Latin America, and Mexico in particular, can be a better choice than India for outsourcing services ranging from agile software development to gaming and multimedia, according to a new report by Nearshore Americas’ Senior Research Analyst Luke Bujarski.
While India still has an edge in working with legacy technology environments and in the size of its labor pool, Latin America’s time-zone alignment, along with its geographic and cultural closeness to North America, can be a superior fit for tasks requiring real-time collaboration and project management, it said.
Mexico has led the way among Latin American countries as a net exporter of services to the United State, the report said, with exports as a percentage of outsourcing revenues rising 26 to 40 percent over the last five years. According to the Mexican Ministry of the Economy, the total outsourcing industry will likely reach $13 billion US by 2013.
For North American customers, the “Mexico-friendly” areas for outsourcing include tasks requiring ‘real-time’ project management such as agile-driven software development, consulting, mobile application development, remote infrastructure management and testing. Agile integrates developers, systems engineers, customer support, marketing and testing into an iterative and collaborative project management approach that improves quality and speed-to-market.
The report predicts Latin America’s small-to-medium IT service providers, servicing primarily small to medium size customers, stand to gain substantial market share as they couple their expertise with Agile. “Large multinational vendors are also waking up to the implications of Agile and will likely grow their capabilities by leveraging Latin America – organically or through acquisition,” the report said.
Growing consumer markets in Latin America have incentivized global vendors such as Tata Consultancy Services to expand their presence in Mexico. That positions them to help global companies customize their products to meet local language and culture needs. Two examples cited in the report are the global roll-out of a new mobile phone operating system and the global implementation of a new SAP module. “Managing these complex projects requires well-established and rigorous testing frameworks incorporated into a global network delivery model,” the report said, such as those established by global players such as TCS.
Multimedia and Creative
Domestic demand, a grass-roots creative culture and government are Mexican IT companies to focus on gaming, multimedia and graphic design offerings. The city of Guadalajara in particular is making a name for itself as an innovation hub and creative technology ecosystem. Companies like Kaxan Games are building on their experience in applications for mobile devices and major gaming consoles including the Nintendo Wii. Mexico’s Ministry of the Economy is planning a Ciudad Creativa Digital (Creative Digital City) will aims of attracting local software companies and target international giants such as Viacom, Disney and Sony.
Guadalajara’s value proposition for such companies is a relatively high concentration of technical andcreative talent, as well as wages one fifth of the equivalent rate in the United States.
Next Wave: Consulting?
Mexican-based outsourcers also have an edge as they seek to differentiate themselves with higher-end business consulting. The report noted that Mexico shares “a unique economic affinity with the United States in contrast to countries like India and the Philippines,” which makes Mexican companies (and the outsourcers who serve them) more familiar with North American business processes.
With participation in the North American Free Trade Agreement (NAFTA), 80 percent of all Mexico exports ($230 billion USD) are now destined to the United States… This close economic relationship makes industry processes across banking, retail, and manufacturing more congruous with their counterparts in North America, relative to other countries,’ the report noted. It also quoted TCS as noting the presence of “domain knowledge inherent to the Mexican workforce that allows for higher-value consulting services to be delivered from their centers in Guadalajara. This business culture affinity is well suited for change management, IT architecture, cloud advisory services, among other consulting engagements,” the report said.
Low Costs, Too
The report also dismissed “myths” about Latin America, including the belief that wages are higher in most Latin American countries than in India. When total costs including real estate, operating expenses, training, recruitment, retention, inflation and travel are factored, “the actual price billed to the client can be comparable to India, particularly for BPO-related functions,” the report said. Exact cost differentials do depend, it said, on the specific country and the functions being outsourced.
(To learn more about Nearshore Americas’ custom research reports and analytical surveys, contact [email protected])