Nearshore’s ascendency within the global outsourcing industry has taken a huge leap forward in light of the pandemic.
For US-headquartered companies, the global travel restrictions and ongoing safety concerns meant the world’s major outsourcing markets were a no-go for some time. The Philippines’ struggle to ease into the Work From Home model, was the clearest example of how the pandemic could shuffle the outsourcing hierarchy.
But Joseph Wroblewski, a long-serving vendor governance leader in the US, is unconvinced by the Nearshore proposal. Reduced labor arbitrage, a far smaller population and talent pool, and security are some of the issues he believes hold the region back.
“I’ve heard Latin America being talked about as the next big thing for the past decade, and it really hasn’t yet reached the level that it was supposed to” — Joseph Wroblewski
“Some people talk about Latin America as the best of both worlds [the price comparison of Asia markets but with proximity to the US]. In some respects, it is the worst of both worlds because it is not as price competitive as Asia and it still requires the legal/security scrutiny for work to be done outside of the US,” says Wroblewski, who has held procurement and vendor leadership roles for more than 20 years in the US.
“Companies have restrictions and rules that must be followed. To get work approved to be performed from outside of the United States takes the same level of effort to get it to Canada or Mexico as it does the Philippines or anywhere else.”
Instead of moving work offshore, Wroblewski has a more novel suggestion. When it comes to overall financial savings for the effort implied, the idea of sending work south may not make much sense, he says.
“When people say they want to go to Latin America due to timezone, I tell them to consider “central America”. By that I mean Iowa, Arkansas, Indiana, and other rural locations throughout the US. Look at places with universities that pump out large numbers of computer science majors each year. Talent can be found at a reasonable cost, the concerns of going outside the US go away, and there is no issue with time zones,” he explained.
A Nearshore Wake Up Call?
Wroblewski’s views don’t make for easy reading for Nearshore players. This isn’t what the industry has become accustomed to hear over the last several years, and in particular during the pandemic, which has generated so much demand for Nearshore services. But self-reflection is a must for a region vying for business against true global heavyweights like India.
Population is central to the Nearshore debate. According to World Bank data, the total population of Latin America and the Caribbean rose to 652 million in 2020. Of that, Brazil – a country generally considered ‘outside’ of the Nearshore due to its massive internal market – accounts for 212.5 million, or roughly one-third of the region’s total population.
By contrast, India’s population hit 1.38 billion in 2020 according to the World Bank. The Philippines, considered by many to be the BPO center of the world and notable for its high-quality bilingual talent, has a population just short of 110 million.
Arbitrage and overall cost remains perhaps the most attractive factor Ten years ago, Nearshore Americas found that India outperformed Latin America in most factors that contribute to the Total Cost of Ownership. In one category, employee attrition, Latin America had the clear upper hand.
The latest A.T. Kearney: Global Services Location Index, puts India as the world’s top outsourcing market
“India still has its issues,” said Wroblewski. “Attrition is one and Covid didn’t help that – attrition is even higher right now.”
But aside from attrition, how much has changed?
The latest A.T. Kearney: Global Services Location Index, puts India as the world’s top outsourcing market. The first Nearshore market to appear is Mexico in 11th place, followed swiftly by Colombia in 13th. Both countries struggle in the ‘People Skills and Environment’ category, but Colombia performs well in ‘Financial Attractiveness’.
Other industry stakeholders have noted that the Nearshore provides diversification and the reduction of risk following the pandemic that caused such disruption to the information services industry.
In a recent interview with Nearshore Americas, Lisa Stoner, Uber’s Global Head of Support Operations, said that Latin America offers global companies to de-risk their footprint and help build an organization’s resilience.
“For the LATAM market to take the next leap there needs to be a drastic increase in the talent pool that is tailored to the needs of the US client marketplace” — Joseph Wroblewski
“A major additional factor is business continuity planning. Many companies found themselves to be very over invested in the Philippines on a percentage basis of their overall network. When the pandemic hit, companies knew they were over invested in the one geography but thought that their intra-country dispersion would be enough. We now know that it wasn’t,” Stoner said.
But Latin America hasn’t yet proved itself as a region that is capable of disrupting the global services hierarchy, Wroblewski believes.
“I’ve heard Latin America being talked about as the next big thing for the past decade, and it really hasn’t yet reached the level that it was supposed to,” he said.
“For the LATAM market to take the next leap there needs to be a drastic increase in the talent pool that is tailored to the needs of the US client marketplace as well as a superior level of security and process excellence. This can be achieved, but there is still much work to be done.”
The View from Vendor Governance
For vendor governance, one of the few benefits of the pandemic was that it helped separate the wheat from the chaff. Those vendors that had solid operational structures and clear planning procedures in place before the pandemic were able to sustain a level of service that those less customer-focused providers could not offer.
“There were examples of companies which totally fell down and couldn’t deliver their service,” said Wroblewski. “Then there were some that did okay and stuck things together with bubblegum. And there were others that had the preparation and culture of client centricity that helped them deal with this and came through much stronger. This helped create differentiation compared to their pre-pandemic competition.”
“Because the pandemic happened to everyone at the same time, clients were able to see how different vendors were able to withstand the same situation. This allowed them to decide where to shift their resources and future work from those that didn’t handle the pandemic to those that could,” he added.
“The pandemic will accelerate the consolidation of a select set of vendors in order to get the focus and the relationship that client’s want” — Joseph Wroblewski
The experience of the pandemic has offered vendor governance leaders key takeaways and has undoubtedly changed the vendor-client relationship, Wroblewski believes. Business relationships are similar to personal relationships, he suggests, and clients will stick with those vendors that demonstrated their value during hard times.
“The pandemic will accelerate the consolidation of a select set of vendors in order to get the focus and the relationship that client’s want. Vendor management takes time and effort so it is helpful to form deeper relationships with a few select vendors who have proven to be excellent partners, especially during this difficult period,” he said.
“One of the takeaways is going to be identification of preferred and key vendors. The vendors that were either better prepared initially or more customer focused are going to be long-term winners. That’s because clients will say: ‘they stood by me and delivered during tough times and now I’m going to funnel more work their way,’” Wroblewski concluded.