Sweden-based BPO provider Transcom Worldwide announced this week that it is closing its office in Cali, Colombia. The site has been hemorrhaging money for three years, and the company stated that “stopping these losses” was its key priority in shuttering a location that was the worst performing of its three poorly performing operations in Latin America. The Cali office suffered loses of £1.6 million in the first nine months of 2015 alone, according to the company, to push the its total loses in Latin America to more than £15 million in the past three years.
While Transcom, which entered Cali in 2013, now appears to be wrestling with the idea of vacating the region altogether — it notes in a statement that its Latin American organization is “currently under review” — its exit also shines negative light on Colombia. The nation has grown as a nearshore destination in recent years as its business and security climate have improved. But a headline like this is sure to make some outside the region wonder if the market has turned along with the the domestic currency, which was in free fall throughout 2015 and gave rise to questions about the overall economic stability.
Johan Eriksson, president and CEO of Transcom, mentioned the business climate as the reason for leaving Colombia. “The fact that we are exiting Colombia and that we are evaluating strategic alternatives for Transcom’s business in Chile and Peru reflects a major shift in market conditions,” said Eriksson in a statement. “Macroeconomic changes in the last couple of years have negatively affected the viability of Latin American contact centers as an offshore delivery solution for clients in Spain.”
While the slowdown in China and commodities price plunge of the past two years has been a drain on the region, this explanation doesn’t align with what Nearshore Americas is hearing on the ground. Multiple sources have said that Transcom’s Cali office was known to only serve one client and that its fate may have been sealed last year when it missed out on a bid for another big fish. “Obviously if you have only one client then the only option is to close the center,” said Ricardo Duran, president of the Bogotá-based Outsourcing S.A.
Given its £15 million in losses throughout the region over three years, Duran also questioned Transcom’s approach in Latin America. “They failed in their business model,” said Duran. He says that foreign industry firms that enter Colombia, or anywhere in Latin America, typically acquire an established center first. This way, they have some domestic clients as a base on which to build up their export services to the United States or Europe. But with its initial $5 million investment in a greenfield location in Cali, Transcom had no such cushion to fall back on after it proved unable to attract more business.
“When you have all your eggs in one business, the probability of losing is higher,” said Mauricio A. Velasquez, managing director of the Bogotá-based Velasquez & Company and a former director at Teleperformance Colombia.
He added that this is not the first time a large firm has come from overseas and wound up regretting their expansion. “That’s what happens when these multinationals come to a country sometimes, whether it is Colombia or Chile or Peru,” said Velasquz. “They have to have both domestic and international companies, and isn’t always a good match … They could not make it. Business-wise, when you are invited to a bid and you didn’t win, then it is hard to make it.”
In terms of what this means for Colombia, Duran says Transcom’s exit carries no larger significance. “This is a very isolated case,” he said. “The momentum for business in Colombia is moving forward … The president [of Transcom] is saying that the macroeconomics of Latin America is not helping run a contact center. But I disagree.”
Duran points to the market expansion seen in recent years and projects contact center growth in Colombia of as much as 20%, in local pesos, in 2016. The results won’t look as impressive in dollar terms, but the huge devaluation of the peso (which has gone from 1,850 to $1 in July 2014 to yet another an all-time high of 3,400 to $1 this month) is now driving even more BPO and ICT services firms to enter the market. For many, the dollar-based expense per agent per hour has dropped in half since the peso’s plunge began.
A report from A.T. Kearney, a consulting firm based in Chicago, shows the ongoing improvement of Colombia as a sourcing destination. The country jumped 23 spots on its 2016 “Global Services Location Index” to rank as the 20th best destination, the largest increase of any nation in the study.
Lisandro Perez, lead partner in Colombia for global management consulting firm A.T. Kearney, says that the wage arbitrage factor is one reason for such improvement. “The devaluation of the peso implies that service providers — such as call centers — are more competitive,” said Perez. “This is especially true if they have a diversified client base.”
Of course, this increased competition may make it harder for individual operators — and could create more losers — but he doesn’t believe the Transcom exit was due to a lack of work or human capital to supply services. “In regard to Transcom, this initially looks like one firm responding based on the company situation, not as the beginning of a trend,” said Perez. “Overall, we have not seen any signs of international companies leaving Colombia en masse.”
More than any others leaving, several companies, including Convergys and Sitel, told Nearshore Americas last fall that they are continuing to grow in the country. Valesquez also mentioned Teleperformance and Sykes as firms that are currently growing domestically, and he noted one firm that plans to open up a third office in the country in 2016 outside of the major cities.
This location diversity is another benefit for centers operating in Colombia, he says. Bogotá remains the biggest market, with Medellín and Cali also coming on in recent years to attract foreign interest. But there are also locations that few outside of Colombia have ever heard of — Barranquilla, Bucaramanga, Manizales, Armenia — that are now presenting good options for call centers.
“Based on the fact that we are a regional country, we have options,” said Velasquez. “So at the end of the day, things are moving up. On the other hand, the Southern Cone countries are struggling to get on track, especially Argentina. Colombia still has a window of opportunity.”
With all the positives in its favor as a location, the Transcom exit is not troubling for the nation’s BPO and ICT delivery market. Many in the country and abroad believe that Transcom is no canary in a coal mine. It seems to simply be one firm that couldn’t hack it in Colombia, an anomaly in an otherwise healthy and growing marketplace.