but we think there’s a great opportunity to go beyond commodities and into new sectors like tourism, energy, higher value technology products, and especially services. That’s what this summit last month was about – increasing trade and investment between China and Latin America.
What is the respective market share of outsourcing of each global region? How does Latin America compare?
Opertti:The statistics vary, but in the BPO sector India is definitely far ahead. Although its share has been decreasing, some sources say it still captures about half of the market or even more. The Philippines is also an extremely successful newcomer that has picked up substantial parts of the global BPO market. There are forecasts that it could even pass India in the next decade.
The stats we have for Latin American in the global BPO market is that it captures less than 10%. But what I find impressive is that it has been growing rapidly even in the midst of the crisis.
Has the economic recession helped or hurt Latin America, in terms of levelling the outsourcing playing field?
Opertti: There are mixed effects of the recession. On the one hand, the slowdown of the US economy has hurt private sector companies. Since they are the main buyers of outsourced services, that definitely had a negative effect on the outsourcing market, both in Latin America and globally. On the more positive side, as companies in the US are being forced to adjust costs, they have been seeking new destinations that offer services at low costs in sectors not just limited to F&A, technology or BPO as has traditionally been the case, but in more value added services like KPO, software development and engineering. This is where Latin America is really gaining ground today.
The biggest challenge for the region is bilingual capability, and how to increase the number of English proficient workers. We’re seeing many out-of-the-box initiatives in the region to tackle that problem such as Chile’s National Registry of English Speakers, and Colombia’s Talk to the World program.
Can you comment on how Latin America is shaping up in terms of global sourcing delivery capability? Is the regional market showing signs of maturity, or does it still have a long way to go?
Opertti: I think the market is maturing, and we see that in the investment promotion measures that LatAm governments are taking to leverage the opportunities I just mentioned. But the true signs of market maturity are in intra-Latin American investments, or regional firms that themselves are re-investing in different LatAm countries. A good example is Argentinean software company Globant, that invested in Uruguay. The original plan was to create 200 jobs, but now they’re thinking of doubling that. So we’re seeing not only captive FDI from the US in shared service centers, but also high growth BPO and ITO providers right here that are investing within the region.
These are very positive trends that point to increasing market maturity, but in order to go past that 10% market share, Latin America needs better programs and better financing. The biggest challenge for the region is bilingual capability, and how to increase the number of English proficient workers. We’re seeing many out-of-the-box initiatives in the region to tackle that problem such as Chile´s National Registry of English Speakers, and Colombia’s Talk to the World program.
Another recommendation the IDB makes is the specialized promotion of not just countries, but also cities and the region as a whole.
On that note, are investment promotion agencies in Latin America focusing on the right things in terms of marketing to US companies? What do clients want from Latin America?
Opertti: This is a very new area for many of the IPAs, and it’s an area in which some have made more progress than others. One of the things we do at the IDB is take tips from successful institutions like NASSCOM in India or BPAP in the Philippines, and make LatAm trade agencies aware of the types of programs necessary to attract more investment. I’m referring to things like skills certifications and process quality certifications – these are things that buy-side companies desperately want to see in the region. LatAm governments must come up with ways to incentivize this.
Another helpful initiative would be helping small and medium Latin American businesses in the service sector come up with business plans to promote their presence internationally. Countries and IPAs also must participate in the major outsourcing events that happen every year in the US.
Are you seeing signs that LatAm countries are collaborating to promote the region as a whole, or is it still every country for itself? Is regional cooperation even a good thing?
Opertti: I think regional cooperation is definitely positive. The region will gain more from cooperating than competing against each other, mainly because of the problem of scale. Especially in the BPO sector, individual countries are often not able to provide the right kind of scale that large foreign companies are looking for. A great example would be TCS which first located to Uruguay years ago. But now they’ve expanded into Chile and Argentina and are exporting services to the world. That multi-country, multi-city model is the kind of the investment that the region needs to attract.
Of course there are limits to that, and each country will always offer its own competitive niches and advantages. But I think there is a lot to gain from regional positioning in this industry.