The Myths and Realities that Prevent IT Outsourcing to Latin America

For years the refrain echoing in the ears of CIOs and IT decision makers has been “do more with less.” And in today’s economic climate, that refrain rings true more than ever.

With that mandate, the question is what can CIOs do to help their companies weather these tough business conditions? And since India is more expensive than ever, what is preventing those buyers from examining Latin America more seriously.

While labor costs may be on par with India, there are fewer cultural differences when working in Latin America. And geographic proximity makes communication easier and travel less expensive and less time consuming. Yet still many IT leaders seem to be reluctant to participate in nearshoring.  Find out what three IT executives told us about why Nearshoring is not as attractive as some of us think.

Perceptions: True or False

“I think some of the problems are the same as everywhere else—the nexus of control and part of what injures Latin America more so than other areas is the perception of government stability or instability. And also the perceptions around the various crime and the dangers rates—true or false,” said Joanne Kossuth, Vice President for Operations and CIO, Franklin W. Olin College of Engineering in Needham, Mass.

Another perception is that the Latin America doesn’t have the same infrastructure as countries where offshoring typically takes place, she said.

“If you look at China and Asia [IT leaders] think those people are really technical and they have this connectivity and they have bandwidth and those perceptions make people think they’re putting their data and their operations in the hands of people that get it,” Kossuth said. “And those are not the same perceptions about Latin America.”

Another reason companies are not jumping on the nearshoring bandwagon is because they really don’t know much about it. That’s because Latin American countries haven’t done a very good job at marketing the services that they can provide, she said.

Additionally, when it comes to outsourcing IT functions to Mexico, Kossuth said IT leaders are afraid to put their services in a place where the crime rate is high. “All we know about Mexico is what we see on the news and that’s people getting killed because of drugs,” she said. “And even if it’s not happening in the entire country and it might not be true in the area you put your services—you think it is.”

“I go to Juarez, Mexico and every time I walk over the Rio Grande Bridge I remind myself that I have no U.S. rights. So when I consider my data and processes going over into Latin America or Mexico I want to know what laws govern that data.” – Shaun Cooper, CIO New Mexico State University

Maturity Meter

Anand Ramesh, a research analyst at Everest Research, said one of the reasons that IT decision makers don’t want to outsource their IT functions to Latin America has to do with the level of maturity of the providers in that market.

“I don’t they’re reluctant to do it, it’s that they think that the [service providers] in Latin American countries are not as evolved as those in India,” he said. “They don’t think that the providers in Latin America have the same skill level in terms of talent and sophistication as the providers in India. So it naturally creates that concern in the minds of the decision makers about whether they could find the same kind of skills—the same breadth as well as depth and sophistication of skills—to be able to [handle] all the different IT services.”

Shaun Cooper, CIO, Associate VP of IT New Mexico State University in Las Cruces, New Mexico said he worries about placing protected student data in machines in other countries because, for one thing, he’s afraid he’ll lose control over that data.

“I go to Juarez, Mexico and every time I walk over the Rio Grande Bridge I remind myself that I have no U.S. rights,” he said. “So when I consider my data and processes going over into Latin America or Mexico I want to know what laws govern that data.”

Cooper said he’s also worry about the political stability in those countries.

“I remember a story about company that had some equipment in Fiji and there was a coup and all they had was about two hours to pull all their equipment out and get it on a plane,” he said. “How do I know there’s not going to be a coup [in those countries]? For me it really has to do with the laws governing the data and the stability of the country.”

But Steve Romeo, Vice President of Information Technology, Breg/Orthofix, a medical device manufacturer, in San Diego, said he’s starting to drift toward nearshoring because he thinks it’s a great alternative to doing on-premise development.

“In my case I started working with a firm in Tijuana and the beauty of that is that they’re so close we can just drive across the border to do scoping and have discussions,” he said. “but at the same they have a richly skilled development team that can accommodate everything from iPhone development to .NET development. And they have resources readily available and the talent pool is growing.”

Romeo said he’s seeing more momentum toward nearshoring especially as budgets have been reduced and turnaround is an issue.

“The challenge with offshore outsourcing is that when you try to scope something and there’s any type of scope creep or deviation or additional information is needed, it can be a challenge to have someone on the ground physically there to go through that process,” he said. “The resistance to nearshoring has always been the assumption that India has a much stronger talent pool than nearshore options. I agree that has been the case but that belief is fading now that the talent pool is growing in Mexico and Latin America.”

Linda Rosencrance is a veteran IT journalist who has been an editor and contributor to Computerworld for over ten years. (This is her first contribution to Nearshore Americas.)