In the eyes of Dawn Evans, CEO of Sourcing Interests Group, there are many miles ahead in terms of maturity for the Nearshore outsourcing industry. Our interview with Dawn reveals a series of lingering concerns and outright barriers to outsourcing expansion in Latin America – based around the perceived lack of political commitment from governments in the Nearshore region and other hurdles.
What are the challenges US buyers are facing in Latin America? What are the barriers to increased investment in the region?
Evans : There are a few negative perceptions of Latin America that we’re working to overcome. The first is the safety aspect, and whether it’s safe to do business from a personal standpoint. The second is the lack of a work ethic alignment. Companies are slowly getting more comfortable with the education and skilled talent available, they’re identifying good locations for language proficiency, and they understand Latin American culture much more than they do other locations that they outsource to. But there’s a huge perception that the urgency or timeliness of work completed in Latin America is a complete mismatch with North American businesses. This is not the old-fashioned ‘siesta’ issue, but something deeper that the region must work to overcome.
I think Latin American countries in general have been a doing a good job raising the education and skill level of their workforces, especially for certain types of outsourcing. But the new issue is that as much as we understand the culture better than we might the Indian or Chinese culture (because of proximity), we’re not sure that the work ethic will always line up. But what’s opening up the market now is the entry of the Indian providers that are injecting their work culture into the Nearshore mix and really changing things.
What knowledge are buyers often lacking when they make outsourcing decisions about Latin America?
Evans: The first thing to realize is that the Nearshore has only been on the US business radar for about five years, whereas we’ve been outsourcing to India for 20 years. So there’s definitely an experience gap there. North American buyers want political input from LatAm countries – they want to know that the governments are committed to supporting outsourcing, and not just the individual providers. When a vendor says it can deliver a company’s requirements, that company wants to know if there’s government backing there to develop the education and infrastructure adequately.
Knowledge about infrastructure in these countries is another issue. We know how to outsource manufacturing to Latin America. But with other more complicated types of outsourcing like IT, knowledge process or legal process, we often don’t know if there is the same level of infrastructure there to support us. That’s the education buyers are lacking, and so they’re making more ‘shoot-from-the-hip’ sourcing decisions.
We need to see LatAm governments not just telling us about their advantages, but really demonstrating their commitment to making their infrastructure and business climate suitable for investment.
Honestly I’d love to see more LatAm governments coming here and telling us what they’re really offering. We’ve been approached by providers like Softtek and CPM Braxis, but when it comes to countries, I have not yet had an IPA or policy organization come to our group and try to get in front of our members to explain what they’re offering and what we can hold them accountable for. To hear it from a vendor is one thing, but until I know that the government is going to make my project sustainable in terms of education and infrastructure, I will not have as much faith in the vendor’s worth.
Procurement outsourcing is a trend that’s gaining momentum. What exactly is it, and why is it so much in demand?
Evans: I wouldn’t say procurement outsourcing is a very large component of outsourcing right now, but it’s growing. The reason is that many firms are filled with baby boomers approaching retirement, and the executives replacing them are more educated and have gone through supply chain or sourcing degree programs. They’re much more strategic in their focus and they’re realizing that the tactical buying of services is not a core competency of the organization. As a result, procurement of services is what they have begun to outsource.
They’re also finding that they can do a lot more through outsourcing-on-demand using what they call a ‘category card’. It allows them to set a strategy, and even short list the providers allowed to bid on the project. So tactical outsourcing makes a lot of sense – it can be streamlined and automated, and done in bulk. Once you have your strategy in place, even running a sourcing event becomes tactical. Companies increasingly do the strategic work in-house and have the tactical buying performed externally.
Now procurement sourcing is not as widespread as people think, because outsourcing decisions have until now been made by executives in the parent company. Procurement sourcing makes them reluctant since it essentially means outsourcing their own functions. People don’t truly understand which part will be outsourced, how that will affect them, whether they’re giving up a core competency, etc. It’s a lack of information only because these are the early days. We have to get comfortable with the language, and see more organizations do it. It’s going to be a huge trend on the uptake in the next decade.
How is Latin America shaping up in terms of global sourcing delivery capability? Is it showing signs of a mature market?
Evans: Latin America has definitely not reached the pinnacle of its bell curve. No one has written it off yet, and the perception from our members is that Latin America has a way to go, but will be very beneficial for North America because of its proximity. People are very optimistic about its ability to become mature, but it’s not there yet.
As I said earlier, to achieve that maturity level we need to see LatAm governments not just telling us about their advantages, but really demonstrating their commitment to making their infrastructure and business climate suitable for investment.
On a more personal note, let’s talk about your personal mission at SIG. You took over as CEO in 2007 – what do you hope to accomplish through SIG in coming years?
Evans: My aim is to make SIG (which maintains a media alliance with Nearshore Americas) the go-to organization for all outsourcing decision makers. More importantly, I want SIG to be well respected and have an intimate relationship with the office of the CFO – there is nothing I see as more critical to our success and the success of outsourcing. We must learn to present sourcing decisions from a strategic benefit standpoint to the office of the CFO, which guarantees CEO backing. I want SIG to be the place that all executives go to as the starting point for decision making.
A lot of what we’re doing now is developing our market intelligence on a very detailed commodity and service level, including detailed cost structure models for all kinds of sourcing relationships. I believe in changing mindsets and paradigms, but we can’t do that without the data. We will be the people to whom you can go to get that data.