Brazil: The New Latin Rhythm: The Transformation Of The Global Outsourcing Business

Last Updated: 17 September 2014
Article by David Brown, Rafael Coquis, Carlos Gatti and Fernando Aguirre

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.

Foreword

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.

Introduction

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 growing. 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

To view this article in full click here.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions