Nearshore Diagnosis: What Does Value Even Mean?

What is even the meaning of value in the Nearshore? 

The Nexus 2024 conference closed addressing one of the more relevant questions for the region. As geopolitical, economic and technological shifts transform the global landscape, market players try their best to adapt their strategies –as buyers, vendors or investment promoters– to a world of new meanings and challenges.

In a panel moderated by NSAM’s Founder and Managing Director, Kirk Laughlin, a group of global market players addressed this question, providing perspectives from the buyer, vendor and analyst side. Peter Ryan (President & Principal Analyst, Ryan Strategic Advisory), Gustavo Parés (CEO and Founding Partner, NDS Cognitive Labs), Brian Smith (Managing Director, Alvarez & Marsal) and Sangita Naik (Global Vendor Management Officer, Kering Worldwide) discussed, among other things, what constitutes value in the nearshoring model, how the region has reacted to technological disruption, the ways in which global geopolitics might affect the nearshoring trend and what’s next for the Americas as a trading ecosystem.

Kirk Laughlin: Brian, in your day job, and considering some of the challenges you’re running into, have you heard some of the things spoken about today? What’s most outstanding? 

Brian Smith: Everybody’s focused on the fact that the marketplace is changing and that the days of selling labor, selling FTEs, are going away. 

I think the realization from both the buyer and seller side of the market is that there should be specialization. The buyer has to be buying something of value, and the challenge in the market is identifying what that value is. 

For the sell-side, the challenge is how to generate that value; what investment is needed. And for the buy-side, it’s about how to evaluate it, how to make a decision that this is something you want to buy.

Kirk Laughlin: Sangita, upstream, as you begin to think about a project, how do you identify value? Is it still FTE-based or are there new models?

Sangita Nait: Absolutely no more FTE-based. We’re all about sustainability, corporate social responsibility. For us, a green environment is very important. In terms of corporate social responsibility, of employee retention, we want to make sure we give them [workers] the right caliber to do their job on a global basis.

Kirk Laughlin: As you’re engaging your partners, what are the key things you look after, in terms of that relationship?

Sangita Nait: We’re always looking after an innovative mindset, but also after sustainability. Going green, having those green certificates, is very important for our culture and the DNA of all our houses across Kering. We have something we call “environmental PnL”. If your company is suitable to us, the first main thing we actually look at is how sustainable you are. 

At the same time, we want to look for fairness in terms of corporate responsibility. We want to make sure our suppliers comply with those types of standards. 

And of course, we’re always looking for the right skill set, and we aim for talent retention. We don’t want our suppliers to have staff continually augmented. We want people to stay for the length of the project.

Kirk Laughlin: Peter and Gustavo, when you hear the term “sustainable” in sourcing, how do you interpret it? It’s clearly significant, particularly among Fortune 2000s. What are you guys hearing?

Peter Ryan: What I’m picking up in the marketplace is pretty much what Sangita enunciated. More and more organizations are placing sustainability, corporate social responsibility, impact employment at the forefront of their decisions in terms of their suppliers. 

This is really resonating for me, given the fact that we are at an inflection point in terms of how procurement is going to be done. There is a much greater emphasis now by businesses, including SMEs, on sustainability as part of their procurement model. 

There’s no turning back on this, I might add. We’re very much beyond the idea of “Your mess for less”. We’re very much beyond looking for cheap labor and shifting all of those work stations wherever we need to, where we can find a cheaper model. 

Now it’s all about not only the quantity, but also about the quality and elements of the delivery, like the environment, like helping local communities, like making sure that diversity and equity and inclusion are cornerstones of what a supplier is able to bring to the table. 

Gustavo Parés: We want to be more eco-friendly, more socially responsible, have more governance. That’s great; we should have begun with that many years ago. When it comes to outsourcing, to nearshoring, Europe is very concerned, and big companies in the US are very concerned [about sustainability issues].

Corporations are doing what they can, but geopolitics and automation are generating a very challenging moment. 

There is a double standard. We care about value, but if you’re not the cheapest, you’re not in play.—Gustavo Parés, CEO and Founding Partner, NDS Cognitive Labs

Kirk Laughlin: Who’s the arbiter of sustainability? In your case, Sangita, we know how any business will be happy to show you a seal of approval for you to give them the green light, but what third party do you trust? You can’t trust the vendor to determine that, can you?

Sangita Naik: No, there are actual green certificates that one can attain. A lot of our suppliers come to us asking: How do we go green? And we tell them there are several third parties out there that can make you green, help you become green. Maybe you’re green already but you don’t have the certifications. 

Peter Ryan: I think we have to recognize that there are multiple third parties out there that are able to provide these audits, benchmarks and certifications. I’m by no means an expert, but I’ve heard a lot about the extent to which we’re going to be seeing the emergence of new organizations providing these sorts of certifications, and evolving in terms of how the whole idea of ESG evolves, taking into account new developments, new components of ESG.

Brian Smith: I think ESG is starting to become a much bigger factor in evaluations of our buy-side clients. From the service provider side of the market, I’ve seen a lot of activity of companies paying attention to what their suppliers are doing.  

Kirk Laughlin: Earlier in the day, we heard how there’s a greater comfort with captives. How do you interpret that, Gustavo?

Gustavo Parés: There are different layers of what’s going on in the industry. You have the Three Amigos –Mexico, Canada and the US–, which are in a different league when it comes to trade. Then you have a lot of very good contenders, many of them countries represented here today, which are doing an amazing job. Colombia increased their FDI by 80%, for example. 

But when we talk about FTEs and how they’re employed, I think labor arbitrage is still there. There is a double standard. We care about value, but if you’re not the cheapest, you’re not in play. Latin America is still not perceived by value, in technology terms. It’s getting there. That’s why I’m glad Mexico is part of the Three Amigos.

Automation, AI, voice recognition and things like that are going to be a big challenge for all of us, but particularly for those countries that are not part of this cluster. Friendshoring is real. Mexico is the largest trading partner of the US. We’re neighbors [with the US], we’re cousins, and not all countries in Latin America can say the same. 

The technologies are there. The geopolitics are there. If we don’t take action very fast, the game will be completely different in five years. 

Peter Ryan: About the point of friendshoring: in my opinion, we’re heading into very unstable times. There’s a lot of uncertainty about how specific alliances are being formed right now; blocs that seem to be emerging.

I have a friend who runs a BPO in Durban [South Africa], and he had clients come down from the US. He said that, for him, as a business person, the visual was terrible when the South African and Russian navies were running joint military exercises off the coast. 

When you think about what Gustavo mentioned about the Three Amigos: if things become more and more polarized, if they become more unstable, I can see it being more of a thing moving forward.

Kirk Laughlin: Brian and Sangita: for you, where do those geopolitical pressures resonate?

Brian Smith: I deal a lot f with financial services firms. For them, it takes a good deal of effort to determine the risk profile of their supply chain. There’s a lot of discussion around that.

I think that’s only one aspect of understanding value. Labor arbitrage is always going to be there, but buyers are moving away from labor arbitrage and towards the output of the process, or even better, the outcome of the process. Labor arbitrage will be there, but it will be less important. It won’t be a deciding factor.

That, combined with the ways in which geopolitics is shifting, will change how suppliers are evaluated. 

Sangita Naik: For us, geopolitics affects consumer behavior, thus it has a direct effect on us. At the same time, in terms of geopolitics, we have a compliance team fully dedicated to that. Laws, bylaws, all of that, by country, or even by state in the US. They’re changing constantly.

Absolutely no more FTE-based. We’re all about sustainability, corporate social responsibility. —Sangita Naik, Global Vendor Management Officer, Kering Worldwide

In terms of value, I have been on a lot of high profile project RFPs [requests for proposal]. During those conversations, the best, most cost-effective vendor was not the one who was awarded the contract. The one that delivered the right value, the one that proposed sustainable concepts that also resonated with our corporate DNA, which also had agility in terms of cross-cultural conversations, was awarded. 

Kirk Laughlin: AI will find its place in this industry. My concern is that some governments, or political actors, don’t know much about this industry, so they think: Oh my God, let’s just put the brakes on promoting this country because our call center industry will be wiped out. There’s this massive oversimplification of this issue. How do you guys see that?

Peter Ryan: It is true that there’s been a huge amount of hype around this technology. This hype cycle is the worst I’ve ever seen in my time working in BPO. I have not seen any governments yet take the view that they need to stop promoting outsourcing or CX. I will also say, however, that there is a lot of uncertainty around the expectations of how this technology will play out. 

I think we’re in a “wait and see” mode. The best advice I could give anyone is to look at how AI can augment the roles and not replace them. We’re a heck of a long way from mass unemployment driven by AI.

Gustavo Parés: It is a huge opportunity, but the risks and challenges for Latin America are major. Successful BPOs or basic IT companies which don’t embrace AI or don’t understand how to change their business models, first, will not grow, and then they’ll probably die. Because this is a game changer.

One of our business units develops chatbots powered by AI. We have implemented the technology in five banks in Mexico, and we see what that does to call centers. Last year, our solution attended 25 million customers. That was completely automated. I don’t know how many call center jobs were impacted by our solutions. It is scary, nevertheless.

The US has the money to make the investments needed. I think we’ll see a lot of startups in Texas, in California creating more solutions to eradicate BPOs and automate tasks. That’s challenging for countries which still rely on low-cost, unsophisticated labor. If Latin America doesn’t start investing in these sorts of solutions…

The good news is that all of you can buy US$100 worth of cloud from Google, Amazon, Microsoft or whomever and start doing proofs of concept. It’s not that hard. You can start with something small. But if you don’t do it, it could spell the end of your business in the mid term.

Kirk Laughlin: In your worlds, Brian and Sangita, where is the AI strategy bubbling up? Especially in terms of data management.

Sangita Naik: For us, AI among our creatives is a no-go. We do not want to disturb the creative process with AI. The customer and the creatives need to come, feel, touch the brand products because, in the end, that is our house’s DNA; it’s whatever the artists make.

In terms of the finance, logistics, supply chain, IT side of things, AI is definitely a hot topic in all of our roundtables. We use chatbots quite often across all our luxury houses, not just mine, to enhance customer relationships.

Brian Smith: I would say that AI is the cloud of this year. You can’t afford not to be in the cloud; you can’t afford not to use AI. A lot of companies have tried pilots, but there aren’t that many still. 

AI is the cloud of this year. You can’t afford not to be in the cloud; you can’t afford not to use AI.—Brian Smith, Managing Director, Alvarez & Marsal

One thing I have noticed among our clients is that, when they start to think about AI, that exposes more technology debt, as well as problems with data. Everybody notices their data is a big mess. And for AI to be productive, they need to go back and fix that data mess. And that in turn forces them to fix more technology debt. 

Kirk Laughlin: When you put yourselves in the shoes of a vendor trying to navigate the market these days, where do you need to spend more time? In terms of providing value, of making it sustainable.

Brian Smith: Thinking about how the price, the outcome of the work the provider is doing for the buyer. That makes the balancing on the use of AI tools. 

Gustavo Parés: We’re trying to specialize ourselves in different industries and specific technologies to have an edge that will allow us to compete beyond price. We’re creating intellectual property of our own, creating solutions. We’re trying to focus on recurrent revenue, giving to the client more than what they’re paying or asking for in order to create a stronger relationship with those clients. 

Sangita Naik: Technology is, of course, great. AI is a trend. At the same time, we should never lose the human form. We really believe in having a vulnerable voice on the table. 

I spoke a lot about sustainability, but you should also keep in mind your corporate social responsibilities

Peter Ryan: Brian nailed it when he talked about outcomes. So many organizations have baked half-made solutions marketed as “powered by AI”, but which aren’t getting the job done. You can’t afford to make somebody mad with a chatbot. Making sure that the outcome is as rock-solid as possible, whether done by a robot or a human, that’s the first thing.

The second thing that I would do as a vendor is make sure that your partner ecosystem is as solid as it possibly can be. Very few outsourcers have the capabilities or resources to develop their own internal solutions across all the different aspects of the CX ecosystem.