Hourly labor costs in the Latin American Nearshore are still slightly higher than in traditional low-cost leader India. But other factors such as faster time to market and simplified communications often still make the Nearshore the better choice, according to speakers at the Nearshore Nexus outsourcing conference in New York City last week.
As a result of wage inflation in India caused by strong demand for talent, the total cost of ownership (including costs such as travel to the outsourcer’s site) of using a Nearshore company are currently only about eight percent higher than those in India, said Esteban Herrera, COO and advisor, of outsourcing consultancy HfS Research. But “when you consider the intangibles, the advantages of Latin America will erase that in a short time, if they haven’t already,” he said.
The increased awareness of such benefits by customers has, he said, driven significantly more interest in the Nearshore over the last two years. Among the most popular countries which are close to price parity with India, he said, are Colombia, Argentina, Mexico and Costa Rica.
Look Beyond Rates
“If all you’re doing is looking at rates, for the most part, Latin American countries will not appear to be least expensive,” said Mark Peacock, CIO of Pegasus Solutions, a provider of ecommerce and transaction processing services to the hotel industry. “But when you really, truly think about TCO, and start thinking about the cost of complexity in your operation, and the cost to coordinate and reach out and train people, and deal with people, there is a kind of hidden cost to going fully offshore.”
With customers in both North America and Europe, it’s difficult enough for Pegasus employees to keep track of time zones without also factoring in the time difference to a service provider in India, said Peacock. Forcing workers to stay up late, or get up early, for phone calls with an Indian outsourcer for too long will eventually mean the loss of skilled talent, he says. “People will walk out the door if their lives are miserable.”
As a startup, the biggest challenge Noodle Education faces is “the need to pivot so quickly” as market needs change, said CTO Jason Rodriguez. Because it uses the agile development methodology to make rapid changes to its education-oriented search service, working with an Asian outsourcer is “very difficult to do in an efficient manner” while working with a Nearshore vendor “makes sure everyone is in sync, and we still get the benefits of the low cost.”
Despite such advantages, Nearshore geographies still face challenges in rising to the level of world-class providers. “It all comes down to the talent that is serving the customer,” said Alex Camino, VP marketing and communications of IT and business process outsourcer Softtek.
While Mexico boasts of graduating 90,000 potential outsourcing employees each year from college, “the challenge (is) bringing that talent to the next level, “ he says. especially in areas such as English fluency. “If you’re starting to teach English at the university level, you’re already late, he said, recommending English education begin in kindergarten.