A Win for Obrador May be a Loss For Mexican Outsourcing

There is little doubt that it will be hard for any future Mexican president to replicate the outsourcing-friendly record of outgoing incumbent Felipe Calderon. However, with the recent surge in the polls of the principal leftist candidate Andres Manuel Lopez Obrador, Ovum believes that the July election will provide an interesting and potentially negative twist for the outsourcing community. Obrador’s leftist, anti-business rhetoric from his last run at Mexico’s highest office will not have been forgotten by many, but should he win, outsourcers should not abandon Mexico wholesale and should wait to see how his policies impact the sector.

Outsourcing Growth in Mexico Remains Vulnerable

In Ovum’s view, outsourcers based in Mexico cannot afford any more challenges that remain beyond their control. The country’s image has been badly impacted in the past several years by security violence that was kicked off by President Calderon’s war against the cartels. According to anecdotal evidence, the subsequent imagery floating across news channels nightly has led to a marginal degradation in favorable attitudes toward Mexico among many outsourcing clients. And while Mexican BPO and IT service outsourcing seems to have maintained a very solid level of growth during the past few years, Ovum fears that the election of a figure that has been among the most politically polarizing in the region over the past decade could be problematic for the country’s investment climate, especially if he were to embark on a program that reflected the anti-commerce tone of previous campaigns.

We feel that if an Obrador victory comes to pass on July 2, outsourcers need to remain patient before rethinking whether they should alter their site selection strategies.

Obrador’s Bark May Be Worse Than His Bite

Despite political machinations coupled with the ongoing wars against drug cartels, we believe that Mexico remains a very viable location for outsourcers, and should not be abandoned in face of the election of a candidate that is perceived to be unfriendly to foreign outsourcing investors. It is clear that Obrador’s post-election high jinks of 2006, including the blocking of Paseo de la Reforma, one of Mexico City’s principal throughways and rallies with quasi-revolutionary rhetoric, is certain to have left a very bad impression in the minds of many. However, the platform Obrador is running on in 2012 cannot be qualified as totally unfriendly toward business, with calls for ending monopolies, a freeze on taxes, and government austerity. In addition, his provisional cabinet includes members that have significant experience in public administration, which should allay concerns among investors that a Chavez-like figure is taking hold.

From a regional perspective, Ovum also notes that center-left or left governments do not automatically mean regressive commercial policies. And, while admittedly there are examples like the Kirchner administration in Argentina in which poor planning and bad policy-making is badly hurting the ability of outsourcers to win offshore business, there are an encouraging number of countries where the opposite is true. El Salvador and Nicaragua, both of which maintain center-left governments, have been very strong in promoting vigorous BPO sectors, as has Brazil in the domain of IT services. We feel that if an Obrador victory comes to pass on July 2, outsourcers need to remain patient before rethinking whether they should alter their site selection strategies.

Mexican Outsourcing Retains Significant Value

As will be covered in our upcoming brief, “Profiting From CRM Outsourcing in Mexico,” Ovum believes that despite the challenges discussed above, the benefits of outsourcing from Mexico remain pronounced. The BPO space has started to move beyond contact centers into back-office work, with outsourcers finding language skills and familiarity with US commercial processes very close at hand. In addition, the local IT services industry has grown notably in Mexico over the past decade, with homegrown organizations such as Softtek and Unosquare finding the talent needed to export technology expertise to offshore clients at a very favorable price point. Clearly, from geographic and popular culture standpoints, the familiarity of US executives with Mexico also plays in the country’s favor. Therefore, whatever the result in the upcoming elections, outsourcers should not be too hasty in deciding what approach they may take toward their existing deployments.

Peter Ryan is a leading analyst with Ovum and contributes regularly to Nearshore Americas. This article is reprinted upon permission of the author.