The year 2023 is already here. What can the Nearshore expect from it?
Economic headwinds, a shifting political culture in Latin America and the continuing evolution of work-from-home represent some of the more obvious trends. But in this case, our editorial team is aiming to go a few levels deeper into those undercurrents that will have surprising influence on the direction of Nearshore.
“Nearshoring” Grows Popular in the Headlines
The wave of crises that arose over the last five years –from COVID and the China-US trade war, to high inflation and the Russian invasion of Ukraine– gave pause to developed economies in the West who have for long been overly dependent on Asia as a source of raw materials and cheap, manufacturing power.
Consequently, the terms “nearshoring” and “friendshoring” gained prominence in the political and media discourse, though with a narrow focus on their meaning applied to manufacturing.
They also discussed ongoing collaboration, the IDB’s leading role as the largest multilateral lender in #Brazil, and our renewed efforts to mobilize private investment to make the country's unique #Nearshoring potential a reality. @jairbolsonaro @govbr https://t.co/8JrdNA2wd4 pic.twitter.com/JWJ9L0xsqC
— Inter-American Development Bank (@the_IDB) June 14, 2022
The popularization of the terms will continue, keeping for the most part its focus in manufacturing and other industrial processes. Nevertheless, as digital transformation accelerates even further, the mainstream use of the term will begin to encompass back-end business processes and IT services.
Next Gen Tech Remains A Key Part of the Nearshore’s Growth
Even under the pressures of high inflation and the threat of an economic recession, tech spending won’t stop, with companies prioritizing investment on next generation technologies with hopes of using them as a launching pad towards the next level of process optimization or even a new spin in business altogether.
Gartner predicts that tech spending will increase 5.1% in 2023 compared to 2022. Polls and studies point to security being the top priority of CTOs and other C-level executives when it comes to tech spending. Cloud technologies are expected to dominate tech budgets in 2023 too, with analytics and AI/ML maintaining a strong presence in the financial spreadsheets.
For the Nearshore, this means a stronger push for the development of skills related to next generation technologies. Nearshore staffing agencies and wage analysts already expect salaries for highly specialized software engineers to increase considerably in 2023, with major jumps in compensations for the more senior engineers available.
As we learned in 2022, though bothered by the trend, companies will not hesitate to pay top dollar for the best talent available.
Programmers are still in short supply considering the high levels of demand. As IT companies grow more trustful of low-code/no-code tools, they will lower the barrier of entry for tech-oriented jobs.
Actual programmers and engineers will still be in demand, but more specialized work will be required of them. The more experienced programmers will work on polishing products, managing less-specialized teams and/or handle the implementation and deployment of next generation technologies, such as cloud, AI/ML and blockchain.
On the other end of the chain, increasing demand for stronger cybersecurity will alter the frameworks of vendor risk management.
Signs of Saturation in Smaller Cities
The movement allowed by work from home and driven by higher costs of living will raise the profile of smaller cities as sources of talent or sites to set up shop.
Tier-2 and even tier-3 cities will begin to show slight signs of saturation. Wages will begin climbing, as well as real estate prices. Gaining access to talented workers and proper accommodations won’t be as easy as a couple years ago.
Although saturation will begin to creep in, it won’t be high enough to kill the territories. Besides, the same dynamics that allowed for the emergence of tier-2 and tier-3 cities as viable locations will open inroads into more, even less frequented options, whether those be cities or whole countries.
ESG Weights Heavier
Social responsibility and the implementation of ESG-compliant agendas is growing in relevance. Outsourcers have, for the most part, remained on the edge of this trend. Nevertheless, as investors and clients grow more concerned about social impact, they will push providers to follow.
Increased private investment is critical for delivering development impact . But private investors are weary of environmental, social, and governance (#ESG) issues in emerging markets.
— World Bank (@WorldBank) October 15, 2019
The European Union has been navigating towards stricter ESG compliance regulations for years. The United States has yet to reach those levels of compulsory compliance, but federal authorities have been slowly inching towards requiring public companies to disclose what’s being done in house about environmental, diversity and human rights issues.
Expect to hear more mentions of gender equality, green technologies and social impact in contract negotiations, RFPs and even job interviews. Being non-compliant won’t outright kill business partnerships or sink opportunities, but having ESG-friendly credentials will be considered a plus.
(Measured) Digital Transformation
The push for technological change in all industries is evident, and companies are scrambling to update their systems. As mentioned before, tech spending is expected to continue, and even accelerate when it comes to specific technologies, such as AI/ML, cybersecurity and cloud systems, among others.
Nevertheless, under the pressures of inflation and the threat of an economic downturn, decision makers will be less venturous with digital transformation processes. Most will stick to process improvement, not a complete overhaul of their business model.
Even then, don’t discard major technological overhauls. Companies with deep enough pockets and/or an adventurous enough leadership team will find opportunity in the crises that might come.
Importance of Retention Reaches All Time High in Software Services
A couple years of a very tight labor market convinced software services companies of the importance of talent retention. In 2023, tech firms/departments will think long and hard –as well as spend the necessary resources– to keep good workers on board.
Wages are already high, and climbing. A juicy paycheck won’t be enough to keep retention rates healthy. Companies will have to stack more value on top of an attractive –or at the very least fair– wage. More attractive benefits, constant training, opportunities for professional growth and learning, an encouraging work culture, flexible schedules, a sense of purpose and belonging and aligning values will be part of the toolkit used by leadership to retain quality talent.
The wave of massive lay-offs seen during the second half of 2022 might give employers more wiggle room at the negotiating table, but it won’t push the pendulum back all the way. Workers won’t be in the advantageous position seen during the first months of the Great Resignation, but they’ll still hold powerful cards.
Mexico’s Next Chapter
The presidency of Andrés Manuel López Obrador (AMLO) will enter its last stretch in 2023. Signs of electoral fever are showing already in Mexico’s political landscape, as possible successors of AMLO position themselves for a (likely successful) presidential run.
AMLO’s tenure has been rough, to say the least, but it wasn’t catastrophic for business, as many feared initially. With that in mind, AMLO’s potential successors (what they say and what they don’t) will be under a microscope in an attempt to chart a possible path forward for Mexico.
Expect political tensions between AMLO and his political opponents to reach even higher levels than before. Mexico’s President is known for being prone to large displays of political muscle and for taking every opportunity to flaunt his high levels of popularity, which he has been able to maintain throughout his tenure.
Also, as his time in power comes to an end, AMLO might try for a couple final pushes to consolidate his political agenda. He recently managed to push a bill that makes substantial changes to Mexico’s electoral umpire; months prior, Congress greenlit another bill which keeps the Army’s extraordinary powers activated until 2028.
The True Colors of the Pink Tide
A new batch of left-leaning politicians won presidential elections in Latin America. Gustavo Petro beat the long-reigning conservative powers in Colombia, becoming the country’s first ever leftist President; “Lula” da Silva made a triumphant return in Brazil, beating incumbent –and highly controversial– leader Jair Bolsonaro; in Chile, young left-leaning activist Gabriel Boric began his first year as Head of State in one of Latin America’s most promising, best regarded territories.
Though concern is in the air, investors are still not willing to abandon ship. The year 2023 will provide them with a more accurate look at the true colors of the so-called “pink tide” in the region. Petro, Boric and Lula will be under the spotlight, trying to strike a balance between partisan politics and pragmatic deal-making.
— Gabriel Boric Font (@GabrielBoric) January 1, 2023
Political instability in the rest of the region –Peru, Nicaragua, El Salvador and Guatemala, most prominently– will put foreign investors’ expectations for Latin America to the test. The region is still regarded as a risky bet which holds lots of potential but has to be handled with extra care.
A Caribbean Awakening
The Caribbean will gain traction not only in the call center industry, but up the value chain, building strength as a provider of more sophisticated outsourced business processes, as well as technology services.
High performers like Jamaica and the Dominican Republic will consolidate their place as the region’s top players, while nations like Guyana and Suriname begin their ascent in the ranks.
A new chapter will begin for the Caribbean. Hopefully, governments and entrepreneurs will know how to ride the wave of popularity in the Nearshore. It all points to interest picking up not only in the US and Canada, but from Europe too.