Building a Better Plan to Sustain Nearshoring

By Steve RudderhamNearshoring is gaining more interest and higher levels of global respectability among companies  looking for long-term sustainable benefits, as they strive to remain competitive in an increasingly crowded global business environment.Offshoring is no longer the only option for companies seeking a highly skilled workforce, with a cost advantage.
Indeed, Gartner finds that interest in Latin America as an outsourcing destination has increased dramatically over the past years, making it the second most-popular region after South Asia. One of the biggest questions facing the Nearshoring community is: What can we do – together – to sustain the momentum?

Moreover, executives who do not currently outsource to Latin America expect their company to consider the region as a resource for outsourcing in the future. Yet as a community, we need to ensure that we are ready to meet the challenges that these demands will bring. While data points to significant growth in the region, local government agencies and the nearshore business community must work to sustain Latin America’s momentum and expand the region’s service offerings from contact centers, to the coveted F&A work, procurement, analaytics and beyond.

Similar time zones, geographic proximity and cultural affinity are among some of the factors that give Latin American nearshoring destinations a leg up on their offshore counterparts, as North American companies have steadily increased outsourcing, but there is a need to re-invigorate this momentum and ensure it doesn’t plateau.

The sustainability of this nearshoring trend rests on the collaboration of and communication between local governments and businesses, and between providers and clients.

Invest In Your Workforce

Despite the geographical advantages, local governments need to understand that these factors alone won’t let their countries compete with the outsourcing hotbeds such as India and China. Getting ahead of these traditional powerhouses requires transitioning beyond sophisticated IT infrastructures which in many cases are already present; and into developing the local workforce to perform the kind of value-added work that will put nearshoring on a par with offshoring.

This is not to say that Latin America does not have the human capital for value-added services such as F&A work. It does, but as the demand for these services continues to grow, nearshoring destinations must ensure that they have a steady supply of human resources to meet the demand. The mindset at the moment is for voice processes to be nearshore, and then any higher value processes to be assessed for offshoring.

We have seen successes where the local governments have set up iniativies and investment boards to partner with providers in bringing work nearshore. Guatemala, for example, through their ‘Invest in Guatemala’ initiaitive provided a very flexible platform for providers to approach the government to drive change. For example they  made it significantly easier for skilled workers to enter the country and assist in transitional work, by granting Indian professionals work visas on entry.

This change in policy happened relatively quickly, as a result of the government’s attentiveness to the issue. Other Latin American nations have begun to follow suit. For example, PRONicaragua, the promotion agency aimed at generating economic growth in the country, continues to invest in educating and training its workforce. Similarly, Colombia has begun to work closely with U.S. companies to identify and address their business needs in the region as their local workforce improves on language and skillset.

Communicate Your Advantages

Cultural factors are also at work to keep nearshoring destinations from losing their brightest minds. There is a perception that nearshore workers crave the US as a home, and to work in the outsourcing industry only provides a stepping stone to their dream. On the contrary, Latin American workers that move to the U.S. tend to move back to their home countries to be closer to their families and communities. I’ve witnessed this firsthand while visiting centers in Guatemala and Nicaragua; and speaking with professionals who’ve lived in Houston, Dallas and Los Angeles, yet chosen to return home bringing their invaluable work and cultural experience back with them.

Local governments also need to do a better job communicating these advantages to the global business community. They need to ensure that the relevant data on their countries’ demographics – for example, the number of F&A graduates and the kind of work that they’ve gone into – is readily available to potential clients / investors. They also need to clearly state how ‘available’ their workforce is for these roles.

Should the foreign companies chose to invest, will they see an immediate return on investment or will they need to train and develop the country’s workers at a higher investment cost, and a higher risk? Such proof points are essential yet still lacking for many Latin American countries.

Address Perceptions, Together

Another paramount issue that governments and communities need to address is the perception on safety. The mindset that many U.S. clients have about risk and political unrest in Latin America is still a problem. To clarify, it’s not that there is political risk; it’s that this is often the client’s perception. Cities like Bogota are more safe and advanced yet the reaction when you tell people you’re going to Columbia is still one of uncertainty. Yet countries like Colombia and Chile obtain high rankings in recent global surveys for ease of doing business, safety and overall business environment. Still there’s a lot of education needed in the U.S. about what is happening in Latin America, and there’s no substitute for guided tours where interested executives are shown the city, as well as the centers where the work will be done and get a first hand experience by talking to the associates doing the work as well as experiencing the local culture. Providers seem to do this in pockets currently but local governments need to step up and help make this happen.

The global business community also has an important role to play. We should seek ways to partner with local governments to focus on the education of their workforce. Governments also need to make it easier to for corporations to do business through initiatives such as simpler and lower taxation, tax incentives and the development of infrastructure-ready environments, but these are just the entry ticket to the game.

The growth of Latin America as an outsourcing destination will only be sustained as long as businesses see long-term stability and growth of the workforce. The sustainability of this nearshoring trend rests on the collaboration of and communication between local governments and businesses, and between providers and clients.  It will also be determined in part by educational campaigns designed to impact and change longstanding perceptions of the region. It’s in the best interest of local governments and our community to ensure that this is a top priority.

Steve Rudderham (#14 on Nearshore Americas 2010 Power Ranking)  is current vice president of client engagement for Capgemini. He previously served as senior vice president, business leader for Genpact’s Latin America operations.