The Many Routes to Open Nearshore Operations in Latin America

There are a lot of considerations to take into account when deciding how to begin in the Nearshore market.

One option is to outsource the entire operation. Another is to for a company to open an office itself, or maybe to buy a local player in that country. But which is best? The answer, as in most cases, is that it depends on the goals, budget, current needs, regulations and strategy of the organization.

Opening an office abroad can be tempting, especially when a company is hungry to expand its business internationally and show its investors that it can be scalable in a world-wide manner. However, industries like mining, banking, pharmaceuticals, and food and beverages can have high level entry barriers. For example, in Panama, a license to enter into the financial services industry could cost from US$300,000 to US$10 million without considering the cost of human capital, facilities or other associated overheads. 

Outsourcing is a global market valued at US$92 billion

Another problem is how long it takes authorities to grant those licenses. Licenses for pharmaceutical companies to introduce new medicines into the local market can cost US$5,000 and take as long as two years to get approval. 

Despite these sort of barriers, many companies opt to open in a country. In Panama, Scotia Bank, Citi Group, Johnson and Johnson, Abbot and others have done just that. But a clearly defined strategy and a detailed plan are needed before going down this path.

The Nearshore Option

Outsourcing is a very common alternative when you go to a new country. Indeed, outsourcing is a global market valued at US$92 billion. Whether it be a BPO to serve your US entity and or a front office operation to attack any given market, the number one benefit of outsourcing is speed. 

With outsourcing partners taking care of office accommodation, laptops and equipment, payroll, talent recruitment, taxes, legal regulations and restrictions – pretty much every transactional aspect of having an office in the country – it can take as little as one month to start running a business via outsourcing. On the other hand, registering a company directly, opening a bank account and registering with the various authorities can take up to six months and if companies bring in foreign managers and personnel. That’s not taking visas into consideration.

Last year, Latin America reported US$166 billion in M&A deals

The second major benefit of outsourcing is flexibility. The ability to operate in a country without worrying about local legislation (because the partner has taken care of this), is huge. Not having to study and understand the application of the local labor law – which in most cases is extremely different to US labor regulations – is another weight off. 

At the ManpowerGroup, we have identified a tendency from investors and business people to start small and carefully with outsourcing operations in Latin America. Usually, within 6 to 24 months, at which point they are more sure about the market, they start their own operations.

M&A

Mergers and acquisitions is the final option, though certainly not the cheapest. The first step along this path is determining the availability of funds to execute the transaction. But by acquiring an already existing operation, the company guarantees itself ready capacity, technologies, financial and human resources, as well as sound advisory and market knowledge, and a customers base.

According to TTR and AON, last year Latin America reported US$166 billion in M&A deals, with US companies leading more than 640 acquisitions across the region, to become the number one group interested in Latin American companies. 

The most active M&A geographies in Latin America are Brazil and Mexico; no surprise when you consider that they are the two largest economies of the region with a combined population of 350 million people. 

Before going down the M&A route, companies must consider key elements of the market they will be entering into, including currency risk and political stability.

Clearly, options are on the table for entrance into Latin America. Good advisory services are key in this decision. 

Outsourcing can significantly reduce operating costs while increasing revenue. Is it time your company considered it?