Kirk LaughlinNearly a quarter of the locations in the new Top 100 Outsourcing Destinations rankings, by the strategic advisory firm Tholons, are in the Nearshore region. Considering the number of locations in the region, maybe mathematically that doesn’t work out to be especially remarkable. But what is notable is that most Nearshore destinations improved in the standings, and some by quite a bit, and that signifies improved capabilities and better service delivery. The word Tholons analysts use to summarize the region’s outsourcing market is “vitality.”Tholons analysts say Latin America’s better showing proves the entire region is “intensifying” its IT and BPO service delivery skills. “Latin America has been showcasing its capabilities as a key outsourcing destination for multilingual BPO services, as well as select KPO and ITO processes.” As a result, almost two-thirds of the Nearshore cities analyzed moved upward in the ratings this year.
Latin America’s top entry on Tholons’ best-places-for-outsourcing list is São Paulo at #13. Reasons for its high spotting include Genpact’s new delivery center there to provide F&A services for Astra Zeneca, as well as growth among other companies serving the pharma and healthcare industries, in addition to the IT and BPO companies well-established there. The report says SP’s success has flowed over into neighboring Campinas, where IBM, Capgemini, ACS, and others operate.
Buenos Aires and San Jose (Costa Rica) follow closely, at #15 and #18. San Jose jumped up seven spots this year by “capitalizing on its technical delivery capabilities” to attract some very large corporations and induce major expansion by some others, like Intel and HP. It was a bit of a boom in Costa Rica in 2011, with IBM adding 1,000 jobs, and Aegis hiring 400 bilingual agents.
Two Colombian cities, Bogota and Medellin, moved up in the standings by jumping nine and eight slots, respectively, to #55 and #60 out of 100 locations. Both cities, the analysts say, improved by delivering “a broad spectrum of IT-BPO services to the international market.” They also say strict security policies have resulted in a “more conducive business environment” and better perceptions of the safety situation.
Good news and bad news for Mexico. Mexico City slipped down a notch to #39 due to “prevailing negative security conditions,” but Tholon says Monterrey and Guadalajara benefited because the work that fled or avoided Mexico City came to them. They each advanced a spot to #41 and #47, respectively. The report doesn’t mention this but Mexico City did recently become the home of a new tech center built by some company called Microsoft, which says thousands of software developers will be trained there.
The improvements in Latin American rankings are due mainly to countries doing two major things, Tholon says: improving their IT outsourcing and BPO capabilities, and attracting foreign investment in the form of either equity or companies, often very big companies, moving in to set up business or expanding operations already there.
Wages, Inflation, and Other Risks
But the region still has to deal with challenges “that need time and focused strategies to be addressed.” São Paulo, for example, is “held back by increasing labor costs.” Argentina‘s problematic fiscal conditions include one of the highest inflation rates in the world. Likewise Uruguay. Brazil, Mexico, and Argentina “need to address internal risk concerns [on the] social, economic, and political fronts” or lose momentum, Tholon says. That will lead to outsourcing clients instead choosing “upstart destinations such as Peru and smaller nations in Central America.”
That could be a break for a place like Honduras. As Ovum analyst Peter Ryan has noted, the little country has slowly emerged as “a viable location for BPO delivery” while trying to reduce concerns a about crime and political stability. Or a place like El Salvador, whose efforts to improve its people’s English-speaking abilities are beginning to pay off.
Tholon’s analysts conclude that Latin America “will be one of the more, if not the most, promising service delivery cluster in the world in the near-term.”
The thing about great expectations is running the risk of being the team that everyone says is bound to win the World Series: satisfied, maybe complacent, and then it’s too late. Outsourcing providers in locations that rose in the standings this time should celebrate – and then get down to applying the idea of continuous improvement to everything they do. Forecasters expect a sluggish 2012 for sourcing, and observers see several big challenges Nearshore ITO and BPO companies could confront in the year ahead. It will be a good time to distinguish oneself.
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