The truth about Latin American outsourcing…

Our recent research on Latin America’s emerging sourcing presence has generated a lot of  buzz – not to mention a huge number of downloads. Today’s piece in CIO – “IT Outsourcing in Latin America: 9 Things Your Vendor Won’t Tell You” - sparked some further thinking from  HfS analyst Esteban Herrera, who has lived and breathed the LatAm experience.  Over to you, Esteban…

Esteban Herrera, Chief Operating Officer, HfS Research (click for bio)

The truth about Latin American outsourcing

Market activity and our recent research have created quite a bit of buzz around Latin America. In my view, it’s about time we have the debate and expose the pros and cons of nearshore destinations. Today’s CIO.com piece, for which I was interviewed, is a good example and accurately portrays some of the challenges of outsourcing in Latin America. However, I find myself, for the first time ever, empathizing with politicians and celebrities who claim to be “quoted out of context.”

The article does reflect some of my statements, but not all of them, and I find myself in disagreement with some of the headlines and conclusions. So allow me to clarify a couple of thoughts, lest people think I woke up yesterday and changed my mind about the vast services potential of the Latin American region.

  1. While more follow-up is often required (by American standards) I’ve always found the total time-to-deliverable in LatAm to actually be shorter than with India, because the wheels of productivity are greased by cultural understanding and proximity, and the fact that when people talk neither party is half asleep.
  2. I don’t know that prices have risen fast. If anything, our research indicates they rose far slower than in India. But small populations of desirable talent invariably lead to wage pressure. The good news is that in those places (like Chile and Costa Rica) we’ve seen pretty much the top of the market.
  3. Saying no is a good thing! For my 10 years as an advisor, my catch phrase to clients was “pick the provider that says no.” Saying “no, we can’t do that,” is an indication of honesty, transparency, and true partnership.
  4. I don’t buy the physical security argument. Baltimore is a more dangerous city than Sao Paulo. Detroit has more murders per capita than any Central American capital. I don’t see anyone refusing to visit GM’s headquarters based on security concerns.

Like any destination, Latin America has its challenges. But at HfS, we’ve come to see the region as a highly desirable component of a global services portfolio, whether you are a buyer or seller.

Stephanie Overby and CIO.com did us all a favor by increasing awareness and highlighting the challenges of the region, which are real. I am seizing the opportunity to highlight that the advantages are real too!

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6 Comments

  1. Posted April 7, 2011 at 7:16 pm | Permalink

    I was wondering about the skew of the original piece. Good thing to place context around what has become a valuable domestic export for Costa Rica and other outsource nations.

    Cheers, Tee

    Tee is the founder and senior editor of Costa Rica CLOSEUP a Travel Guide to Costa Rica with Events, Articles and Information for everyone traveling, retiring and/or purchasing real estate in Costa Rica. Please visit http://www.costaricacloseup.com for more information.

  2. DK
    Posted April 12, 2011 at 10:27 am | Permalink

    Physical Security not an issue? Care to elaborate on that claim? That simply doesn’t ring true; are you not familiar with the security precautions vendors are taking in Mexico when clients are touring sites?

  3. Posted April 12, 2011 at 10:53 pm | Permalink

    Thanks for your question, DK. So I lived in Mexico for two years, Sao Paulo for two years, and I’ve run outsourcing businesses in Costa Rica, Argentina, Venezuela, Colombia, Chile and of course Mexico and Brazil (in addition to US, India and the Philippines). I’ve made six trips to the region since December, so I think I have a grasp of the security situation.

    Juarez is an ugly dangerous place, but it is not Mexico. It’s actually more US than anything else. 100 million Mexicans make it through every day without a violent incident. If providers had asked me, even five years ago, before the news cycles about violence, I would not have recommended it as an outsourcing destination. Violence and danger exist everywhere–you just don’t know when and where the next hotel bomb or executive kidnapping could happen. But it could, and has, happened much closer to home.

    So my point about physical security, which the statistics clearly support, is that major cities in Latin America are no more dangerous than some major cities in the US. You just stay out of the bad neighborhoods and things will be generally OK.

    I have hosted 50+ site visits and have been hosted for more than 100–it’s a unique and powerful dynamic and it has the ability to change the course of deals. I am aware, as a guest and a former provider, of the security precautions taken for site visits. Providers who over-do the security for site visits are taking a risk: they will either make their clients feel special or scare them *%$#$less about their location.

    I remember a visit to Mumbai with the CEO of a large hospitality firm and his team (about 8). We toured the sites in 8 silver Mercedes Benz (one for each exec) in a caravan. I would argue that doing something like that is far more dangerous because of the attention it attracts. Likewise, I used to refuse the armored van that would take us to the hotel in Bogota. By getting in a dark-tinted, clearly bullet-proof, chauffeur-driven van followed by a chase car, I was sure I would get the bad guys’ attention. Getting in a cab like every regular Joe was far safer.

    So yes, physical security is an issue, but it is no bigger in Latin America than anywhere else, sensationalist headlines and developed-world-paranoia notwithstanding. If buyers and providers apply common sense, they should be able to meet their global sourcing needs almost anywhere that makes sense, including Latin America.

  4. Posted April 14, 2011 at 4:09 am | Permalink

    I think that in the world we’re living in today, safety is just a thin veil of thought we put in our heads; any country is a hot target or a danger zone. With that said, I’m excited to see the growth of the Latin American outsourcing scene and seeing more talents join the online freelancing/outsourcing field.

  5. Posted April 20, 2011 at 5:32 pm | Permalink

    A very good blog. Outsourcing to India has been overvalued for many years and often for the wrong resaons. It does not mean that India is bad, but I think different cultures, different mentalities and a difference in education, language skills and professional skills in countries/areas like India, Philippines, South America or Eastern Europe lend themself to different types of outsourcing.

  6. Posted April 20, 2011 at 7:07 pm | Permalink

    Well said, Oliver. Every region and every provider has its strengths. Smart sourcing buyers evaluate a portfolio of options and pick the ones that best match their strategy. Sometimes, that will be an obvious choice. Other times, value may be hiding where you least expect it!

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