KPMG is pleased to present a report on the situation of the Shared Services and Outsourcing market in Latin America. Five years ago, in our opening edition of "Nearshore Attraction", we assessed Latin America's attractiveness as a destination for outsourcing services. Since then, the market has significantly evolved and matured, and, in this edition, we take a detailed look at the region considering of these changes.

The use of Shared Services and Outsourcing as a strategic tool for company leaders continues to grow rapidly, not only in Latin America, but globally. KPMG has continued to develop, improve, expand and enhance the practice to serve our clients and their unique market demands. In 2011, KPMG invested in the tool by acquiring the consulting company EquaTerra. Today, hundreds of Shared Services and Outsourcing practitioners from KPMG/ EquaTerra provide for clients around the world.

Specifically, Brazil continues to lead the region in terms of outsourcing market size, but has been losing competitiveness in comparison to others, such as Mexico, Colombia, and Central America. One problem Brazil faces is its unfavourable labour regulations and its relatively high labour costs. However, offsetting this trend on some degree is the experience and creativity of the Brazilian delivery staff and management in supporting innovative technology platforms and services. In fact, innovation is high on the Brazilian outsourcing agenda, driven by the emergence of cloud computing and mobile/digital platforms, which influences delivery costs and universal and service accessibility. Moreover, due to globalization, the need for end-to-end service delivery integration in the region has never been more urgent and, together with mitigating labour costs, motivates companies to choose models of Global Business Services (GBS) that focus on integrating collectively shared internal services and outsourcing through occupations, business units and geographic obstacles.

Most of the economies in Latin America continue to expand at a steady pace, although they have been increasingly affected by a general inaptitude to meet service demand. Despite this challenge, Latin America is still able to offer mass-market outsourcing services and will grow faster as an outsourcing location than the region as a whole.

KPMG is committed to provide its clients with our full array of Advisory Services. We support our clients through the whole business life cycle, from Strategy, to Design, Implementation, and Optimization for business process outsourcing, IT outsourcing and global business services.


In our inaugural edition of "Nearshore Attraction" five years ago, we looked at Latin America's attractiveness as a destination for outsourcing services. Since then, there have clearly been important changes in this and other markets. In this edition, we take another look at the region in considering these changes.

Brazil continues to lead the region in terms of market size, but has been losing competitiveness if compared to other locations such as Mexico, Colombia, and Central America. One problem is the country's labor regulations, which are very unfavorable, although the experience and creativity of Brazilian technicians are beneficial in providing technology and services that require innovation. In fact, innovation is high on the agenda driven by the emergence of new technologies, such as cloud computing, that bring a set of real possibilities of virtualization and universal access to certain technologies and ways of working. The need for global integration in the region has never been so urgent and, in addition to rising costs, this motivates companies to opt for models of Global Business Services (GBS), including shared internal services and outsourcing.

The region's economy continues to expand at a steady pace, although it has been affected by a general shortage of talent. Despite this challenge, Central America is still able to offer mass-market services. Meanwhile, the same pressure that can inhibit investment in the region is driving companies that have never used outsourcing models before to do so for the first time. This more sophisticated and demanding market is comprised of clients from different locations and occupations.

We hope that this report will provide insight into this subject and that we can support you in your business, whether as a client or a provider of BPO and ITO services in the region.

Report Overview

This report highlights the changes in Latin America's outsourcing industry. The first edition of this report (Nearshore Attraction: Latin America Beckons as a Global Outsourcing Destination, 2009) focused on the rise of Latin America as a nearshore destination and the incentives offered in different countries to attract outsourcing service providers. This edition revisits the region fives years on and asks: is Latin America still attractive as a global outsourcing destination?

The intention of this report is two-fold: 1) provide readers with a general overview of the changes in Latin America's outsourcing industry; and 2) highlight specific tradeoffs when considering key locations for outsourcing in the region.

First of all, the report examines the current trends in the outsourcing industry. These include:

  • Continued strong growth of Latin America's market for Business Process Outsourcing (BPO)
  • Growing domestic demand for BPO services from local companies and others with operations in the region
  • The rise of cloud computing
  • Increased client focus on the need for value-added services
  • Competition and investment in human capital development
  • Development of a hybrid model for shared services and outsourcing

Case studies of selected companies with operations in the region – IBM, Sonda, Neoris, Globant, Digitex and Sutherland – demonstrate how BPO and IT service providers have adapted to these changes in different countries. The report also gives an overview of the incentives available in the region's top global services locations, including Chile, Argentina, Brazil, Colombia, Mexico, Costa Rica and Panama.

Finally, the report summarizes the challenges Latin America's outsourcing industry faces in an uncertain global economic scenario and offers a vision on the future of outsourcing in the region.


Following the 2008 global financial crisis, Latin America emerged as a nearshore alternative to traditional outsourcing hubs like India, China and Malaysia. Although these hubs continue to show the highest growth rates in the industry, Latin America has consolidated its position as a top global outsourcing destination with a growing share of the global BPO market.

With the global economy recovered, the outsourcing industry expanded as companies realized the advantages of outsourcing go far beyond cost-savings. But, today, Latin America is still a niche region for US companies to turn to for outsourcing services. Local companies or others already with operations in the LatAm region still primarily drive demand.

Even as an emerging region for outsoucing for US companies, Latin America has many benefits as a nearshore destination. nearshore destination remain basically unchanged. These include:

  • Close physical proximity to the US
  • Similar time zone to the US
  • Cultural affinity
  • Modern infrastructure
  • Tax incentives in many countries
  • Favorable business environment
  • Languages: Spanish and Portuguese, with English as a second language

According to the 2011 AT Kearney Global Services Location Index, Latin America has eight countries in the top 50. These are: Mexico (6), Chile (10), Brazil (12), Costa Rica (19), Argentina (30), Panama (34), Uruguay (41) and Colombia (43).1

Mexico, which has moved ahead of Chile to top spot in the region, has harnessed its proximity to the United States, a weak peso and its large talent pool to provide BPO and IT services to Mexican firms like Cemex, but also to US firms that have established operations in the country.

Central American countries such as Costa Rica and Panama have also attracted leading service providers like IBM and HP to set up service centers in their free trade zones. Elsewhere in Central America, Xerox recently opened a call center in Guatemala and several Indian companies have established operations to serve US clients in the same time zone.

In South America, Chile continues to stand out in the high value-added area with Santiago-based companies such as Sonda and Telefónica offering IT services throughout the region. But it has lost some competitiveness recently due to an increase in costs. Colombia, on the other hand, has overcome is reputation for danger and become a safe and secure place to do business with a large talent pool.

Brazil, for its part, ranks third in Latin America, with a huge market and modern infrastructure, but it also has some of the highest labor costs in the region. Combined with high import and service taxes, as well as the language barrier, this makes it difficult for companies to establish service centers.

Yet despite the difficulties faced by companies in some countries, demand for BPO services in Latin America continues to grow. In response, a new wave of local service providers has emerged offering clients cloud- based solutions and innovative services. This has created competition for global service providers and given clients more options.

But they are not just competing against other service providers in Latin America – the IT technology revolution has turned outsourcing into a commodity with BPO services available in emerging markets from Asia to the Middle East and Africa. So is Latin America, where labor costs are often higher than in these regions, still attractive as an outsourcing destination?

The answer is yes. Latin America's BPO market represents just 5% of global spending, or around US$7 billion, according to a report by research firm Gartner, but it is growing2. Gartner predicts annual growth in the market will average nearly 10% through 2017, up from 5.3% in 2013, led by Colombia, Mexico and Chile, which are all expected to grow at over 10% in that period.

But although demand is rising, costs are also climbing. Rising prosperity in many countries has made low-paid work at contact centers less attractive for university graduates. At the same time, high employment levels have pushed up labor costs while competition for qualified graduates has intensified.

Clients' expectations have also changed. Although cost remains an important factor, increasingly globalized companies are looking to improve their efficiency with industry-specific value-added services in local markets. In this scenario, service providers have moved towards a hybrid shared services and outsourcing model with centers in various countries to support their clients' needs. This strategy enables them to offer clients a mix of onshore and nearshore services, while leveraging their access to talent, tax incentives and infrastructure in different countries.

Of course, this takes investment as well as close collaboration with local universities and economic development agencies. In this regard, countries like Costa Rica and Colombia, with a long-term plan for human capital development, are well positioned to attract service providers.

Ultimately, the growth of the shared services and outsourcing industry in the region depends on the ability of service providers to navigate regulations and incentives in different countries. This is a complex task given the differences between countries in Latin America. But, as highlighted in this report, it is possible with the right mix of local knowledge and global vision.

Digitex: Colombian Attraction

When Spanish outsourcing firm Digitex arrived in Colombia in 2005 it was a different country. Back then Colombia still suffered from a perception of danger related to drug trafficking and companies had yet to realize the potential of the country as an outsourcing destination. But today that has changed.

Digitex originally established a BPO center in Bogotá to serve clients in Latin America. Today, it has 14,000 workers in the region and three lines of business: contact centers, BPO and information technology services.

According to Martha Figueroa, BPO Business Development Manager for Digitex, the firm chose Colombia as its base in the region mainly because of the quality of its workforce and low labor costs. "People in Colombia are very oriented towards customer service," she said.

Digitex offers customer service solutions including virtual support and call centers. Most of Digitex's clients, including companies like Telefónica Chile, are in Latin America so 90% of its services are in Spanish, she said.

The company employs 6,000 people in Colombia but competition for qualified candidates is heating up, especially in Bogotá and other large cities where turnover is a problem, said Figueroa. As a result, Digitex has established contact centers in smaller cities like Manizales and Ibague where there is less competition and turnover is lower. "Bogotá is an expensive city," she said. "It's easier to do business in other cities."

Some clients prefer outsourcing service providers to be in the same city, which is why Digitex maintains a center in Bogotá, but having operations in different cities helps to improve flexibility and allows Digitex to take advantage of Free Trade Zones, she said.

As for the security situation, which up until about a decade ago was still a real concern for companies, it is not an obstacle to outsourcing from small cities in Colombia. "I've worked in Mexico and that's more dangerous," said Figueroa.

The devaluation of the Colombian peso is also positive for Digitex, which has income in dollars, she explained. "The exchange rate favors us," she said.

Colombia's location, a short plane ride from Spain but also to the rest of Latin America, is also a competitive advantage, she says. "Bogotá is a hub for airlines like Avianca and part of Digitex's management is based in Colombia."

Infrastructure in Colombia is also advantage. The recently introduced 4G network makes mobile communications fast and efficient, she said. And domestic flights are cheap and frequent.

In the future, Digitex aims to diversify its client base (Telefónica currently accounts for 60% of is business) in the region but a challenge is overcoming cultural differences between countries. "It's an issue of idiosyncrasies, you have to understand the culture in each country," she said.

Another challenge is increasing competition. As contact centers have become more of a commodity in Colombia and elsewhere in the region, Digitex has had to innovate with new technologies and offer integrated end-to-end BPO services to attract and retain clients, said Figueroa.

BPO contracts in Latin America tend to be long-term given the investment in technology and software so companies are careful to choose a service provider that can meet their needs going forward. "You are married to the client for a long time," said Figueroa.

In the future, Digitex is looking to expand in other countries like Mexico, Brazil and the United States, but replicating its success in Colombia will not be easy, admitted Figueroa. She said one option is to acquire contact centers that are already in operation in these countries.

Meanwhile, Digitex is well– positioned to meet the growing demand for BPO services in Colombia, especially given recent investments by Chilean companies in the retail sector. "The dynamism in all sectors in Colombia is amazing, there are many opportunities to grow," concluded Figueroa.

Key Findings

  • Continued growth in the LatAm BPO market
  • Emergence of Mexico as the top LatAm services location
  • Strong growth in domestic demand for BPO services in Latin America driven by economic growth
  • Trend towards more value-added BPO services including innovation and cloud computing
  • Investment in human capital development in LatAm and private partnerships with universities
  • Development of hybrid shared service/ outsourcing centers, especially in Central America

Improved economic conditions

In general, Latin American countries weathered the 2008 global economic crisis relatively well. In fact, the crisis had the effect of jump-starting the BPO industry in the region by increasing demand for nearshore services, as companies aimed at cutting costs.

Today, more than five years on, the gradual economic recovery in the United States and Western Europe has contributed to BPO demand in Latin America as businesses have more resources to spend on outsourcing. In addition, economic growth has led to a slew of mergers and acquisitions, often leading to consolidation and standardization of systems and processes, which, in turn, leads to outsourcing.3

The devaluation of currencies such as the Brazilian real and Argentine peso has also had a positive impact on the outsourcing industry by making labor cheaper for companies earning income in US dollars. Given the low cost of labor, Gartner sees development of BPO service delivery centers as a growth opportunity in this market.4 And this trend is set to continue as the US Federal Reserve continues to normalize its monetary policy and reduce stimulus, thereby boosting the value of the dollar.

Going forward, slower economic growth in China, which is a major market for commodities from Latin America, is expected to limit the growth of some Latin American countries such as Chile and Peru. But, while this downturn could affect demand for outsourcing, the BPO market is expected to continue growing driven mainly by demand from clients based in the region and clients with operations there.

Globant: Think globally, act locally

Google, Electronic Arts, NatGeo, LinkedIn and Coca Cola – those are just a few of the clients of Globant, a software development and IT services company founded in Argentina in 2003 that has become one of the most successful and globalized IT firms in the region.

"We are an Argentine company but we think of ourselves as global," said Martín Umaran, co-founder and Chief of Corporate Development at Globant. "The idea was to create a company to take advantage of the talent that exists in the region."

The company employs around 3,000 people in Latin America and the US, including two thirds of them in Argentina. About half of those work in Globant´s office in Buenos Aires and the rest in cities such as Cordoba, Rosario and La Plata. The company develops software and services, leveraging the power of emerging technologies and trends, such as mobile, cloud computing, Big Data, UX and gaming. "Smartphones didn't exist five years ago so there has been a technological revolution," said Umaran.

The majority, around 90%, of Globant's business is for clients outside the region, mainly in the United States. Demand for IT services has surged in Latin America in the last decade driven by the economic development of countries in the region. Globant, with its global presence, is well positioned to offer services to multinational clients in the region and abroad, said Umaran.

The competitive advantages of Latin America in the IT sector include its similar time zone to North America, as well as its cultural similarity. Argentina in particular offers a large and well– educated labor pool, a history of entrepreneurship in the IT area, good universities, tax incentives for IT exporters and a high level of English language proficiency, said Umaran.

"English is important, it's easier to find engineers who speak English in Buenos Aires than in other big cities," he said.

By opening offices in cities such as Cordoba, Rosario and La Plata, Globant has managed to attract the best and brightest young university graduates, said Umaran. "Millenials want to work where they live so we have to bring the work to them," he said.

Globant's strategy of diversification in the region, including offices in Uruguay, Brazil, Colombia, Mexico and the United States, also allows it to take advantage of the talent pipeline in other countries. "We find the best in each place," Umaran said.

Despite the perception that Argentina has scared off investors through economic mismanagement, Umaran says this view ignores the fact that the country boasts some of the best universities and software engineers in the region. In fact, the devaluation of the Argentine Peso has benefitted Globant, which has its income in US dollars. But the benefit of the exchange rate is likely to be transitory, said Umaran, adding that Globant is focused on the long-term.

Given the importance of innovation to Globant's success, recruiting the best talent available is crucial, he said. The company was recently named by business magazine Fast Company as one of the 10 Most Innovative Companies in Latin America in 2014. "Innovation has to be in the DNA of the company," he said. "We push our people to be creative."

Other outsourcing hubs like Asia are cheaper than Argentina for certain IT services, but cost is not everything, Umaran pointed out. While the price is important, the ability to produce a good quality product on time is also key to success, he added.

Globant's global presence has forced it to become more competitive and innovative, which helps to attract new clients, said Umaran. "Clients don't pick us because we're in Latin America, they pick us because we have the quality they are looking for," he said.

Looking to the future, Globant plans to continue to diversify its operations globally. Part of its growth strategy is to acquire local companies such as Brazil-based IT firm TerraForum, which Globant bought in 2012.

It is true that global demand for IT services is still closely linked to the US economy and another economic downturn in that country could affect demand, but any hiccups are likely to be temporary. "There will always be ups and downs in this business, but we are in it for the long haul," said Umaran.

Pumping the talent pipeline

But growth requires talent. With the exception of Brazil, Latin American labor costs remain relatively low compared with other regions. On the other hand, with demand for BPO services growing across the region, particularly for more specialized services, so is demand for talent. In general, Latin America offers a pipeline of graduates from its universities and technical schools, but the cost of senior level managers with experience is rising.

Some companies have solved the problem by working with universities to train potential employees in skills demanded in their industry. For example, IBM is working with the Costa Rican Investment Promotion Agency (CINDE) to broaden the talent pool in Costa Rica. The aim is to provide universities with technology, knowledge and access to specialized software to improve training and education, and to strengthen the curricula of IT programs.

"Universities have been very open about putting these skills in their programs, which has also increased our labor pool," said Alberto Mainieri, manager of IBM's Costa Rica Delivery Center.

In Panama, the labor market is also hot. "It is very hard to find technical talent locally, and wages are going up fast," said Rene Van Hoorde, general manager of IT outsourcing firm GBM. Managers are in particularly high demand. "We are hiring people from South America and Spain to cope with the high demand of managed services," he said.

Companies that offer competitive wages and good prospects for advancement have more success in attracting and retaining skilled workers. For example, Dell, which has a Shared Service Center in Panama that provides tech support and other services to its clients, has become the second largest employer in the country, partly by treating its employees well.

"As Panama keeps growing, the issue of training and human resource development is very important," said Gustavo Ripoll, an Argentine who manages Dell's Panama center.

Like IBM, Dell has formed relationships with local universities to promote joint training programs. "Panama is not a place where you can set up a center and find skilled human resources from one day to the next," said Ripoll. "It has to be a gradual process."

Mexico, which has a large pool of IT graduates familiar with US business culture, has an advantage in the race for talent. Companies like Neoris and IBM report that they have had no trouble hiring top quality graduates in cities like Monterrey and Guadalajara. Elsewhere in the region, competition for project managers is increasing particularly in large cities. In Colombia, Spanish BPO services provider Digitex has established contact centers in small cities like Manizales and Ibague where turnover is lower. "Bogotá is an expensive city," said Martha Figueroa, Digitex's Manager of Business Developmnent. "It's easier to do business in other cities."

Argentina-based Globant has also found it easier to recruit talented Millennials in cities that are not as competitive as Buenos Aires.

Globant has opened offices in cities like La Plata, Córdoba and Rosario, in addition to international offices in Brazil, Mexico, Colombia, Uruguay and the US among other countries. Not only does this increase access to talent, but it also helps to diversify the company's operations across the country and the region, says Globant's Chief of Corporate Development, Martin Umaran.

Attracting the best talent available is crucial for innovation, which is important in the IT sector, said Umaran. "Innovation has to be in the DNA of the company," he said. "We push our people to be creative."

IBM: Focus on education

The key to offering BPO services from Latin America is finding enough skilled project managers and IT engineers at a reasonable cost. At its Delivery Center in Costa Rica, IBM has discovered this is a lot easier to do if local universities know and teach the skills that it requires.

IBM has had operations in Costa Rica since 2004, but in 2012 it opened a Delivery Center in the America Free Zone in Heredia, just outside of capital city San José. The US-based firm plans to invest US$300 million over 10 years and employs around 1,000 people in the country.

The facility supports clients in the areas of IT security, data storage, payroll, business analytics, cloud computing, and other services. IBM's list of clients includes Procter & Gamble. Only a two and a half hour flight from Miami and on a similar time zone to the US East Coast, Costa Rica is ideally located as a strategic nearshore center for North America, said Alberto Maineri, manager of IBM's Costa Rica Delivery Center.

In addition to its strategic location, Costa Rica offers a small but well- educated workforce. Labor costs are higher than Delivery Centers in India, China or the Philippines, but are still lower than in the US, he said.

IBM used to offer customer relationship services from Costa Rica, but, last year, as part of a plan to focus on its higher margin business, IBM sold its global BPO division to Synnex Corporation. Today, IBM still offers some basic tech support services but is mainly focused on human resources outsourcing, said Maineri.

That means it needs more certified project managers and IT experts. As Costa Rica shifts from a tourism- based economy to a high tech services center, demand for IT professionals at companies like IBM, HP and Intel is soaring, but IBM has so far managed to remain fully staffed.

"We've had no problem recruiting the skills that we need anywhere from finance accountants with English to certified project managers," said Mainieri. "We've had challenges in specific areas but overall the labor pool has improved over the last year."

Part of the reason is IBM's program to develop IT skills at local schools and universities. For example, IBM offers high school students internships in the company and then hires the top performers. "This has been good to find the skills that we need such as level one tech support," said Mainieri.

IBM is also working with the Costa Rican Investment Promotion Agency (CINDE) to promote skills at universities. The aim is to provide professors with technology, knowledge and access to specialized software, in order to improve training and education, and to strengthen the curricula of IT programs around four themes: cyber security, cloud computing, data storage and business analytics.

For IBM, the program helps to develop knowledge, promote innovation and train IT professionals to ensure a pipeline of innovative talent. In this regard, the firm recently brought in experts to teach Costa Rican university professors about cloud technology.

"The universities have been very open about putting these skills in their programs, which has also increased our labor pool," he said.

Not all universities in the region are willing to change their curriculum to fit the specific skills we need."

Thanks to the education system, IBM's services from Costa Rica tend to be higher quality than services from other outsourcing locations like the Philippines or India. "Better education means better quality, and customer satisfaction is our selling point over cost," said Mainieri.

But there is room to improve, particularly in guiding high school students, says Mainieri. "We need more systems engineers and software developers, not lawyers and doctors," he said.

Bilingual engineers are especially in demand. Costa Rica has a relatively good level of English but more bilingual graduates are needed. For this reason, the government's plan to have all high school graduates fully bilingual by 2017 is good for IBM and other outsourcing companies. "That will be an advantage for Costa Rica," said Mainieri.

In the future, IBM expects growth in demand for IT services to be driven by Latin American countries. The company sees Costa Rica as a strategic site to provide services to companies in the region, as well as to clients in North America, said Mainieri.

"We see Costa Rica is serious about investment by outsourcing companies, which makes us think we're on the right track," he concluded.

Cloud computing

In the age of the cloud and the smartphone, high-speed broadband connections and mobile networks are crucial for IT service providers. And, with demand for mobile and big data applications rising, countries with modern telecommunications infrastructure, trained workers and flexible intellectual property regulations have an advantage.

The Latin American market for cloud-based contact center solutions is still in an early stage, but the market is growing as early adopters emerge. Hosted and cloud models are gaining acceptance in the region, especially in Chile, Peru, Argentina, Mexico and Brazil.5

But developing cloud-based solutions requires trained staff. In Costa Rica, CINDE has been proactive in promoting educational exchanges. In March, a group of students and teachers from Costa Rica completed a two- month internship in India through a cooperation program between Indian company Infosys and the Costa Rican government. The participants, who won a scholarship to participate, learned about new tools and developed skills in cloud computing in Java and Microsoft.

Cloud computing also requires robust telecommunications infrastructure. This is the case in most of the region with the exception of some parts of Brazil and Uruguay. According to the World Economic Forum's Networked Readiness Index 20136 Chile ranked first in Latin America and 34th out of 144 countries, well ahead of Uruguay (54th), Brazil (60th) and Mexico (63rd). However, in general, faster connection speeds are needed in the region to allow IT companies to develop innovative cloud-based solutions.

In Costa Rica, for example, a faster broadband connection is needed to provide the connection speeds that companies like IBM require, said IBM's Alberto Mainieri. "Broadband has a limitation in Costa Rica, which limits our capacity," he said.

As cloud computing catches on in the region, the security of intellectual property and data is also an important issue for companies and governments alike. While intellectual property protection, including patents and copyrights, is usually included in free trade agreements, the level of enforcement is not equal in all countries.

Countries such as Costa Rica, Colombia and Brazil have significantly improved their efforts to better protect intellectual property. Chile, which remains with Argentina and Venezuela on the USTR Priority Watch List of countries that do not protect intellectual property adequately,7 has also made recent improvements. But there is still work to do.

Brazil for Brazil

Brazil has the largest economy in the region and a population of around 202 million8. Many of the world's largest corporations are present in this country, which offers a large pool of IT professionals and a similar time zone to the US East Coast. And, despite the country's stalling economy, the BPO market continues to grow as companies look for ways to improve efficiency and reduce costs.

A number of outsourcing companies have established offices in Brazil to serve the Brazilian market and their clients' operations globally. Genpact, an India-based financial and accounting outsourcing company founded as a spin-off from GE, is one such company. It established an office in Brazil in 2009 to serve its global clients including GE and AstraZeneca.

"Our number of global clients with a presence is Brazil is growing and it is easier for us to service them here," said Affonso Nina, Brazil Manager for Genpact.

Brazil's official language (Portuguese) combined with a very complicated tax structure at the federal, state and municipal levels mean that Genpact's clients prefer to receive financial services locally, said Nina.

"You need to have local knowledge of the legislation, it's not like the US or other English-speaking countries where you can do the work from India," he said.

São Paulo, Brazil's largest city, is expensive and overcrowded. Genpact recently opened a services center in Uberlândia in the state of Minas Gerais, which is just a 1-hour flight from Sao Paolo. Genpact's Uberlândia center will hire 200 to 300 new professionals, with plans to grow the workforce to up to 1,000 in the future.

"The reason we are opening there is the availability of talent, the qualified workforce we need for our services, and lower costs compared to São Paulo," said Nina. Another reason is taxes. The municipal services tax (ISS) in São Paulo is 5%, but Uberlândia offers a lower tax rate and a better lifestyle than in São Paulo, he said.

Genpact complements its center in Brazil with Spanish-speaking delivery centers in Guatemala, Mexico, and Colombia, in addition to its English-speaking center in India.

"By outsourcing, [companies] can leverage the footprint they have outside of Brazil," said Nina. "But it doesn't always make sense to take work outside of Brazil."

For Brazil-based clients, Genpact performs specialized services within the country. This enables them to avoid the high tax rate for imported services, which can reach up to 50%, said Nina.

Overall, companies like Genpact have found it makes strategic sense to serve clients domestically from Brazil, but that does not necessarily mean having centers in São Paulo or Rio de Janeiro. Other cities and states in Brazil offer lower costs and a greater talent pool for outsourcing and shared services.

Neoris: The Mexican Connection

Global IT outsourcing company Neoris was founded on Mexican concrete. Created in 2000 as a spin-off of Mexican cement maker Cemex's IT department, it is one of the few cases where a company derived from the spin-off of the IT department of a large company has become successful as an independent player in the market.

In addition, Neoris has repaid the favor. In 2013, Cemex announced it had reached a multi-year strategic partnership with Neoris to provide long-term IT services around the globe. As part of the agreement, Neoris will provide IT services such as software engineering and application development for multiple projects.

Neoris is the largest IT consulting and systems integration company in Mexico. Headquartered in Miami, Neoris has operations in the US, Europe, Latin America, Africa, and the Middle East. About 75% of Neoris' nearshore business is in the United States and the rest is in Latin America and Europe, said Carlos Diaz, nearshore director at Neoris.

In Mexico, Neoris has offices in Monterrey, Culiacan, Mexico City, and is starting operations in Queretaro. Mexico's large pool of bilingual workers, its proximity to the US, and its participation in the NAFTA free trade agreement make it an ideal location to provide nearshore IT services to North America, said Diaz.

In fact, according to the AT Kearney Global Service Locations Index 2011, Mexico has become the top global services location in Latin America thanks to its large talent pool, currency depreciation and proximity to the United States.

Monterrey, for example, is just an 80-minute flight from Houston or Dallas. "We are close to both coasts of the US, which allows for prompt face-to-face visits when needed," said Diaz.

While some IT services can be contracted at lower cost from Asia, he added, systems implementation and application outsourcing services can meet expectations at a reduced cost when using a service provider in a similar time zone, he said.

"Customers don't have to start their meetings very early or finish very late," he said, adding that for this reason some Indian outsourcing firms have set up operations in Latin America.

It helps that the NAFTA agreement allows Mexican professionals to obtain renewable work visas for the US. Although English is more widely spoken in Asia, US clients understand Mexicans better on the phone and by email, usually getting on very well due to a similar business culture, said Diaz.

Neoris gets a lot of questions about security since Mexico has a history of drug-related violence especially in border areas. While it is true that drug violence in cities like Monterrey occasionally claims the lives of bystanders, it has not affected the IT business directly and, in fact, the level of violent crime is lower or equal to large US cities, said Diaz.

Another advantage for firms like Neoris is government support and tax benefits for IT companies. For example, the Mexican government's Program for the Development of the Software Industry (PROSOFT) offers subsidies up to 50% of infrastructure for IT firms.

"The ease of doing business, government support, infrastructure and talent have helped to create an appropriate work environment," said Diaz.

Bilingual IT graduates are relatively easy to find in Mexico's big cities like Monterrey and communications infrastructure, including mobile broadband, is very good, which allows Neoris to stay connected and meet its customer's needs, he said.

But there are challenges for IT service providers. The demand for project managers and some IT experts has continued to rise, thereby increasing their cost. The way to balance this and keep costs down is to have the right mix of consultants, said Diaz. However, customers are not always willing to pay a higher rate for senior project managers, which can be a challenge for companies like Neoris.

At the same time, US clients are becoming more demanding. IT application outsourcing contracts are now commonly signed for three or five years, but some companies want exit clauses after six months, said Diaz. "That gives them more confidence because they are not tied down for a long time."

Another problem in the IT outsourcing space is that some US clients expect value–added services from companies like Neoris but their contracts are restricted by cost, said Diaz. "In the US, the proposal process is very formal and cold... most of the time it is very oriented towards price," he said.

Such contracts end up with little service flexibility, limiting their scope and service levels. This may be convenient for larger companies with large outsourcing volumes, but smaller and medium-size clients need more flexibility in terms of services, especially given the fast- changing nature of the IT industry, he said. "The world of outsourcing is changing towards contracts that allow the client and partner to balance a mix of services according to changing needs," said Diaz.

The IT revolution including data analytics, social networking and cloud computing, has created plenty of opportunities in the IT area. But competition from Asia and other regions is increasing. The key, says Diaz, is convincing potential clients to give up some control to outsourcing companies that offer economies of scale and software expertise, and above all to free up the valuable time of in-house IT staff to focus on more strategic initiatives.

"I'm very optimistic, there is a lot of potential in the region," he said.

Shared services and outsourcing

Globally, the trend is moving towards a hybrid model known as Global Business Services, which includes shared services and outsourcing as part of an end-to- end global process focusing on cost optimization and value delivery.

Traditional outsourcing destinations like India and China have already made this shift. India's dominance in the global Shared Services and Outsourcing (SSO) market has been the result of its ability to capture global offshore demand, but this now includes a focus on developing the domestic market to capture the growth of Indian companies.9

A similar trend is observed in China, where outsourcing companies are targeting the huge domestic market.10 This shift has been slower in Latin America, which is still primarily a nearshore destination, but it is happening gradually as service providers move up the value chain. As demand for outsourcing services grows, global companies with operations in the region are evaluating shared services centers. These are on the rise in Latin America and there are several countries that are seen as shared services hotspots, including Costa Rica, Panama and Colombia.

Companies such as Dell and Intel have established shared services centers in Central America to serve their own operations in the region and beyond. However, a shared service center can also be run jointly with an outsourcing service provider to not only reduce costs but also improve efficiency and quality of service. This hybrid model, whereby employees from both companies work together at the same site, is becoming increasingly common in Latin America. In Colombia, for example, Genpact recently set up a Shared Services Center in Bogotá for UK-based beverage maker Diageo.

Government incentives

A few years ago, tax incentives weighed heavily in a company's decision on where to outsource services in the region. Today, although such incentives are still important, tax breaks for outsourcing companies have become more common throughout the region and are often considered a prerequisite for investment.

At the same time, other factors such as the talent pool, language abilities, geographic location and time zone have become more important. Nevertheless, countries have a range of options to attract investment that is not limited to tax incentives. Here is an overview of what some countries in the region offer:


Chile has emerged as an important services platform in Latin America, despite its small size and physical remoteness. It has excellent infrastructure, political stability, a skilled workforce and its capital city – Santiago – offers a quality of life that is amongst the highest in the region.

In addition, Chile continues to score highly in international rankings. According to the World Bank's most recent Ease of Doing Business survey of 189 countries, Chile ranked top in the region (34th), followed by Peru (42nd), Colombia (43rd) and Mexico (53rd).11

Through the InvestChile program run by the Foreign Investment Committee (Comision de Inversión Extranjera), the Chilean Economic Development Agency (CORFO by its Spanish initials), provides various incentives for investment in high technology first. These include:

  • Co-funding of pre-investment studies, start-up expenses, R&D and investments in fixed assets.
  • Grants for human resources development
  • A reduction in income tax of up to 35% for investment in R&D.

Chile also has numerous free trade agreements with countries including the US, Canada, Australia and China.

Chile was recently invited to join the US Visa Waiver Program, the first country in South America to receive such an invitation, which allows Chileans to travel without a visa to the US for up to 90 days. In addition, a double taxation avoidance agreement with the US has been signed and is awaiting approval in both countries.

Chile has numerous public and private universities, but finding qualified talent can be a challenge for service providers as IT graduates have more opportunities than in the past. The unemployment rate in Chile recently reached as low as 6.1% in February, and service providers complain that English-speaking IT professionals are in very short supply. Even so, the quality of Chile's workforce is internationally recognized. Chile ranked 31st out of 60 economies in the Heidrick & Struggles Global Talent Index 2011-2015 used by the Economist Intelligence Unit (EIU) to measure support for talent and entrepreneurship.12 Some of the large IT companies present in the country include Sonda, Atos, Origin, EDS, TCS, IBM and Accenture.


Although Colombia still fights against the perception of risk, it has made important progress in the past decade and is now one of the safest and stable democracies in the region.

According to the World Bank's Doing Business Report 2014, Colombia ranks second in Latin America - after Chile - for Ease of Doing Business (43rd in the world).13 According to a 2013 ranking by Chile's América Economia, Bogota is considered one of the top ten cities to do business in the region14 . Not only does it offer a high quality of life, but also has a large talent pool, good infrastructure and a reputation for excellent customer service. As a result, companies like ADA and Digitex have chosen Colombia as their base for BPO services in Latin America.

Incentives for investors in Colombia include the following:

  • Free Trade Zones that can be established in Colombia subject to a 15% income tax rate plus CREE Tax (Income Tax for Equity, which replaces certain wage-based welfare contributions). The tax rate for the CREE Tax is 9% during 2013- 2015, and 8% after 2016.15
  • No customs taxes or duties are charged on merchandise introduced to the Free Trade Zone from abroad.
  • Exports made from Free Trade Zones to foreign countries, may apply the benefits of international trade agreements signed by Colombia.

In 2012, according to the Colombian Association of Contact Centers and BPO (ACDCB) and the National Association of Entrepreneurs (ANDI), operating revenues in the sector were US$ 2.5 billion; this represented an increase of 78% over 2010. BPO exports grew 77% between 2010 and 2012.16 In 2012, the main sectors include telecommunications, banking and financial services, government and insurance, among others.

Through the Productive Transformation Program, the government has designed a plan to strengthen the industry by providing an emphasis on high value- added activities through human capital development, including business matchmaking forums and sectorial studies that can help in the development of strategies.

According to Cesar Echeverry, manager of the local IT and BPO services company ADA, which provides services in cities throughout Colombia, human talent is available and there are opportunities in the IT sector.

"Infrastructure is adequate, there is good broadband Internet penetration, but it could be improved," said Echeverry. Overall, there are a lot of opportunities for BPO, especially given the arrival of multinational companies in recent years, he said.


Argentina has a reputation for arbitrarily changing the rules for investors, but it also has a huge talent pool and low costs for investors. In fact, the recent devaluation of the peso has lowered labor costs for outsourcing firms that receive income in dollars. In addition, Argentina offers special benefits to IT and software companies including reduced tax rates.

Incentives available to software companies include:

  • Tax exemption of 60% of the total amount of income tax, applicable to both Argentine source and foreign source income.
  • Fiscal stability for six years from September 2013 for companies registered with the National Registry of Software Producers and Computer Services
  • A tax credit of up to 70% of employer social security contributions
  • Exemption from VAT withholding tax
  • Other benefits derived from the recognition of software as an industrial activity.

Argentina offers a pool of educated, bilingual graduates in cities like Buenos Aires, Rosario and Cordoba, who can work in IT, engineering and other types of outsourcing. However, given the complexity of local regulations, seeking a local partner can help smooth the way in for outsourcing firms.


Mexico's outsourcing industry has developed rapidly since 2009, leveraging the country's proximity to the US, shared time zone and Free Trade Agreement (NAFTA), as well as the depreciation of the peso.

These advantages have made Mexico a hot nearshore destination.

Although traditionally focused on providing regional IT services for banks like Santander, HSBC and Bank of America, Mexico's outsourcing industry has evolved and companies like Neoris have started providing services to global clients in other sectors including retail and manufacturing.

At the national level, two organizations promote Mexico as a nearshore alternative: MexicoIT, an initiative by the National Chamber of Information Technology; and PROSOFT, a program by the Ministry of Economy. They run the Software and IT Development Program (PROSOFT), which offers companies cash grants and benefits that can reduce the cost of a project by up to 50%, as well as tax credits of up to 30% of R&D expenses.

ProMéxico, the government institution in charge of supporting exports and attracting foreign investment, and MexicoIT also offer advisory services to companies and non-financial help.

Mexico City, Guadalajara and Monterrey are the main cities that attract BPO and IT related outsourcing. In addition, states like Jalisco and Queretaro are extremely IT-focused and provide exemptions on payroll taxes for new companies, as well as contributions

Costa Rica & Panama

Costa Rica and Panama have both become popular outsourcing destinations for multinational corporations, partly due to their proximity to the United States and bilingual work pool. Both offer Free Trade Zones where companies can set up operations and export services paying little or no corporate income tax.

Costa Rica offers Free Trade Zones in industrial parks located in and around capital San José. Service exporters in these areas benefit from a 100% corporate income tax and export tax exemption. Goods used for export services can also be purchased tax- free and there are no restrictions on foreign currency management.17

In addition, Costa Rica produces over 6,000 technical high school graduates per year, in strategic areas such as IT, software development, informatics, accounting, technical support and customer care. The IT labor force, excluding telecommunications, has been growing on average 6.5% since 2005 (22,000 by 2015).18

The Costa Rican Investment Promotion Agency (CINDE) works with outsourcing companies to help them get established and find qualified talent. IBM and HP both started operations in Costa Rica a decade ago to provide IT and human resources services, respectively, to Procter & Gamble. Today, these companies have expanded and both have established global delivery centers in Costa Rica that are important local employers.

Costa Rica's telecommunications infrastructure has also improved. Before 2008, this was controlled by the state-owned company, Instituto Costarricense de Electricidad (ICE), but today there are more than 100 companies authorized by the regulatory authority (SUTEL) to provide private networks, Internet and mobile phone services, allowing seamless integration of voice and data systems.

But the increase in demand has put a strain on infrastructure and the availability of talent. Poor roads in some areas make it difficult for employees to get to work and energy costs remain very high. In addition, service providers say the speed of the broadband Internet could be improved.

Panama also offers incentives for IT investors. Following Panama's tax reforms in the 1990s, major IT companies like Dell and HP have set up Shared Service Centers there. The government has also created the 'City of Knowledge' next to the Panama Canal that offers tax and immigration benefits to IT firms.

Panama offers excellent communication services, a safe place to do business, and flexibility of regulations in the area of data security and privacy. But, like Costa Rica, the labor market is very hot and it is very hard to find technical talent locally, with wages going up fast.


Despite Brazil's recent economic problems, it remains the largest BPO market in South America. With its political stability, talent pool and telecommunications infrastructure, Brazil is a major outsourcing hub. Brazil's contact center outsourcing services market earned revenues of US$5.39 billion in 2012, which market research firm Frost & Sullivan projects to grow an average 8.3% annually in the next five years.19

Although growth in the contact center outsourcing services market has been restrained by Brazil's economic difficulties, new opportunities for outsourcing have arisen especially for premium and online solutions.20

Most of this growth is expected to come from the domestic market, led by the finance and manufacturing sectors, telecommunications, mining, and oil and gas services. Brazil's key clients are the United States, followed by countries in Latin America and Europe.21

Brazil's national software organization Brasscom is promoting the country's strong domestic base of IT clients to global companies such as IBM, Accenture, HP/EDS, and CPM Braxis. The Brazilian IT sector has developed the ability to create effective and innovative solutions for a variety of industries, which has made Brazil one of the world's best prepared, most versatile and sophisticated technology markets.22

Incentives for IT companies are available at the federal, state and local level in Brazil. These include:

  • Law No. 11,774: reduces social security contributions on exports by up to 50%.
  • Law No. 11,908: allows up to 200% income tax deductions on spending on manpower training and R&D.
  • Goodwill Law ("Lei do Bem"): allows spending on technology transfers, licensing and royalties to be offset against income tax.
  • Tax breaks for special projects such as the reduction of property and services taxes.
  • North and Northeast Regions: 40% to 60% subsidies on wages for research professionals.
  • Funding for training programs, increasing innovation and certification.

In addition to tax breaks, IT companies operating in Brazil can access various credit lines at preferential lending rates. Banco do Brasil and Caixa Economica, the largest public banks in the country, offer favorable terms, as does the Brazilian Development Bank (BNDES).

Although regulations, including high tax rates, can make Brazil less favorable compared to other countries in the region, it offers a large pool of professionals in the IT area and cities in the same time zone as the US East Coast.

On one hand, cities like São Paulo and Rio de Janeiro offer tax incentives for IT firms to set up offices there. But, on the other, smaller cities like Uberlândia and Porto Alegre charge lower municipal tax rates. There also continues to be potential for growth in northeastern Brazilian cities like Salvador and Manaus with their largely untapped labor pool.

Sonda: A Latin American IT Star

As the IT industry has become more complex, more companies in Latin America have realized that outsourcing allows them to not just reduce costs but also add value to their business. One company that has had success by providing integrated IT services and paying attention to its clients' needs is Chile's Sonda.

With headquarters in Santiago, Chile, Sonda has 40 years of experience in the region and today is present in 10 countries including Mexico, Panama, Costa Rica, Colombia, Ecuador, Peru, Uruguay, Brazil, and Argentina. Sonda's expansion strategy has been based on acquiring companies in these countries. Its latest acquisition is Brazil-based IT services provider CTIS, which it purchased in March this year. As it has grown, Sonda has kept its business model simple including understanding the specific needs of its clients, said José Orlandini, head of Sonda's Services Division.

This model has brought financial success. Sonda listed on the Santiago Stock Exchange in 2006 and in 2013 the company generated revenues of US$1.3 billion, including 58% outside Chile. The company employs 12,000 workers in the region.

Sonda's business is divided into three units: platforms, software applications, and integrated services including IT outsourcing. Most of its clients are private companies but in Chile it also provides services to public sector entities, including state copper mining company Codelco and the Santiago public transport system Transantiago.

Orlandini emphasizes that Sonda does not just see outsourcing as offering cost-savings for clients. "If you want cheaper labor you can find that in Asia," he said. Instead, Sonda sees outsourcing as being able to understand its clients' problems and offer cutting-edge IT solutions, he said. That is difficult to do from afar and providing services from India or China without really understanding the client's local problem can lead to significant errors. For example, Sonda would have trouble understanding potential clients in Africa, said Orlandini.

Rather than serve its clients from its head office in Chile, Sonda prefers to establish skills centers in different countries where it can harness the competitive advantages in each country, he said. For example, in Colombia Sonda provides IT services to the health industry, in Chile it has experience working with public sector entities and in Brazil it has a SAP center.

"The volume in Brazil is much bigger and focused on industry problems so we have specialists in SAP there," he said.

Being close to its clients and providing services more efficiently is more important to Sonda than seeking out cheaper labor in countries like Argentina or Ecuador, said Orlandini. "The efficiency of the service is more important than saving a few points in terms of wages," he said. "We are able to match the right resources with the right problem."

This model allows Sonda to maximize its skills capacity throughout the region, avoiding having overqualified or under qualified personnel working on projects in different countries, he added.

Of course, the outsourcing situation is not homogeneous in the region. Integrated IT outsourcing is less common in Brazil or Argentina than in Chile, Colombia, Mexico or Peru, said Orlandini, adding this is partly due to non-recoverable taxes in Brazil and Argentina.

But, in general, outsourcing is taking off. "Latin America has taken huge steps in terms of outsourcing," he said. "Today any large or medium-sized company is willing to hear your proposal which didn't happen five years ago."

However, there are some challenges. For example, the lack of bilingual professionals in Chile remains a problem for the outsourcing business, he said. "The percentage of professionals who speak English is very low in Chile," he said.

Although most of Sonda's clients are located in Latin America, and therefore language ability is not an issue, it could be a problem in the future if the company expands into the United States, said Orlandini.

Another challenge for IT companies in the region is communications infrastructure. Although the infrastructure in Peru and Mexico has improved, Uruguay and Brazil struggle with antiquated infrastructure in some areas, said Orlandini. This increases outsourcing costs in these countries. Even in countries like Colombia and Chile, infrastructure is good in big cities but not so developed in smaller cities. "This is a big problem for our business," he said.

Going forward, Orlandini says global economic uncertainty could lead more companies to evaluate the benefits of outsourcing. "When everything is going well in general companies are less likely to analyze the externalization of IT services," he said. "But once a company externalizes some services and sees that it works then they don't go back."

Multilateral trade agreements such as the Pacific Alliance, which includes Chile, Peru, Colombia and Mexico, also facilitate outsourcing in the region, he said. "These agreements are very valuable for outsourcing, hopefully they will become deeper and include more countries," he said.

Sonda's success shows that, when it comes to outsourcing, it pays not just to be physically close to your clients but also to understand their local needs and mobilize resources throughout the region to meet them efficiently. The term for this strategy is "rightshoring".

Challenges going forward

Latin America's global business services industry has matured since 2008, not just due to the region's development as a nearshore destination but as the result of growing internal demand. Chilean, Colombian, Brazilian and Mexican companies that have expanded throughout the region are realizing the benefits of outsourcing in some cases for the first time.

Instead of seeing outsourcing only as a means to cut costs, local companies and multinationals with a presence in Latin America are evaluating BPO to gain local process expertise, improve quality of service delivery, and grow their business efficiently. But, as companies weigh the benefits of shared services (in- house) versus outsourcing in Latin America, service providers need to think outside the box and offer a combined or hybrid approach to attract potential clients.

In this scenario, Latin American countries are facing different challenges to attract shared service centers and outsourcing services. These include:

  • Decentralization
  • Modernizing telecommunications infrastructure
  • Cutting red tape and taxes that can increase costs
  • Strengthening intellectual property protection
  • Reducing energy costs
  • Developing the talent pipeline

Latin American countries such as Chile, Brazil and Colombia remain highly centralized, with a few large cities where the quality of life tends to be much higher than elsewhere in the country. In Chile, for example, nearly all the country's largest companies have their headquarters in Santiago. The result is that competition for labor and operating costs in major cities are much higher than in small cities throughout the region. One solution is to open service delivery centers in cities where labor is cheaper. Some companies like Genpact and Sutherland have done this successfully, despite the challenges of centralization. However, in countries such as Brazil and Colombia, infrastructure is not as good in smaller cities as in major business centers like Bogotá or São Paulo. For IT services, which depend on reliable telecommunications networks, this can be a major problem.

Additionally, the labor pool in the region continues to be a concern, particularly in countries in Central America and in Chile. However, companies like IBM and Dell have shown that by working with local universities they are able to ensure a talent pipeline with the skills needed in their delivery centers. Governments can also assist companies in this effort by involving them more in the development of curricula and in training programs.

The lack of English language skills in countries like Chile remains a problem for the outsourcing industry, particularly for multinational corporations. This is a problem that Chile is trying to address through changes in its educational system. Nevertheless, other countries like Costa Rica, Colombia and Argentina offer more bilingual graduates.

Another challenge for some countries, including Chile and Costa Rica, is the high cost of energy. Energy prices in these countries are amongst the highest in the region and can increase costs substantially for outsourcing companies. The reasons are varied, and include delays in the development of new power generation projects, but Chile has the potential to lower energy costs by developing its own renewable energy potential.

Sutherland: Rightsourcing in Latin America

The concept of outsourcing is usually divided into three business models: onshore, nearshore and offshore. However, Sutherland Global Services, a New York-based business process outsourcing company with operations in 15 countries, including in Latin America, has created its own model called "rightsourcing".

This allows the company to deliver services from different countries to best meet its clients' needs, said Felix Massun, Senior Vice- President Business Development Latin America.

Globally, Sutherland has over 40,000 employees, including over 2,000 in Latin America. Sutherland began in Mexico in 2006, to provide nearshore services to clients in the United States such as AT&T. Then, in 2010, it opened an office in Colombia to provide services to clients from the United States, but also to Latin American clients. Massun, an Argentine with over 20 years experience in consulting and outsourcing, is overseeing Sutherland's growth in the region.

"In Colombia, we found a lot of support from the government and also very good resources in terms of customer support," said Massun. "The Colombian style of customer service is very friendly."

Far from the turmoil that afflicted the country for decades, today, Colombia is seen as a safe and good place to do business. Political stability, a large labor pool and government support also help. "These are things you don't find in some other countries," said Massun.

Sutherland supports some Brazilian customers from Colombia, but, in 2013, it opened an office in Sao Paolo to focus on the Brazil market. It will also open an office in Puerto Alegre in southern Brazil later this year to provide customer support and order management services to Dell, one of Sutherland's global clients.

"Our strategy in the short term is open one or two centers in Brazil to provide services from Brazil to Brazil," he said. "We can support the rest of Latin America from Colombia."

One of the key reasons for a strong presence in Brazil, apart from the language difference, is that services imported into Brazil, whether from Colombia or elsewhere, are subject to a withholding tax and other non-refundable taxes that average 39%, said Massun. "This increases significantly the costs of trying to deliver services from outside Brazil," he said.

Despite the recent devaluation of the real, Brazil remains one of the most expensive countries in the region to do business. This means that, in some cases, companies still prefer to contract outsourcing services abroad even with the high tax rate. "For small companies, a few dozen people or less, this could be compensated by overall synergies in the region, but for larger companies it doesn't make sense to incur this cost," he said.

Additionally, the size and economic growth of the Brazilian market more than justifies having a delivery capability in Brazil. To increase efficiency, companies in the region must either increase in scale, which is not always possible, or invest in business process technology, which is expensive. A third increasingly attractive option is outsourcing. "Suthlerland has invested substantially in BPO platforms and we have the technology companies need," said Massun.

In Latin America in general, the challenge facing Sutherland and other outsourcing companies is to convince executives to overcome their fear of outsourcing. "This fear will dissipate in the coming years but it still exists," said Massun. "Instead of seeing the outsourcing provider as a partner, some are still worried about losing control over their business."

Fortunately, this concern is starting to change. By offering a range of onshore, nearshore and offshore services, Sutherland is able to leverage its global presence to minimize risk and maximize efficiency, which in turn benefits its clients. For example, Sutherland provides services to the oil and gas firm Schlumberger throughout the region from its center in Colombia.

Sutherland has grown an average 20% annually in Latin America in the last five years, but future demand growth is expected to exceed the company's global average, said Massun. Demand for nearshore services in Colombia and Central America has continued to grow, but growth is increasingly driven by Latin American companies. "The difference that I see now is that there is more local demand," said Massun. "Companies in the region are looking at BPO as a real option."

Given the cultural, regulatory and linguistic differences between countries in Latin America, providing BPO services across borders can be complex, Massun admits, but demand is growing. With Spanish- speaking operations in Colombia and Portuguese-speaking operations in Brazil, Sutherland is well positioned to meet the growing demand for "rightsourcing" in the region.


As a nearshore destination, Latin America continues to offer important advantages, including the region's proximity to North America, bilingual workforce and a favorable business climate in many countries.

However, the region is changing. Countries in Latin America are becoming more prosperous with higher salaries and a better living standard, which has knock-on effects in terms of higher costs for companies but also rising domestic demand. Multinational companies are taking advantage by expanding their operations in the region, but many Latin American companies and governments are also looking at BPO outsourcing for the first time as a way to improve efficiency and quality of service. Latin America burst onto the scene as a nearshore destination after the 2008 financial crisis, when multinational corporations focused on outsourcing traditional services to reduce costs. Nevertheless, today, in an improved economic scenario, companies are now looking to establish Shared Service Centers to support their growing operations in Latin America, or shopping around for specialized BPO services.

When it comes to shared services, Central America is the new hotspot. Countries like Costa Rica and Panama offer not just proximity to the United States and good transport connectivity, but also a well-educated workforce and universities willing to work with the private sector. However, skilled labor in these countries has become more costly. Some service providers in Costa Rica, for example, have moved call center operations to Asia where labor is cheaper.

A similar situation in countries like Chile and Colombia has led operators of contact centers to move towards greater automation and cloud solutions. Further up the value chain, companies like IBM have shown it is possible to train future employees by working in partnership with local universities.

In the age of big data and mobile applications, there are plenty of opportunities for outsourcing in Latin America. Nevertheless, each country offers different opportunities and challenges, and companies must be physically present in each of them to understand their client's local needs. In addition, geographic diversification does not just benefit the client – companies like Globant, Sonda and Neoris have shown it can also help them to harness skills and incentives in different countries throughout the region.

As competition in the outsourcing industry heats up, with regions like the Middle East and Africa in particular offering cost-efficient solutions, BPO and IT service providers in Latin America need to offer clients greater flexibility, innovation and value-added services to stay competitive. Some are already doing this, but it comes at a cost and the challenge for service providers is convincing clients to pay more for a premium service.


1. AT Kearney Global Services Location Index 2011

2. Gartner Research, "Forecast Analysis: Business Process Outsourcing, Worldwide, 4Q13 Update", February 2014

3. Gartner Research, "Forecast Analysis: Business Process Outsourcing, Worldwide, 4Q13 Update", February 2014

4. Gartner Research, "Forecast Analysis: Business Process Outsourcing, Worldwide, 4Q13 Update", February 2014

5. Frost & Sullivan, Analysis of the Hosted and Cloud Solutions for Contact Centers Market in Latin America

6. World Economic Forum,

7. USTR Special 301 Report, 2013

8. CIA World Factbook,

9. "Inside the Dragon 2013: Outsourcing Destinations in China", KPMG, 2013

10. "Inside the Dragon 2013: Outsourcing Destinations in China", KPMG, 2013

11. Ease of Doing Business Ranking 2014, World Bank

12. Global Talent Index 2011-2015,

13. World Bank: Doing Business Report 2014,

14. AméricaEconomia, 2013 ranking

15. Invest In Colombia,

16. Invest In Colombia,

17. Costa Rica Investment Promotion Agency (CINDE),

18. Costa Rica Investment Promotion Agency (CINDE)

19. Frost & Sullivan,

20. Frost & Sullivan

21. Brazil IT-BPO Book, 2010-2011, Brasscom

22. Brazil IT-BPO Book, 2010-2011, Brasscom

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.