Latin American BPO Suddenly Facing Growing Pains

Most BPO services offered by providers based in Latin America have been delivered by global companies who established a regional delivery center. However, the Nearshore’s burgeoning shared services industry holds the promise of the “next wave” of Latin American BPO: one driven by homegrown providers. But along with that wave comes a boatload of pressures and demands.

“Many regional Latin American companies have regional shared services centers,” says Felix Massun, VP of Latin American Business Development for Capgemini, who recently sat with our sister publication BPO Outcomes for an interview on the state of Latin American BPO. “It’s a bigger trend in Latin America than in Europe, one reason being that in Latin America we have multiple countries all speaking the same language, which helps working across borders.”

These shared service centers are becoming “mature” and facing the same challenges that other captive centers are in other regions such as India. The main challenge is the difficulty to keep delivering further cost reductions and better quality over time. The sources of this difficulty are diverse, such as no further growth within the company, high attrition rates, increasing labor cost, lost of corporate management interest, no capacity to invest in technology and offshoring, just to name a few.

In the last two years, captives are responding to these challenges including BPO as part of their delivery model receiving services from global BPO players such as Capgemini or trying to offer their services to other companies.

However, currently the vast majority of Latin American shared service centers provide services primarily to their parent companies or other Latin American companies. “Most don’t offer more than 5% to 10% of their shared services to other companies,” he says, adding that Latin American shared services providers who have tried delivering services to Nearshore or offshore clients “haven’t really been successful.”

Despite this track record, Massun says growth of Latin American shared services centers has reached a “ maturity,” enough so that they may produce the “next wave” of BPO in the region either delivering some services to the market or what is more likely finding a global BPO partner to help them go to the next level. Of course, Latin American BPO involves much more than just shared services, and Massun offered an overview of the latest trends and developments in the rapidly expanding regional BPO market.

US Interest in Latin American BPO Grows
One major trend in Latin American BPO is a continuing growth in interest from US customers, which has spurred most of the major global BPO providers from India and other primary BPO destinations to set up delivery centers in the region. Although Massun says hard data on total dollars being spent in the Latin American BPO market is hard to come by, he estimates it has grown by 20% to 30% annually during the past two to three years.

“Nearshore customers want different types of BPO services,” he says. Some want sophisticated analytical services, and not just transactional services. “Eighteen months ago, a survey we did of 300 US companies in the Fortune 1000 showed 25% used Latin American BPO services in some way.”

In fact, Massun says as a provider of BPO services, Latin America is now the third-ranked region in the world, behind India and China but ahead of the Philippines. “That even surprised us,” he comments. “For delivering Nearshore services, most work is being done out of Mexico and Central America.”

Massun specifies Central American nations such as Costa Rica, Guatemala, Panama and Nicaragua as being important Nearshore BPO delivery locations. However, he says several South American countries, including Colombia, Argentina, Chile, Peru and Brazil, are gaining importance in the regional nearshore BPO market.

Although interest in more sophisticated BPO services is helping spur growth of the regional BPO market, Massun says as Latin America starts reaching maturity as a BPO destination, its BPO growth rate should subside a bit.

Call Centers – Big, But Less Important
Historically, Latin America has been a major source of call center services. Massun says the Latin American call center BPO market is still thriving, but declining in importance to the region’s BPO environment. “The Latin American call center has matured,” he states. “We don’t have a BPO provider with more than few thousand employees in the region. But there are call center providers with 30,000 to 50,000 people in Brazil, and with 10,000 to 20,000 people in Argentina and Colombia.”

However, Massun says most of the contracts call center providers sign are yearly, which is “not helping the development of these vendors.” He also adds that many Latin American call center providers were founded and developed in the region.