The 5th Annual Latin American Association of Service Exporters Convention took place last week in Guatemala City. I attended and the convention proved a great testing ground to assess where the region is and how it can successfully move forward.
Many topics and trends were discussed throughout the two-day ALES event, but some stood out about the rest. These were the six key takeaways for the nearshore industry, both from the panels as well as side discussions among the participants.
1. Public Policies Matter
Public policies receive significant attention in the region, but a consensus on realizing prosperity through market gains appears elusive. In the first (and by far the longest) panel of the day, “Public Policies to Attract Service FDI in Latin America,” the panelists included a number of high-level trade and economy ministers. The panelists highlighted their country’s achievements across certain metrics. For all, the need for growth was paired with a call for broad-based economic development.
Of course, economic growth should benefit all. But the panel occasionally diverted from its express focus on realizing cost competitiveness and better diversification. Several comments centered on what I regard as social policy, distributing money to empower the poor. Unfortunately, while ground-up approaches to growth have been tried for the last decade to some success, in my opinion the panel needed to signal a budding consensus around policies to foster competitiveness.
2. We Need Better Trade Data
There is a distinct need for detailed trade data. While aggregate trade statistics exist for Latin American and Caribbean countries, the net statistics obscure where value is added in the production process, as well as other potentially revealing trends.
OECD economist Fabienne Fortanier highlighted this point well; at the same time, she announced the publication of an OECD manual to help countries understand how to collect better trade statistics. She went so far as to say that member countries should be “compelled” to report data as accurately and comprehensively as possible. With fuzzy numbers, businesses simply can’t make informed decisions. This may not have been the most lively topic, but more data is needed to guide investment and gauge performance in the region.
3. M&As and Consolidation May Be Looming
Merger and acquisition activity is likely to finish 2015 on a strong note, but consolidation may be on the horizon. In his keynote remarks to the M&A panel (disclosure: I moderated this panel), Avasant CEO Kevin Parikh argued that Latin America is poised for a shakeout as human processes give way to cost-optimization models driven by automation. That will ultimately make the region more competitive in the global services exporting sector, but over the next five years it could spell bad news for many businesses, especially those that are late to embrace automation.
This is not a consensus view—several business leaders told me at ALES that M&A activity should be more carefully considered as a process that’s unfolding differently in select markets—but it nonetheless serves as wise advice. Get ready for automation.
4. Everyone Is Focused on Tech Trends
While the morning panels at the ALES conference were dominated by regional considerations, the afternoon sessions homed in on specific technological trends, including the Internet of Things, robotics, and global healthcare. One panel I found fascinating concerned video game development.
Video game development is poised for growth. Video game developers really embrace the culture of cooperation. Quite unlike video production where the final product is unveiled, video game developers solicit feedback as they work. Latin American game developers should do well in this environment.
5. There’s Latin America — And There’s Brazil
There’s Latin America, then there’s Brazil. Central America played a big role in discussions of service exports, which is hardly surprising given the convention’s location in Guatemala City. But frankly I expected more discussion of exports around the region’s largest economy: Brazil.
Edna de Souza Cesetti, director at Brazil’s ministry of industry and foreign trade, did an impressive job of talking about new initiatives to expand sources of information that can help inform foreign trade, but overall the country appears to have had a minor role in sideline discussions—at least those I was privy to—at the conference. Granted, Brazil is a bit of a wonky market given that it is Portuguese speaking and, compared to other nearshore locales, quite expensive.
But everything Brazil does reverberates across South America, so I expected a bit more on how Brasilia plans to cope with its unfolding recession and how enterprises can succeed while operating there
6. How Long Will the Slowdown Last?
Maybe this time is different. Maybe not. Most of Latin America’s economies are poised for a slowdown this year—and quite possibly in 2016—due to the prolonged slump in commodity prices and currency weakness.
However, some countries seem relatively well positioned to cope with this slowdown. Mexico and Colombia fall into this category; it’s fair to expect greater IT export-related invested in these markets. Elsewhere, policymakers are still kidding themselves, either afraid to acknowledge that a prolonged slowdown is underway or else casting the blame on someone else. Think Venezuela and Argentina.
Overall though, discussions like those stoked at the ALES conference are productive in raising awareness of challenges and forging a considered response to policy that takes into account business interests.