Nearshore Americas

As the Peso Falls, Colombia Outsourcers Continue Their Rise

Algar Tech was braced for the value of the Colombian peso to fall. Once it became clear that the drop in oil prices was not stopping, it was obvious the currency would follow suit in a nation that relies on petrol for more than half of its exports.

But Carlos Maurício Ferreira, general manager for Latin America at Algar Tech, says that he hadn’t projected the type of plummet ahead, which saw the peso move from around 1,900 pesos to the dollar last September to an all-time record of 3,260 this summer. “We were prepared and expecting a dollar at something like 2,500,” said Ferreira. “Of course the oil prices and the China crises caused us some surprise.”

We do hedge in some markets, but not in Colombia — Jason Brown

Because Algar Tech exports services, this hasn’t been entirely a negative. The more the peso has fallen, however, the more other factors have started to concern the firm — especially surrounding how these issues might affect customers. “Unfortunately,” said Ferreira, “a dollar over 3,000 may cause a greater inflation rate and cost rise…In this specific case we are worried about our clients and trying to help them, in some cases changing scope and adapting them to the new situation.”

For now, the company is playing the waiting game and putting any long-term strategic decisions on hold. Until there is a bit more clarity, they will ride it out and take the good with the bad. “For the short-term strategy we have to work the annual plan and just do it,” he said.

Workforce Concerns

Jason Brown, vice president for operations in Latin America at Convergys, says his biggest worry is how the peso’s drop may impact his workers “if this goes on indefinitely.” Because this may put pressure on wages and cause inflation concerns, the company is continually speaking with employees to gauge the temperature of how the currency crisis is affecting working Colombians. “That’s all a threat,” he said, noting that in a service business “our product is our team” and that “if something is affecting them, it is affecting us.”

A dollar over 3,000 may cause a greater inflation rate and cost rise — Carlos Maurício Ferreira

So far, he hasn’t seen these fears come to pass. In fact, Convergys has spent the last year adjusting to growth rather than navigating rough seas. Brown knows many of his competitors, particularly those more reliant on domestic clients, can’t say the same. “From what others are telling us, our experience is maybe a little different than what some others are grappling with in the market,” he said. “That could be one of the reasons why we don’t feel those economics in quite the same way.”

He chalks up the business losses of rivals to issues like poor performance or data-security mishaps more than the nation’s economic problems. But the company is happy to poach workers from other firms regardless of the cause. “We’re starting to see Convergys become a bit of a destination shop,” he said. Many new hires have admitted they grew nervous as their previous employer started to lose business and have begun to worry more about job security amid the nation’s economic turmoil.

Right now, the company does business with three different clients. These relationships includes roughly 16 different work types that are carried out by the more than 1,000 employees it houses in two locations in Bogotá. One of these partners just joined the market a few months ago, and Brown says he is seeing significant interest from both current Convergys’ clients in other markets and some potential newcomers eager to enter the country.

Growth has been so good over the past year that the firm now must be more selective about taking on new deals. It is also thinking about opening a new office in the capital or perhaps launching operations in another city. “We’re running out of space in the existing buildings,” said Brown.

Pressure From Clients

One thorny issue outsourcing companies in a market with a falling currency can face is clients wanting to reap some of the labor cost savings. Brown is happy to report that this hasn’t happened for Convergys in Colombia, however.

Attrition is the problem we have in virtually all sites. It’s the battle we fight everyday — Raul Navarro

This is because clients know that asking for a cost break now would set up a similar conversation in reverse down the road when the peso inevitably rebounds. Moreover, all of the clients Convergys works with in Colombia are ones they also work with in other parts of the world, so there are other locations where the exchange-rate pain cuts the other way. “It kind of washes out,” said Brown. “We do hedge in some markets, but not in Colombia.”

Raul Navarro, the Latin America general manager for Sitel, knows firsthand that this can be a difficult conversation. So he has sympathy for anyone on the wrong side of the exchange rate. He has dealt with this in Brazil, where the real has fallen nearly as far as the Colombian peso over the past year. “I’m in Brazil and all my clients pay in reals,” he said. “I’m getting a lot of pressure because all of the American clients are having that [exchange] issue.”

But like Convergys’ Colombian operations, Sitel services mainly global clients in its Bogotá office, so this hasn’t been an issue. And ultimately the peso devaluation has been good for the company. “The currency has been somewhat favorable for us in that the dollar has been strengthening and we have dollar contracts,” said Navarro. “It has been pretty volatile, but it hasn’t been unfavorable.”

Keeping Workers

This doesn’t make everything about working in Bogotá seamless though. Sitel is also growing in the capital, picking up English-language work, but this and the general competition in the marketplace makes keeping workers difficult.

It is less expensive to hire a Colombian contact center outsourcer. I think it will be a big driver in the short term for Colombia, especially for U.S. business — Sebastian Menutti

To improve retention, Sitel is seeking to improve employee engagement and the work environment in its offices, but the bilingual workers it needs to serve the U.S. market have many employment options in a city of some 8 million people. “It really is a competitive marketplace,” said Navarro. “Attrition is the problem we have in virtually all sites. It’s the battle we fight everyday.”

He loves the highly educated local workforce and believes that this is what drives the company’s ability to deliver high-performance results from the capital. Still, it isn’t easy. “I like my attrition rates in Nicaragua better than in Colombia,” said Navarro. “That’s a market where we’re below 3%.”

Convergys has dealt with the same problems. “The lion’s share of the business we’ve been doing in Colombia has been looking after U.S.-based customers in English,” he said. “The competition for that level of bilingualism, that level of talent, is tough.”

When the firm first got to Bogotá, retention was difficult. It faced double-digit attrition rates on a monthly basis, and the country’s 13-month pay cycle, in which many students leave jobs during school breaks, further complicates the matter. But Brown says the company has turned a corner by offering better benefits and offering employees long-term career opportunities. Instead of leaving, employees are now bringing in friends to work.

“Our retention numbers are very solid today,” said Brown, “and that’s allowing us to pull talent in. So we’ve been growing, even though some of the market’s been shrinking and some of other companies have been shrinking.”

Growing Through Turmoil

In 2014, Frost & Sullivan calculated the market size of the call center business throughout Latin America and the Caribbean at $11 billion, which represents 1% growth over 2013. This meager uptick is mainly due to region-wide currency devaluations. In terms of employee and workstation growth, however, the industry increased by 7%.

Colombia was a main catalyst of this growth, hitting 70,000 workstations and $1.1 billion in revenue, which was a 7% jump compared to 2013 even with the weak peso. Sebastian Menutti, Latin American ICT industry analyst for Frost & Sullivan, credits the ongoing growth to the government support for the industry in Bogotá. “Many countries in Latin America can look up to what Colombia is doing and learn how to incentivize and drive growth in the contact center industry,” said Menutti.

Demand is up, performance is up, retention is up, the commercials with our clients are good — Jason Brown

Sign up for our Nearshore Americas newsletter:

Frost & Sullivan also found that the U.S. market grew by more than 20% in 2014, surpassing Spain to become the largest foreign source of demand. Menutti credits this to more outsourcers with established clients in the United States entering Colombia, the success of bilingual programs in increasing the labor pool, and the fall of Spain amid the economic troubles of its own.

He thinks that 2015 will be a similar story, and the plunging peso will help. When the final industry totals for Colombia come in at the end of the year, the low value of the currency may again not reflect the actual growth on the ground.

But as countries like Brazil, Argentina, and Chile focus on domestic markets, Colombia will continue to offer more value. “The country is becoming more competitive,” said Menutti. “It is just less expensive to hire a Colombian contact center outsourcer. I think it will be a big driver in the short term for Colombia, especially for U.S. business.”

Brown sees the same, at least as far as Convergys is concerned. “Demand is up, performance is up, retention is up, the commercials with our clients are good,” said Brown of Convergys. “The business in Colombia is very healthy today, and the outlook is remaining so.”

Plenty of companies operating in Colombia are struggling to adapt to the weak-peso era. It is putting pressure on all sectors of the economy. But if Convergys and Sitel are any guide, well-positioned outsourcers may be poised to come out of this downturn ahead. “The volatility has certainly been there,” said Navarro, “but if you’re strategic about it, it can work in your favor.”

Photo: Diego F. Garcia P

Jared Wade

Add comment