Baufest CEO: Nearshore Has to Find a New Way Forward

Following the transition to work-from-home models across the Americas, executives are more enthusiastic than ever about digital transformation. On the other hand, the Covid-19 pandemic has brought devastating economic consequences, so companies have less to work with when it comes to investing in new projects.

Latin American service providers are currently operating at the crossroads of these two trends. Few analysts deny that wages for software engineers, and eventually prices for services, are set to rise in the future. But the exact timing and extent of cost increases remain a matter of debate.

For a clearer picture of the situation, we spoke to Angel Perez Puletti, the founder and CEO of Baufest, a software and IT provider originating in Argentina. The company currently has offices in Argentina, Chile, Mexico, the United States and Spain. As the head of an organization with more than 2,000 projects executed and a team of 500 professionals on the payroll, Perez Puletti has some very practical, first-hand insights.

NSAM: What impact has the Covid-19 pandemic had on the speed of digital transformation in Latin America?

Perez Puletti: Digital transformation was already developing rapidly before the pandemic, especially in industries such as finance and retail. After the pandemic, we certainly see greater interest in the topic. Almost everyone has had to adapt to a work-from-home model. We had one interesting case with a big client, an important local bank in Argentina. As a local bank, they had never tried remote work. Baufest explained that we would need to source workers from the provinces or abroad. We said we could work with them, but we would have to do it remotely. They said there was ‘no way. It could never be done remotely.’ But in the middle of the negotiations the pandemic happened. So, we laughed because they adapted quickly and started working remotely without any problem.

It seems to me that companies are learning rapidly. Even in sectors such as finance, the idea that workers must come into the office has persisted until now, despite the fact that finance is so advanced from the point of view of digital transformation for clients.

We are seeing a growing interest in transferring services and processes that were previously done in person to digital. There is a new openness now, especially in rethinking personal relationships and physical interactions. Companies are seeing that there is much more that can be done in a digital format than previously thought.

Countering that growing interest is declining investment. In some countries, such as the United States, there are signs of a quick economic recovery. But in Latin America, the economy and the recovery will take time. It will be some time before the possibility of investing in such projects becomes a reality. Companies are going to be more conservative on the investment side. Digital transformation will be impacted by these two factors.

NSAM: Are you seeing increased demand and more competition for software engineers than before?

Perez Puletti: We have seen growing demand for many years. That is a common phenomenon throughout the world. Everyone is demanding software engineers. What the pandemic has done is transform the nature of employee tenure. In our sector, the average employee tenure is estimated at just two years on average. That is a negative phenomenon as software development requires teamwork.

It takes time for a team to gel and work together effectively. This issue of rapid turnover hurts productivity because a team that has been working together for years is not the same as a team that comes together for a single project.

But with the pandemic we saw a decrease in turnover. People are less likely to change jobs. They want to wait and see. Because software developers have friends in other sectors. And they are seeing what happens in other sectors in terms of furloughs, pay cuts and layoffs. People see that and really value being in a company that pays their wages on time. That reduces turnover.

NSAM: Are wages going to increase because of increased demand related to the pandemic?

Perez Puletti: Software development salaries have been increasing constantly because it is an activity that is increasingly important. Wages are steadily appreciating. If the pandemic has had an impact, I would say it is to temper the rise rather than to accelerate it. Wages will continue to rise, but that rise will be less pronounced because of general economic realities.

We are certainly seeing more interest, but I do not know how much of that will translate into concrete demand because the ability of companies to invest post-pandemic has declined. I imagine that means we will have a more moderate growth rate. Ultimately, that ends up impacting the growth rate of wages.

NSAM: In the longer term, do you believe that the increased interest in digitalization will eventually create higher demand, as well as increased wages and prices?

Perez Puletti: I have no doubt about that. But I would hesitate to speak on the specifics or time frame of when that would occur. It is important to remember that this pandemic is still not over. There is no clear horizon for the coming months. It appears that a vaccine could be close. But manufacturing and distributing that vaccine will take time. I believe that we will still be seeing the impact of the pandemic until at least the middle of next year. I expect to see at least another year of disruption.

NSAM: Can you speak about the impact of currency fluctuations on wages and outsourcing prices in Latin America?

Perez Puletti: Currency devaluations such as those that we have seen in Argentina and Mexico result in cost increases on imports such as notebooks, servers and other technologies used to provide services. There is a negative impact on that end. But ultimately, that impact is minor, because devaluations also make renting services in Latin America more attractive. Devaluations have a temporarily favourable impact. Prices are a little lower or the profitability of companies may be a little higher.

NSAM: Is it likely that when the pandemic is no longer a factor, outsourcing costs will rise as a direct result of currency appreciation?

Perez Puletti: Yes, but that is the history of Latin America. Part of doing business in Latin America is being able to cope with that situation. The devaluation will last a couple of years and then you will be more expensive. Unfortunately, currency fluctuations are an aspect of the immaturity of Latin American economies. But that is part of the game. It is also a game that is being played in the United States and China – appreciating or depreciating the currency depending on the convenience of the moment. That is a game that is continuous. depending on the mood of the government.

As an entrepreneur, one must accept that the potential benefit of devaluation is temporary. Because at some point that is going to be re-evaluated. It is a bad idea to plan too far ahead. You can think about the next year, but it should not be part of your strategy for the next five or 10 years. Today, it is a relative advantage, but it will be temporary, or it should at least be thought of as temporary.