Latin America's popularity as an outsourcing destination continues to grow and, as the region matures, some providers of IT services are consolidating their delivery centers.
When a company like Walmart moves into an emerging Latin American market such as Brazil, it tends to bring a support system of IT professionals along with it. Whoever is handling their computer systems needs to be readily available, whether it’s internal employees and/or companies like Tata Consultancy Services (TCS).
As IT vendors like TCS have been looking to diversify outside of India, the growing economic power of Latin America has become increasingly appealing. Even so, the incredibly diverse region comprising much of the Western Hemisphere faces stiff challenges if it wants the proliferation to continue.
Given the geographic proximity to the United States and the region’s increasing economic clout, providers of IT services are finding it beneficial to be positioned in Latin America, said Atul Vashistha, the chairman of the Nearshore Executive Alliance and CEO of Neo Group.
“A large part of those hubs are focused on serving the U.S. customer,” Vashistha said.
Companies began to look beyond India with respect to IT outsourcing because it’s never a good to have too many eggs in one basket, said Hansa Iyengar, a sourcing and management analyst with Forrester Research.
Many American companies first turned to China, but the government there required them to partner with local companies who’d call an end to the partnership once they’d gained the knowledge of the multinational firm, she said.
Latin America then became an appealing option, especially a country like Mexico, which borders the United States directly and has citizens that share cultural similarities with their neighbors to the north.
Vashistha said the increasing growth in mobile app development has also helped Latin America. With those types of services, where customers are holding the end product directly in their hands, it helps to have employees with a greater understanding of who exactly those end users are.
In an emerging trend, customers of IT services often worked with providers that had in-house centers country-by-country. As the Latin American market has matured, those centers are consolidating. In South America, for example, it’s reaching a point where buyers will turn to one or two regional hubs in Brazil that provide service to those emerging markets.
Brazil, given the prevalence of the Portuguese language there, can provide services to European customers in Portugal, as well as Spain. In addition to overseas companies, providers are also expanding locally, given growth in countries like Chile and Peru.
“There’s a vast local market waiting to be exploited,” Iyengar said.
Creating the Right Kind of Workforce
There’s no doubt Latin America has seen impressive IT growth in recent years and it’s well positioned for that expansion to continue, but the region does have to navigate the way carefully.
For example, government and private officials must work together to ensure there’s an educated workforce, Iyengar said. This need for talent development drives such initiatives as Guadalajara’s sister city program with San Jose, Calif.
“If you want to expand at the scale that’s been happening, you need to have a solid base of talent that keeps replenishing itself every year,” Iyengar said.
While Vashistha agreed that Latin America faces challenges with ensuring there’s adequate talent, he remains confident the region will continue to see double-digit growth into the future. For example in Mexico, there are major technology hubs in Mexico City, Guadalajara and Monterrey. Guadalajara has specifically been looking to continue its tech growth by developing a Digital Creative City, or Ciudad Creativa Digital, in its historic downtown.
With government, university and private support and continued infrastructure growth, Mexico could likely support additional hubs in a fourth or fifth city outside of those three metropolises, Vashistha said.
Dale Quinn is a freelance journalist based in Guadalajara, Mexico. He’s most recently written about technology, real estate and security issues faced by international companies. His work has appeared in The Financialist, an online magazine published by Credit Suisse, and in the Institutional Real Estate Inc.’s Americas letter. Before moving to Mexico, he worked as a business reporter for the Arizona Daily Star, where he covered the housing crisis in the wake of the financial meltdown.