Nearshore Americas

Part 2 Efstathiou Q/A: LatAm Labor Law Inflexibility, and What the Buy-Side Really Looks For

 By Tarun George

In the second part of his interview with Nearshore Americas (Part I is here), Andy Efstathiou, Director of Banking Sourcing at Nelson Hall, discusses the importance of flexibility and scalability in LatAm sourcing, the best locations to find language proficient workers, and why inflexible labor laws are pushing firms towards third party providers.

Q: What exactly are buyers looking for in Latin America? How have clients’ preferences shifted from a few years ago?

Efstathiou: The thing everyone’s looking for right now is flexibility. A big shift has been from steady-state operations to a focus on variability of transaction volumes. Clients are looking for pricing that’s transaction based, flexibility to scale up dramatically as demand for certain processes rises (for example, default management in the lending space), or to scale down dramatically as demand falls (such as in mortgage originations).

The ability to scale work in the BPO space is closely tied to the ability to scale labor. We see more third party vendors cross training employees to perform a variety of functions, unlike the banks which train workers for one position and then fire them. BPO providers scale up and down faster because they can move workers around to different projects – it has a huge impact on the efficiency of the operation.

To get new clients and drive up transaction volumes, buyers are also looking specifically for language capability out of Latin America. Industry everywhere and banking in particular is facing declining pricing for services, and under that condition there’s a limit to how much you can drive down costs by simply being efficient. The only way to remain profitable is to drive up revenues, which is why there’s such a focus now on emerging markets and expanding consumer-facing businesses there. Those businesses are language specific (Portuguese or Spanish), and Latin America has the language capability to support that. We’re seeing a spike in demand for Nearshore services.

Global vendors going into Latin America for the first time have to adopt an entirely different economic and business model – one that’s more attuned to consumer privacy and security, and more sensitive to an inflationary environment.

Q: What are the best locations in Latin America for that type of skilled language-proficient labor in the BPO field?  

Efstathiou: For the past five years Central America has been the place to go, and in particular Panama and Costa Rica. Panama has lawyers trained in the US system of law, very capable of delivering Legal Process Outsourcing (LPO). Costa Rica has excellent language skills, and with its bilingual workforce is able to support many accounting services, as does Panama.

But recently as those locations have hit some limits to growth or have simply diversified more, global BPO providers are moving into the larger markets in South America like Argentina, Chile and Brazil. This is relatively new in the past couple years – those locations have traditionally served clients in the IT space, but are now attracting more BPO players. 

 Q: What specific challenges are companies running into as they expand in Latin America?

 Efstathiou: Latin American markets have a very different cost-structure and dynamic than the US market. Global vendors going into Latin America for the first time have to adopt an entirely different economic and business model – one that’s more attuned to consumer privacy and security, and more sensitive to an inflationary environment. Resistance to infrastructure outage is critical, and you need to have more robust BCDR (business continuity and disaster recovery) systems in place. LatAm economies are more synced up to natural resource cycles than to manufacturing and service cycles like the US market, and they obviously operate at a lower labor cost. Firms opening up in Latin America need to be aware of all of those issues, and run their business somewhat differently.

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Another major issue is labor law inflexibility in Latin America relative to the US. You can’t hire and fire at will as you ramp up and down, and that becomes a real issue if you go it alone. It’s the reason many companies work with a third party provider who takes that risk, and ensures them a greater degree of scalability and flexibility. Otherwise if you’re setting up a captive, you need to cross-train your employees. In my opinion though, you’re probably a lot better off going with a third party provider.


Kirk Laughlin

Kirk Laughlin is an award-winning editor and subject expert in information technology and offshore BPO/ contact center strategies.

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