Cesar CantuHow long will it take UK firms to look closer at the blooming tech landscape in Latin America and the Caribbean?
While North American business –pushed by a chain of economic and political crises– is rapidly waking up to the appeal of tech outsourcing in the CALA region, reaping the benefits of remote work trends, its European counterpart has yet to catch up.
The signs are out there. Though India remains the focus of market players seeking to outsource technology services and hunting offshore for software engineers, Latin America is quickly becoming a top contender. In a recently published report, Deloitte identified Latin America as a “rising and competitive location model that provides unique value for GICs and outsourcing services”.
“A common theme in our conversations was the rise of Latin America as the up-and-coming region today”, the report points out. “The region offers business and technology talent, enhanced infrastructure and the benefit of substantial time zone and cultural overlap with North America”.
“[LATAM] offers business and technology talent, enhanced infrastructure and the benefit of substantial time zone and cultural overlap with North America”—Deloitte’s Global Outsourcing Report
Though North American companies have been leveraging the advantages of the region for over a decade, developments over the past three years have increased interest, accelerating the growth of CALA’s main players in Nearshore tech outsourcing.
COVID made digital transformation a necessity for many industries, dramatically increasing the demand for technology services, digitization consultancy and competent tech talent. Although all of those are available in the US and Canada, supply hasn’t been able to catch up with demand, forcing companies to fish for tech workers beyond their own borders.
High demand also tightened the already expensive tech job market, putting pressure on businesses hit hard by increasing capital expenditures. Labor costs numbers grew higher in corporate spreadsheets, pushing executives to make more frequent use of the chopping block.
It’s no surprise then that Latin America and the Caribbean have grown attractive in the eyes of top brass. Though doubts about the region’s capabilities and about outsourcing in general remain, more and more company executives are realizing that the quality of talent and services available in the region’s tech landscape is comparable to that of India or many American cities.
On top of that, Nearshore hiring is considerably cheaper. In São Paulo (Brazil), one of the busiest tech markets in Latin America, the average annual wage for tech talent in general was US$55,100 in 2021; for software developers in particular, annual wages averaged US$56,600 that same year, according to data by CBRE. In the US, annual wages for both positions averaged US$102,300 and US$108,100 respectively.
Trouble in the UK
The landscape for tech outsourcing in Europe is not much different today from what’s seen in North America. Labor costs are sky-high and climbing, demand for tech services keeps escalating and talent, though in stock, is being fiercely solicited.
The UK tech job market seems to be particularly hot. It is estimated that around 870,000 tech job vacancies were available in the first five months of 2022 alone, with software development being the most in-demand skill, and security seeing a strong uptick.
Though the number means great news for the local tech sector, it is also the cause of headaches at the executive level across several industries. In its latest Digital Leadership Report, consulting firm Nash Squared found that 68% of executives surveyed in the UK see “a lack of skills is standing in their way [of growth]”, while 57% fear they will “never have enough access to enough tech staff”.
“The issue right now is that, in Portugal, for example, you cannot hire a lot of good developers because they are all hired”, Nuno Seixas, COO of IT services provider GBH, told NSAM in an interview.
According to Seixas –who’s based in the Portuguese city of Aveiro–, European labor markets big and small have reached a point of saturation. The problem has grown beyond major hubs such as the UK, Germany and France. Smaller markets like Portugal, Spain and the whole Eastern European region are suffering the same struggle.
The Russian invasion of Ukraine enlarged the problem even further. Though there have been reports of Ukrainian and Russian techies trekking westward, and also of companies seeking to hire them, the conflict made market dynamics more complicated.
Add to that a population that’s growing older at a continental level, with less and less young people available, and the picture has the potential to turn grim, added Seixas.
You Have to Notice Them First
As a member of GBH, Nuno Seixas has seen first hand the potential of Latin America and the Caribbean not only as sources of qualified tech talent, but as a developing hub for the export of tech and business process services.
Unfortunately, he’s a rarity among executives in the Old Continent. Most European companies –in tech or otherwise– still see Latin America and the Caribbean as sources of raw material or even vacation spots.
“There is a lot of unawareness about the possibilities in these countries,” he commented.
Trust is an issue too, he added. Like it still happens in North America, European businesses are afraid of “being duped” when outsourcing services and operations to firms in a region that’s, for the vast majority, unknown to them in a context of business partnership.
Nevertheless, that might change soon enough. Some firms in the UK and other parts of Europe seem to be warming up to the idea of outsourcing some of their operations to CALA in an attempt to chase North American clients and diversify beyond their own Nearshore, which relies heavily on Asia and Eastern Europe.
“There is a lot of unawareness the possibilities in these countries”—Nuno Seixas, GBH’s COO
English skills are becoming more prevalent in some CALA countries, like Costa Rica, Colombia and Mexico, which are also increasingly seen as hubs of tech talent and services. A major obstacle could be the discrepancy of time zones. But, Seixas assured, that can be fixed with a “common time schedule” and the synchronization of duties during a couple hours in cases in which time zone differences amount to four hours or more.
Baby Steps
European business in general seems to remain largely unaware of what’s taking place in what North Americans describe as the Nearshore. Then again,there are also a couple signs of a slow awakening.
Providers of Nearshore outsourcing services have commented on the interest coming from the other side of the pond on either setting up shop or contracting established vendors in the region.
There’s also interest in talent. There were reports of Spanish companies hunting for programmers and developers in Argentina, where a salary paid in euros is highly attractive given the erosion of local currency.
Also, some firms are doing old school importation of tech talent from Latin American countries like Brazil, Chile, Argentina, Colombia and Mexico, Nuno Seixas told NSAM. These workers are flown in and installed by their new employers, scraping the growing trend of remote work. In Portugal, for example, there’s a growing community of Brazilian software engineers brought in to counter the talent crunch.
Meanwhile, UK investors face an opportunity perhaps too good to pass up: A region of the world with more than 700,000 million inhabitants that is racing to redefine its relevance in the global digital economy.
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