Editor’s Note: Welcome to our weekly Reader Forum section. In an attempt to broaden our interaction with our readers, we have created this forum for those with something meaningful to say to the wireless industry. We want to keep this as open as possible, but we maintain some editorial control to keep it free of commercials or attacks. Please send along submissions for this section to our editor at: [email protected].
Here are two vitally important questions for business-technology leaders engaged in global outsourcing activities:
–In what countries are your contracts being fulfilled?
–What is the nature of the work being done at those sites?
If your answers don’t point to leveraging Latin American locales for vertical industry expertise, security implementations and infrastructure management, your IT services strategy might be stuck in the early 1990s.
There are several reasons why Latin America should play a bigger role in your sourcing plans. Whether yours is a global company with operations on the continent or a local business in a fast-growing economy such as Brazil, you have much to gain.
All Fortune 1000 corporations – are already outsourcing here. Factors that influence decisions for outsourcing in Latin America include the area’s availability of skilled labor at relatively lower costs, economic stability, language capabilities, and advanced technology and infrastructure capabilities inherent in the region.
For more country-specific insights, A.T. Kearney’s 2011 Global Services Location Index reported on Mexico’s rise to the No. 6 spot as an outsourcing contender. A sharp drop in wages in Mexico may have influenced that ranking, but it is not to be discounted that the country has a reputation for having a well-developed talent pool (some reports have put Mexico’s trained IT professionals count at more than 500,000). Chile retained a place in the top ten, although it dropped a few slots from its previous ranking. Brazil held steady in 12th place among the 50 sites ranked by the index.
Eight Latin American countries made it to Gartner’s Top 30 countries for globally sourced activities in 2010-2011, compared with seven from the Americas as a whole in previous years. Of these, Mexico had the distinction of earning a “very good” rating on both cost and labor pool criteria, while Brazil and Chile were distinguished with “best” ratings for their infrastructure. If it’s possible for the best to get even better, such might be the case in Brazil: The country is spending nearly $900 billion to upgrade its infrastructure ahead of the 2014 World Cup and the 2016 Olympics.
What’s going on and where
HCL has worked with several global and Latin American businesses, such as Renner and Ricardo Eletro in the retail sector; Electrolux in the white goods sector; and beverage company Grupo Peñafiel. These engagements, which we’ve delivered from our local facilities in Brazil and Mexico have ranged from ERP implementations to supporting end-to-end-infrastructures, and from border-spanning application development and maintenance projects to strategic consulting programs for optimizing enterprise application performance.
An advantage global corporations are trying to achieve is standardizing service delivery to their businesses across geographic locations by leveraging their global providers for local Latin American operations. HCL has worked with multiple global customers such as Merck, Readers Digest, Electrolux to help them leverage best practices and cross-purpose IT assets across regions in the last few years.
We’re convinced, however, that such examples are just the tip of the Latin American IT sourcing spear. Brazil, for example, today counts as the second largest economy in the western hemisphere, and its economy is expected to grow more than 5% in the coming decade. Businesses based in the region with ambitions of going global increasingly will require more sophisticated IT services.
Meanwhile, multi-national enterprises in North America see opportunity in near-shore operations. They are able to reduce costs and forge relationships with business partners whose time zones are more aligned with their own working hours. Mexico, in particular, is an attractive destination, thanks to the North American Free Trade Alliance (NAFTA), which removes most trade barriers across countries on the continent, including enabling the free movement of labor across borders. This can be critical for long-term, mission-critical, collaborative development projects. NAFTA, of course, also ensures that intellectual property rights are protected in all these transactions.
The Mexican government’s efforts to promote the country’s technology industry indeed have contributed to the development of an IT market that totals $16 billion, with IT exports valued at close to $4 billion annually. Mexico today boasts a high availability of English-speaking talent and strong centers of technology, which adds to its appeal as a sourcing destination for businesses worldwide. Guadalajara, for example, is known as the “Silicon Valley of Mexico.” It’s the home of a number of highly reputable tech programs at public and private universities and hosts software development, infrastructure management, and IT engineering centers for companies including Intel, Dell, IBM and others.
Work to be done
The advantages of outsourcing IT activities to Latin America are plentiful, but businesses in the region and abroad have some legitimate concerns before they’ll be ready to fully leverage these sites.
Consider, for example, that the non-renewal rate for local IT services contracts in Brazil exceeds 35%, which speaks to some issues of customer discontent. Smaller, local IT services companies lack scale, process maturity and global experiences to help expanding businesses in the region attain their growth goals. There’s also a perception that some of the well-known, global IT services companies trying to cater to the region – while highly capable – are inflexible, expensive and hard to work with.
Generally speaking, it is the case that many providers in Latin America must do more to show local and global companies that they are up to delivering complex solutions and value-added IT services. More CMMI Level 5, ISO, ITIL, Six Sigma, and PMI certifications, greater process rigor and automation, and flexibility on short notice, can all contribute to this.
IT services in Latin America are maturing, and the outsourcing proposition grows more compelling to both global and local businesses every day. I invite you to further research the opportunities, and see if your answers to my initial two questions may change based upon what you discover.
