Nearshore Americas

KPO and Latin America’s Bumpy Road up the Global Services Value Chain

A recent NASSCOM study on Knowledge Process Outsourcing (KPO) offers a sobering reminder of Asia’s continued dominance in the global services arena. While small compared to the opportunities still available through the back office, BPO’s sexier and more sophisticated cousin is quickly gaining ground both in terms of market size and as a competitive differentiator between full-service outsourcing providers. With 70 percent of the KPO business marching over to India and another 20 over to the Philippines (not forgetting Central/Eastern Europe), Latin America’s homegrown BPO firms could have a tough time catching up to the Indians on offerings such as data analytics and financial research, not to mention Legal Process Outsourcing (LPO), which is pretty much a “no-go” here given the language barriers and incompatible legal systems.

So, perhaps the real question is how this growing gap in services coverage will shape Latin America’s long-term competitiveness as a global services player.

The KPO Revolution is Here to Stay

The rise of KPO as the next phase in the evolution of outsourcing conjures up scenes from the 1999 sci-fi classic, The Matrix: In the future, business will be conducted irrespective of geography across vast global information networks connected by concentrated nodes of highly-skilled professionals.

In markets like Mexico and Brazil, firms are still working to prove to the world that the Nearshore is a viable platform for non-core operations, not to mention higher-end professional services

Yet, here we are twelve years later and according to Ed Thomas, Senior Analyst at market research company Ovum, the dream is finally coming true. In places like India, the Philippines, and even Sri Lanka, call centers and IT help desks are giving rise to teams of experts that can crunch data and frame big legal cases just as well as the guy next door – and for less, of course.

KPO is no longer the stuff of dreams, NASSCOM confirms. In its latest forecast, NASSCOM stated that the global market has already more than doubled in value since 2006, from $1.2 billion to $2.9 billion. In India alone, rising client adoption has given employment to 70,000 people across 100 firms. Going forward, NASSCOM anticipates exponential growth through 2015 as global demand is expected to soar to $7.9 billion.

NASSCOM also notes that KPO is being utilized by the same verticals that gave birth to the offshore outsourcing industry. Banking, financial services, insurance, health care and telecoms represent the lion’s share of today’s demand for KPO services. Likewise, much of this demand is being met by India’s veteran BPO providers – i.e. Infosys, Genpact, 24/7 Customer and TCS.


Given the rapid rate of adoption and shifting landscape toward KPO, Latin America needs to start looking higher up along the value chain sooner, rather than later.

Labor Demand Outstrips Supply in Latin America, Once Again

For niche KPO providers like EvalueServe, Irevna and Amba Research, the region has proved to be a somewhat harsh environment to grow in.  Country Manager for EvalueServe Chile Mohit Srivastava said that while “we have successfully grown our office to 250 employees since opening in 2006, many of our competitors here have struggled to build up a staff of more than 100 people.” The central problem is that labor demand across all verticals is growing faster than supply. “We need high-speed people and target candidates for higher-level positions with Master’s degrees and PhDs in economics, statistics, engineers, math sciences, and other technical fields.” Despite a higher degree of job satisfaction in KPO as opposed to BPO, strong economic growth has created many other avenues for professional growth.

Another central challenge in Latin America is that the outsourcing industry is still relatively new. “With KPO, it takes time to build the kinds of relationships and trust needed to support higher value-add functions,” Ed Thomas explained. In other words, reputation and a solid customer track record become more important as the service provider moves up the value chain of outsourcing services. But in markets like Mexico and Brazil, firms are still working to prove to the world that the Nearshore is a viable platform for non-core operations, not to mention higher-end professional services.

Srivastava also noted that opportunities for expansion in new markets are limited because there are few, if any opportunities for M&A. This makes it difficult to enter into new markets since starting a KPO business from scratch requires a much heavier investment in time, personnel and management, than would a similar-sized BPO operation.

Indian Domination or Bottom-Up Expansion?

Assuming that NASSCOM’s 2015 prediction comes true, the big Indian BPO firms swooping down on Latin America could gain the upper hand, as they leverage their value-adding expertise in KPO to secure contracts with the multinationals. This will put serious pressure on homegrown players like Neoris, Softtek, and Hildebrando to enhance their “knowledge” service offering. In a scenario where the big firms fight it out for turnkey contracts, the impact on local markets could be significant or marginal. This will completely depend on whether projects are serviced out of their development centers in LatAm, or are channeled back to India or other locales in the East.

An alternative, more bottom-up scenario could see a gradual rise in boutique KPO providers fulfilling highly specialized needs in financial research, engineering, and clinical trial management for the pharmaceuticals industry. Over time, these niche firms could very well spring up in some unlikely places. For example, Nicaragua’s underdeveloped economy could prove to be a rich source of technically and linguistically proven professionals. Managua has a strong contact center industry and it’s not uncommon to see engineers and lawyers working as customer service agents there. Likewise, places like Cali, Colombia and Sao Jose dos Santos in Brazil (headquarters for Embrear) with their strong universities and experience in the life sciences and aerospace could attract some lucrative foreign contracts.

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Getting By On Back-Office Won’t Be Enough

The doomsday scenario would exclude many of Latin America’s markets out of the KPO business altogether. This could tarnish the region’s reputation as a full-service delivery platform, as well as stunt its growth and participation in a knowledge-driven, global economy. Furthermore, getting by on back-office and contact center contracts from the US is likely unsustainable in the long-run, primarily because the region’s cost competitiveness will not last forever.

Other emerging markets – perhaps in Africa – will inevitably come on the scene and/or “reshoring” will eventually bring this business back to developed countries. From an economics perspective, Latin America needs to think and plan hard about how they will move up the global services value chain.

Luke Bujarski

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