The US outsourcing market for IT infrastructure appears set for strong growth, and Latin American providers are in an ideal position to capture much of this business. Despite what it characterizes as “modest buying intentions,” a March 2011 Forrester Research report predicts the overall outsourcing market in the US will grow 6.8% to $101 billion for 2011. Help desk, convergent telecommunication/network management services and data center management services are among areas where the largest percentage of infrastructure outsourcing growth should occur.
Growth in a more complex area of North American outsourcing like IT infrastructure is a perfect opportunity for the developing IT outsourcing market in Latin America, according to remarks Atul Vashistha, chairman and founder of Neo Advisory, made during a recent outsourcing conference in Colombia. Vashistha advised Latin American outsourcing providers that “India, Ireland and Israel are no longer the only game.”
With cost savings and better time zone coverage a given, Vashistha said that IT outsourcing business from North America can be attracted to Latin America. “Your competition is this region itself.”
In addition, Vashistha said that Latin American outsourcing providers need to develop more complex services with fewer competitors, both regionally and globally, if they are to maximize the potential of the marketplace. “With something simple like a call center, you’ll have many competitors,” he said. While Vashistha did not specifically address IT infrastructure outsourcing in his conference remarks, it is certainly an area requiring specific expertise and training that cannot be duplicated as easily as a call center operation.
In a more recent interview with Nearshore Americas, Vashistha expanded upon his thoughts on Latin America’s growth as a provider of infrastructure outsourcing services. “It’s a recognition of the advantages of nearshore and the rising maturity of Latin American operations and firms,” he said. “We are also seeing companies moving a portion of their spend to nearshore as they have learned lessons from outsourcing to the Asia Pacific region. These are lessons such as time zone issues, cultural differences and infrastructure challenges.”
Atul Vashistha (CEO/ Neo Group and a staunch supporter of Nearshore) estimates that today, Fortune 500 companies collectively outsource less than 10% of their IT operations
Cloud Computing & Multisourcing
The Forrester Research report also touches upon two other aspects of North American IT infrastructure outsourcing that nearshore providers should consider capitalizing upon. One is the growing importance, but lagging implementation, of cloud computing-based services. While the report says harnessing the cloud is the “major priority” of IT infrastructure management firms and customers are clearly interested, there are few tangible buying plans currently available. Latin American IT outsourcing specialists who develop cloud infrastructure services could gain a major leg up on the competition.
In addition, the report says more North American IT firms are looking to spread their outsourcing business among multiple suppliers, rather than consolidate it all with a single supplier. This means that even firms which have established infrastructure outsourcing agreements may still be viable targets, especially if they are working with more expensive providers located further away from North America.
Add Value to Gain Revenue
In his Colombian presentation, Vashistha estimated that today, Fortune 500 companies collectively outsource less than 10% of their IT operations, a figure he said could potentially reach 50%. To capture that open 40% of the market, Vashistha advised that Latin American outsourcing providers need to add value beyond cost, or they will risk losing IT business to other global regions, similar to how Mexico lost much of its outsourced manufacturing to China.
For Latin American providers, Vashistha said value-adds can include capability, cultural compatibility, proximity to Latin American operations and/or clients of North America-based multinational firms, and time-to-market. And major multinationals are not the only companies they should keep their eyes on.
“Today, you’re finding start-ups in Silicon Valley outsourcing internationally right away,” said Vashistha.