Roundtable of Investors Conclude LATAM’s Security Issue “Blown Out of Proportion”

Despite the concerns over violence and personal security that continue to haunt Latin America, those with first-hand experience there believe such issues do not represent an impediment to investing in the region. While first-time investors are more likely to be dissuaded from entering the market by negative headlines, those with deeper knowledge of Latin America are continuing to expand their operations. Even San Pedro Sula in Honduras – which some studies indicate to be the world’s most violent city – continues to attract investment, with Alorica particularly bullish about its prospects.

So just how risky is it to do business, invest or outsource to Latin America? As is so often the case, the perception of security issues can prove a long way from the reality of the situation, so Nearshore Americas surveyed several industry experts with experience in the region to find out if and how violence and personal safety concerns are impacting investment.

James Bosworth, Partner & Director of Analysis, Southern Pulse

“There are two groups of businesses that you have to distinguish between: those that already have operations in the region and those that are considering investing for the first time. Businesses with a presence in the region do their due diligence and have a better sense of what the threat is and how to mitigate it. They’re happy to expand in spite of everything that we hear about the security problems. But companies who are not already in the region are very hesitant and easily swayed by the media because they don’t have the same experience.

“Caracas, Venezuela is going downhill and San Salvador has got a lot worse in the last year because of the breakdown in the gang truce there. Honduras has gotten a little better. In 2012 to 2013 it was the most dangerous country in the world but they say it’s got 10% to 20% better and that’s fantastic for the country, but it is still dangerous. There are second-tier cities in Brazil where security is becoming an increasing concern. The crime rates have gone up and I think the businesses are very aware that the potential for robbery and extortion has risen. From a security standpoint Brazil is on a par with Colombia now and probably worse than Mexico – which isn’t to say if you’re an international investor you shouldn’t invest in Brazil – but from a security standpoint I think a lot of investors over-hype the risk in Mexico and under-hype the risk in Brazil.

“We should avoid generalizations. There’s no country or city that I’m afraid of but there are neighborhoods that I don’t enter. There are some very dangerous neighborhoods in San Pedro Sula but 80% of the violence is happening in 20% of the neighborhoods. You can set up work in Honduras, El Salvador or Guatemala and just keep out of the bad neighborhoods. Security risks are constantly about getting the hyper-local perspective and smart investors can find spaces to invest even in countries and cities that statistically are very dangerous.”

Jon Butler, Principal, Information Services Group

“Like many regions of the world, the security situation in Latin America needs to be considered at a country and even a regional or city level. ISG employs a City Risk Monitor process to assess the political stability, security, logistics, infrastructure, education system, etc. to help our clients make sourcing destination decisions. There are significant regional differences in Latin America that change quite dramatically year over year, so it is difficult to apply issues from five years ago, or even a year ago, to today. For example, five years ago Argentina (Cordoba and Buenos Aires) would have been on the top of everyone’s sourcing destination list. Today, Argentina has to be carefully considered because of the political changes, currency fluctuations and security.  Likewise, Monterrey, Mexico, which three years ago was considered a dangerous city, is now relatively stable with a vibrant outsourcing community. Colombia, too, is experiencing an upsurge of interest based on the country’s relative stability regarding security.

“From a personal perspective,  I lived in Monterrey for two and a half years where I ran a delivery center  for a large American multinational service provider. Our facility did not experience any violence or any kind of complication from cartel-related activity. I never felt threatened there as a North American and I think the security situation does gets blown  out of proportion. One thing that caused the Mexico situation to really make headlines was the shocking nature of some of the actions. Had they not been committed in the way they were done they would have been small stories buried towards the back of the paper instead of front-page headlines. Unfortunately, it can be difficult for some clients to shake the perceptions that were presented by the media.

“From a business perspective, I recommend clients focus on many factors, including security, when considering outsourcing destinations. Cities with a vibrant outsourcing market with multinational providers tend to be more desirable locations. Clients can utilize those local service providers or obtain help in finding an area in which to build their own global in-house (captive) center. But even in these situations, clients need to assess the current situation and be ready to handle the perceptions some staff may have of visiting locations where they don’t feel safe, even if the facility is in a relatively safe location. Having this open dialogue with advisors and/or potential service providers will identify opportunities to increase the comfort of all parties.”

Manuel Lopez, Global IT Director, Gowan Company

“It seems like this issue is not affecting investment as much as it was a few years ago. You don’t hear so much about it now. I think rather than security we hear more about corruption now and that’s also a factor that’s going to make people think twice if they’re new companies, but if they’re companies that are already established then they’re used to it.

“People know that there are dangers but you never hear about the president of a company or an expat employee getting kidnapped. That’s not a concern. At Gowan Company we have operations in Mexico, Chile, Ecuador and Colombia and we’ve absolutely not experienced any kind of security-related problems.

“From the people that I’ve spoken to in Mexico I think there’s less perception of risk from violence than there was a few years ago. There are certain places in Mexico where I would not invest, like in the state of Guerrero, but I would just look for other locations within Mexico. It’s just a matter of being smart, doing your due diligence and finding the right place to invest.”

Christopher Snyder, Director of Software Development, Scantron Corporation

“I have known people who have raised concerns (over security) – even my wife when I travel – and been dissuaded by that factor because they get a lot of media attention here in the United States and people don’t know how to distinguish the problem areas. I’ve even heard it with Europeans coming to the United States after the big theater shooting in Aurora, Colorado because those things make the news over there. So I know that it does affect people, but it does not affect me personally. If there were areas that I was concerned about then I wouldn’t go there, but I haven’t encountered any development centers in the ’hood.

“I’ve heard of people trying to start development centers here in Tijuana, which is just 30 minutes away from me, but because of the reputation that Tijuana has I just don’t believe that that’s going to happen. There are safe neighborhoods in Tijuana and the fighting over drugs is pretty well limited to drug people fighting drug people – they know better than to start going after Americans. But I think that if a city has a bad reputation you’re not going to attract the quality developers. I just don’t think you can have a development center that’s close to a bad neighborhood from a provider’s standpoint.

“I’ve been at roundtables and had informal discussions with people who are first-time investors versus people who have been there for a while and there is an education process. It takes a little bit of dipping your toes into the water and getting to know the area before doing a fully fledged operation. I did that many years ago when I started off with a small team in Brazil and I got to know that area before I got comfortable. The first-timer is less confident because they have counter-balancing information from the news and they don’t know how to filter out where these areas are and how much violence leaks into the area where the development center is.”