Nearshore Americas

Maturity of ITO Market Spurs New Investment

The IT infrastructure outsourcing services market in Latin America is growing more mature each day. Companies are better understanding the benefits of outsourcing, such as being able to reduce costs and focus more on their core business, followed by the strategy of turning capital expenditure (CAPEX) into operational expenditure (OPEX), where instead of investing money in expanding capacity, it is used for services.

For some IT executives, outsourcing means a loss of control over the data. The fact is that the management and monitoring of infrastructure under the responsibility of another company can generate mistrust. Besides that, for some verticals such as for the government, information is very critical for their operations. As a result, some companies still prefer keeping their infrastructure internally.

Scarcity and high prices of energy and connectivity are still being designated as the major costs for companies that keep information internally. Additionally, some Latin American countries, such as Chile, have been suffering from energy transition problems, while others, like Argentina, have suffered from poor connectivity, which can jeopardize companies’ access to their information. In this scenario, outsourcing presents a good alternative to overcome these issues.

What Are Latin American Organizations Looking For?

The market is demanding more value added services such as dedicated hosting and storage due to the increase of the data being generated, and disaster recovery due to contingency and business continuity. The increase in demand is due to a rising awareness regarding the importance of these services for their data and applications. In the near future, these IT outsourcing services will become more common as they represent a cost-effective alternative to traditional back up methods.

Although the colocation market has been losing participation, there is still a demand for this type of service, especially in Brazil, where there are companies focusing on this segment. In 2013, the Brazilian colocation market generated revenues of US$170.2 million. Companies that offer this business model provide space for their clients inside the data center for racks, energy and connectivity. This service will most likely be a driver for cloud computing adoption as it permits cloud providers to offer their services without having to build their own data center. Amazon, for example, rents space in Brazilian data centers in order to offer its cloud services; this is a common practice in the market.

The Current and Future Scenarios

According to our upcoming study, Analysis of the Latin American Information Technology (IT) Infrastructure Outsourcing Services Market,* with a 55.2 percent share, Brazil is by far the largest revenue contributor within the Latin American outsourcing market, followed by Mexico with 21.0 percent, Chile with 7.3 percent, Colombia with 7.0 percent, Argentina with 6.6 percent, and Peru with 2.9 percent.

In 2013, the six countries examined in the study earned revenue of US$3.03 billion, a sign that it is moving to a mature stage of adoption of outsourcing services. By 2019, this market is expected to attain US$ 5.21 billion, presenting a compound annual growth rate (CAGR) of 9.5 percent during the period.

It is important to note that the Latin American IT infrastructure outsourcing services market has been changing with increased demand from different verticals hiring outsourcing services. Cost reduction and emphasis on the core business are the major elements driving this adoption, but each vertical also has its own specifications when outsourcing. In this region, banking and finance is the segment that most demands outsourcing services. The demand is, in fact, expanding due to the rising number of internet banking, mobile banking, and mobile payment users. According to our Latin American Mobile Money and Payment Services Markets study, Frost & Sullivan estimates that in Brazil alone there will be 87.6 million registered mobile-payment users by 2019.

Sign up for our Nearshore Americas newsletter:

Finally, new technologies such as Bring Your Own Device (BYOD), Big Data and Cloud Computing will have a big impact on the data center outsourcing market. As more data is being generated by companies and the necessity to access it through any device, anywhere, and anytime, companies will be increasingly prone to rely on data center companies. Furthermore, the fact that every day it becomes increasingly harder and more complex to deal with all the information – meaning highly qualified IT experts are needed to manage it – will prompt companies to outsource in order to stay focused on their core business.

*Analysis of the Latin American Information Technology (IT) Infrastructure Outsourcing Services Market takes into account the following countries: Argentina, Brazil, Chile, Colombia, Mexico and Peru.

Mauricio Chede

Add comment