Much has been written on the risks and rewards of outsourcing deals, including the array of reasons that large outsourcing deals fail. Ranging from cultural differences and communication problems to poor governance (e.g., vendor and contract management) and setting unrealistic or poorly understood expectations, these “soft” or change management-related reasons are often more problematic than “hard” issues such as differences in technical or operational capabilities. When dealing with outsourcing in Latin America, both in terms of outsourcing Latin American operations and offshoring functions to Latin America locations from elsewhere, proactively addressing these soft issues becomes even more important as key nuances vary from country-to-country.
Latin America is a geographic region, not a ubiquitous or monolithic culture, so knowing how to conduct business in one country does not necessarily equate to knowing how to do business in other Latin American countries – even if they are neighbors. Identifying and understanding the differences in country-specific business variables is critical for driving successful Latin American outsourcing deals.
One cannot assume that an understanding of Spanish is sufficient for doing outsourcing business in Latin America. First of all, the major outlier here is Brazil – the largest economy in Latin American (and eigth largest in the world) – where they speak Portuguese. Even across Spanish speaking countries, the dialects and accents are very different and people can often tell which country you are from (and which one they are calling in to). This is a real concern if you are outsourcing customer-facing operations and there will be direct conversations between your customers and your outsourced provider. Also, some countries within Latin America view each other as rivals and may not have the most positive impressions of each other, which can affect attitudes and customer satisfaction.
There is a myth that corruption is an accepted part of doing business in Latin America, but this just is not the case.
There is a myth that corruption is an accepted part of doing business in Latin America, but this just is not the case. Most professionals (private and public sector alike) maintain the highest ethical standards for business conduct. There is certainly some unevenness country-to-country (and regionally within countries) with respect to the tolerance of graft. In those situations where corruption does play a role in corporate decision making, it is necessary to delineate between avoidable situations and ones you may simply need to accept and work around (e.g., award of contracts to a favored vendor as opposed to a competitive bidding process on a truly level playing field).
Taxes and Government Policies
The degree to which government regulations and the tax code affect business transactions swings from very heavy-handed to a very light touch depending on each Latin American country. In the heavy-handed countries, strategizing around local regulations from the very beginning is critical as these considerations can cause huge swings in business cases (depending on whether or not they have been modeled correctly) that can drive “go” vs. “no go” decisions for the scenarios being considered.
Tax optimization has risen to a science in countries such as Brazil, which has a very complex tax code that can drive non-standard decisions regarding pricing structures, operation locations, the ability to import certain goods, and logistics. In some countries there are hiring/firing laws with high severance costs if outsourcing internal functions, and well as very strict rules regarding defining the line between contractor and employee, so beware if outsourcing internal functions. To navigate these considerations, companies often assign local tax experts to their teams, who understand how regulations change (which can happen rapidly) and how business is transacted in practice (as opposed to on paper).
Latin American countries also vary widely based on the importance placed on adhering to organizational hierarchy and bureaucracy. Some countries are extremely title-conscious and respectful of the chain of command (almost to a military degree) while others are more informal. If it is a highly hierarchical culture, it is important to respect the chain of command or you will lose the trust of the people you are working with—thus creating barriers to achieving the necessary cooperation for accomplishing desired objectives.
This also extends to how companies view their relationships with external vendors. In some countries, companies are more likely to adopt a partnership relationship with outsourced vendors where there is more give-and-take, an open exchange of ideas, and a less fastidious focus on contractual compliance. Conversely, in other countries these relationships are viewed as more of an arms-length buyer/seller relationship with a stronger focus on the details of contractual compliance.
These are some of the most prominent variables that can significantly impact outsourcing transactions across Latin American countries. To increase the chances for outsourcing success in Latin America it is imperative to anticipate these types of issues in each country, execute thorough due diligence, and proactively implement country-specific risk mitigation strategies.
Andy Sealock, Principal at Pace Harmon, has over 15 years experience leading large, complex outsourcing transactions and strategic sourcing programs.