Duncan TuckerThe fact that Peruvian outsourcers predominantly serve clients in Latin America rather than the United States means the recent strengthening of the dollar against local currencies has had little impact in the South American country.
Peru’s economic and political stability has also insulated it against disruption of the market. However, the continued economic crisis in Spain has seen Peruvian service providers lose business, forcing them to lower their already-competitive prices and innovate and diversify their offerings as they concentrate further on servicing the Latin American market, particularly Chile and Argentina, instead of Europe. The lack of market maturity and bilingual capabilities inhibit Peru from cracking the North American market for the time being, but analysts and industry experts say the nation remains well positioned to serve its South American neighbors while it works to overcome the various challenges it faces.
Unaffected by Depreciation
Despite the fact that the Peruvian sol has fallen in recent months – like many other Latin American currencies – as a result of reduced demand for commodities, the Peruvian economy appears entirely capable of weathering the storm, with the government having taken decisive action to stimulate the economy. According to a March 2015 report by investment promotion agency ProInversion, Peru’s GDP has risen steadily every year for over a decade and it is forecast to keep climbing from US$204 billion last year to $212.7 billion in 2015 and $229.5 billion in 2016. The predicted growth rate in GDP of 5.4% for this year and the next puts it well ahead of Colombia (4.5%), Chile (3.7%), Mexico (3.7%) and Brazil (1.8%).
Political consistency is the key to Peru’s economic stability, according to Peruvian business executive Jose Mendoza. “Politically we’re so stable that we’re almost on autopilot. We’re not a country that has suffered from severe economic problems and everyone is conscious of the fact that the economy is the key to stability. And all of our governments have stayed on the same economic path in the last 15 years. That’s very important,” Mendoza – who boasts 25 years of experience in business development, strategy, sales and marketing for tech companies in Peru, Mexico, Ecuador and the United States – told Nearshore Americas.
Sebastian Menutti, an Enterprise Communications Industry Analyst who covers the Peruvian BPO market for Frost & Sullivan, agreed that stability is key to Peru’s appeal: “In the last five to ten years Peru and Colombia have been the most stable countries in Latin America in terms of economics and even from a political point of view. This is a key driver for setting up a business in Peru.”
The reason why the recent depreciation of the Peruvian sol has not affected outsourcing operations is because the currencies have also fallen in other Latin American countries where Peru’s clients or rival service providers are located, Menutti added. “If you measure the market in U.S. dollars then theoretically [the Peruvian market] has been affected by the depreciation of the local currency, but from a competitive point of view I think that all the countries in Latin America – including Peru’s key competitors like Colombia and Mexico – they’ve also been affected by the depreciation of their currencies against the U.S. dollar,” he explained.
Shift from Spain to Latin America
What has impacted Peru’s outsourcing market is reduced demand owing to the economic crisis in Spain, Menutti added. According to ProInversion, Europe represented 50.51% of the market for Peruvian contact centers in 2012, considerably more than South America (26.96%), North America (5.65%) and Central America (1.13%). But Menutti believes this has begun to change in the last few years, with Argentina and especially Chile becoming the key markets for Peruvian contact centers.
“The economic crisis in Spain has generated social and political pressure for contact centers and their clients to bring back onshore some of the work that was previously offshore,” he said. “Peru is still a lot cheaper than Spain but now there are more people in Spain who are willing to work in contact centers because of the high level of unemployment. Recruitment and training costs have also fallen in Spain because contact centers are experiencing much lower attrition levels because of the unemployment too.” Menutti continued: “This has been a challenge for Peru in the last two or three years, one that has led many contact centers to focus more on their Pan-American operations.” This has also led to contact centers in Peru offering lower prices, he explained, because of the extra capacity they have as a result of losing contracts with providers in Spain.
Carla Segura Suarez, CEO of Siglo Outsourcing Peru, told Nearshore Americas that the breakdown of the industry’s reliance on Spain “could have been a good thing in the long term because it took us out of our comfort zone.” Segura Suarez, who is also the founder and president of the Peruvian BPO and ITO Association (APEBIT), which is comprised of 35 businesses, explained that “it used to be easier to negotiate prices but there was less innovation. After what happened with Spain our businesses began to search for alternatives and new solutions in order to manage their prices better. I think we’re a lot more stable now because of that.”
Setting the Right Price
The Peruvian BPO market, which counts Peruvian multinationals like Grupo Romero, Grupo Interbank and Grupo Gloria among the biggest domestic clients, has become “very intense with a lot of competition” in recent years, Mendoza said. This has led many providers to look to specialize in specific fields like SAP and applications maintenance outsourcing, while offering increasingly low prices in order to win clients, he explained. Yet “a low price does not guarantee the right person for the job,” Mendoza noted. Moreover, providers soon found that they “could no longer sustain those prices so they started to add hours in order to make up for it. The clients began to realize that the development costs were rising above their estimates and that the market prices were dishonest and this caused conflict in negotiations.”
Mendoza believes that service providers in Peru now “have the opportunity to establish long-term relationships with their clients by charging the correct price instead of trying to win more business by lowering their prices in an unsustainable manner.” The man-hours model is becoming more efficient, he noted, and “the more serious Peruvian businesses are maturing and prioritizing results over prices, but the majority are still looking for the lowest prices.” When questioned about such practices, Segura Suarez said she was not aware of any such incidents but acknowledged that “there could have been cases of this because whenever prices begin to fall there can be a lack of trust as everyone tries to recoup their costs.”
Other Challenges
Segura Suarez added that “in the last year, new technologies such as virtual agents, voice biometrics and text-to-speech software, have reached Peru. They’ve not yet been fully implemented in Peru but this is starting to happen. There should be strong development of this technology in the contact center space in 2015 and 2016… These new technologies have worked well in other countries so the big challenge in Peru is for the population to adapt to this technological change. How will we implement this technology in the different provinces with different cultures?” Unlike in countries such as Chile, Colombia and Argentina, Peru’s “provinces are still very underdeveloped,” she said, noting that the contact center industry and the economy in general would benefit from further decentralization beyond the big cities like Lima, Trujillo and Arequipa and into the more remote mountain and jungle regions.
Retention is another major challenge facing Peruvian service providers today, Mendoza said. “There’s a lot of demand for talent,” he said, so “as your project is moving forward your talent leaves because someone is offering them more money elsewhere. So new less experienced people come in and you don’t have the same level of talent that you started with, and the level of service begins to decline badly. That’s where the problem is, in constantly maintaining a good level of service.” What can be done to mitigate this? “Young people like to work in an urban bubble,” Mendoza replied. “If you make them feel like their workplace is their home and give them opportunities to develop their professional careers then I think they’ll stay. Of course money comes into it, I think money accounts for about 30% of decisions, but a more important aspect is what their employers and their work environments are like. I know a lot of companies that don’t pay great wages but their staff are happy, talented and extremely loyal. It’s important to recycle talent, promoting from within and maintaining a close relationship with local universities. This will help you to achieve what the client wants: a more constant level of service in the long-term.”
Improving Service Quality
Menutti agreed that “retention is a key challenge for Peruvian contact centers,” noting that “a lot of them have introduced coverage plans to fight back against attrition.” However, Menutti believes that the key challenge facing Peru is the need to improve quality, as its low costs are “not enough for it to compete against countries like Colombia, which has a similar price point but is more competitive from a quality point of view.”
The maturity of the market is closely related to the level of quality in Peru and this should improve in time, he said: “When bigger contact center providers enlarge their operations in Peru they usually bring the best practices from all over the world and introduce them to Peru. That’s an important part of improving the quality of services.” Menutti also mentioned that “quality has a lot to do with the people providing the services. So education is key to providing quality services.”
Mendoza believes that Peru is well on its way to improving in this respect, noting that “the education sector is also going through some very important changes. They’re raising professors’ salaries, investing in infrastructure, innovation centers and high-performance schools and providing grants for the most promising students. A lot of great talent is coming out of the universities now.” Mendoza added that “sometimes Peruvians are not aware of their own abilities, but they’re very creative. Many people have come from difficult circumstances and scarce resources and they’ve proven capable of meeting tough challenges. That ability is a competitive advantage in any field. They’ll always try to find a solution, no matter how complex the problem. It’s in their nature and it’s a very important characteristic in successful people.”
The potential of Peruvian talent was amply demonstrated this month when a team of students from Peru’s Universidad Nacional won the third place in the global coding competition CodeVita after what the Indian multinational TCS – which organized the competition – described as “an extremely hard-fought final.” The six-hour final required competitors to solve “coding problems that tested their technical knowledge, their ability to execute and implement computer code in a structured setting as well as their speed, agility and creativity,” TCS said. The finalists from Peru received an internship offer from TCS as well as a $3,000 dollar reward.
The North American Market
While Mendoza is confident that Peru can emulate the progress that countries like Mexico have made over the last twenty years, he admits that the level of English in his country still leaves a lot to be desired. “This is another challenge that we face and it’s going to take us a little longer to fix this. Many people understand English but when they need to interact they struggle to speak in English,” he said. This inhibits Peru from competing seriously with other Latin American countries for a stake of the lucrative North American market. However, even if the level of English were to improve significantly, Menutti suspects that Peru is better off “consolidating its status as a services hub for other countries in Latin America.” Because aside from the current scarcity of English speakers in Peru, other countries such as Mexico, Colombia or the Central American nations hold greater appeal due to the cultural affinity and geographic proximity they can offer clients in the United States.
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