The rise of Americas' Nearshore in outsourcing and shared services – insights and trends

In an exclusive interview with Kirk Laughlin, Founder and Chief Analyst at Nearshore Americas, we delve into the nuanced shifts driving US and Canadian companies towards strategic outsourcing. Our discussion uncovers shifting market dynamics as well as spectrum of benefits and challenges faced by businesses amidst evolving trends and rising destinations.

Wiktor Doktór, Pro Progressio: In recent decades, the United States has increasingly outsourced services to countries such as India, the Philippines, Europe, and the Latin American (LATAM) region. What are the primary nearshoring destinations for US businesses, and how have they evolved over the last decade?

Kirk Laughlin, Nearshore Americas: There is no question that over the last decade the "Americas' Nearshore" has captured market share away from both the Philippines and India. There are many reasons for this shift, but perhaps the biggest drivers have been proximity, time zone and cultural alignment. There are over 20 viable countries in the region vying for Nearshore business, but the clear favorites are Costa Rica, Mexico and Colombia. But I have to also emphasize that many other destinations – from South America, Central America, and the Caribbean – also have experienced remarkable growth.

What are the primary advantages for US and Canadian businesses in utilizing operational centers within the nearshoring model?

The benefits are numerous. Of course cost is a major factor. Typically a North America client-side customer can reduce their costs by 30% to 50% by leveraging Nearshore solutions. The fact is wages in the CX industry within the United States are growing faster, in comparison, to wages in the Nearshore.

The 'cultural alignment' benefits are also significant. Without question, partners in the Nearshore are able to move with more agility and be more responsive because cultural compatibility is already 'baked in' to the relationship. We continue to see this yield a variety of benefits.

Let's delve into the Business Process Outsourcing (BPO) and Shared Services Centers (SSC) debate – which regions in the Americas are better for Shared Services and which are better for BPO providers? Are there any discernible trends in this regard?

During the early part of 2020s, we saw a slight slowdown in greenfield SSC activity in Latin America and the Caribbean. That trend has begun to change as more enterprises are committed to establishing their own operations.

As for BPOs, aside from the slow- down during the height of COVID, the market has been growing at over an 8% rate for each of the last 12 years.

For example, I have taken three different enterprise clients to Latin America in the last few months. Each of these firms is pursuing an internal captive model, where significant software development and cybersecurity capabilities will be required. What we find interesting is that in the past such enterprises would typically opt to partner with an outsourcing provider. Clearly, the value proposition is significant when working with a partner that has strong operational knowledge. That value proposition of course extends into the management of talent.

On the other hand, the enterprise customer – without a doubt – is becoming more savvy. With our help, the client has been better educated on the current wages and benefits offered to software developers. Each market is a bit different, and different strategies are employed to find and retain workers.

Overall, I expect that ‘client-led’ investment will accelerate as they become far more comfortable with managing remote work arrangements, even if those situations involve having workers in far-off countries.

What are the primary services offered from the LATAM region? Is it predominantly CX and IT, or does it encompass a comprehensive range of services similar to those provided in Asia or Europe?

First, it's important to stress that bilingual capability fuels a lot of the in dustry's growth. The "Americas Nearshore" stands toe-to-toe with any destination in the world when it comes to capability. From traditional CX services to more com plex digital transformation, software development, cloud, machine learning and AI, the region is completely capable of producing high-quality results across the board. Now the reality is that filling some high-skill IT positions (such as data science) is not typically that easy. We are watching closely to see how partners are managing increased demand for high-skill roles.

As far as CX services, I think many market observers have been stunned to see that many of these Latin American and Caribbean destinations have managed to scale to meet talent demands. For too long we heard that certain destinations where ‘saturated’ and didn’t offer enough depth in the talent pool. Frankly, many of these people were just plain wrong.

What are the main challenges currently facing Business Process Outsourcing (BPO) operators based in the Americas?

The world is now aware of this market and the value it can generate and, as a result, there is an unprecedented level of demand for talent. Despite a bit of an economic slowdown in the US, we see that competition for BPO talent is particularly strong in some 'hot bed' markets like Colombia, Jamaica, and Costa Rica. Leaders in these locations are using a variety of tools to increase the supply of talent. Such initiatives take time to evolve, but overall the hottest markets certainly are aware of the need to build more scalability.

What are some common misconceptions about Latin America and the Caribbean?

There are lots of half-truths and in correct stereotypes about Latin America. The one I should address first is the issues around personal safety. In my own case, I traveled all over Latin America, having visited over 115 times in the last fourteen years. I was only once a victim of a crime. (A small camera was stolen from me during a bus ride in Costa Rica). In virtually all of those trips, I have always felt safe and not under threat. Like so many cities in the world, there are parts of town that are just trouble. Bad stuff goes on in those locations, and unless you’re really unskilled using GPS, most business travelers would never go near such neighborhoods.

Another common misperception is that Latin America doesn’t have the same level of education that you may find in Asia or Eastern Europe for example. I would consider this a ‘half-truth’. For the most part, public education in Asia and Eastern Europe are superior to what is offered in most public schools in Latin America. However, in many cases there is a much more serious effort policy-wise to bring higher educational standards to public schools. It’s a long, difficult battle, but I am seeing lots of reason for hope.

As for the Caribbean, it is unfortunate that so much of the world believes the region is inhabited by people with a ‘laid-back’ attitude that is not conducive to hard work. This is an absolute myth! There is a really strong work ethic existing throughout the Caribbean. In the case of call centers, you have many single mothers relying on the steadiness of a CX career. Remember that unemployment rates are stubbornly high all over the Caribbean. The global services sector is a real blessing to countries such as Jamaica, Trinidad, Guyana and the Dominican Republic. Tens of thousands of jobs in global services have been created in these locations. Of course this brings many positive, ripple effects to the larger economy.

What are the up-and-coming destinations right now?

This is a question I get often and it’s never that easy to answer. For many years the answer was Colombia. Without question the country has been a remarkably strong performer in global BPO. The popularity has been constant, and for that reason, I would no longer consider it ‘up and coming’.

Countries that continue to have significant upside include Peru, Guyana, Bolivia and El Salvador. I would also place second and third tier cities in Mexi co in the ‘up and coming’ category. The fact is Mexico has over 126 million inhabitants. There are loads of cities with over 100,000 citizens. For global BPOs willing to do the work, they will find many talented, bilingual professionals in these locations.

How the nearshoring may change in coming years? Do you see and trends which are already being created?

Given that the United States remains the largest economy in the world, the Americas' Nearshore is extremely well positioned to continue to capture a larger piece of the global services' market. I expect the 'golden years' to continue into the later part of this decade.

However, just like all other destinations, the impacts of AI in the workflow of BPO services remains unclear. We do expect that as technology services continues to re-define itself, I am confident that partners in the leading Nearshore destinations will remain adaptable and increase their capacity to deliver.

What is the state of the relationship between Eastern Europe and Latin America, when it comes to global services?

This is one of the areas I have been watching very closely. We began to see companies like EPAM and Luxoft expand in the region going back more than five years.

However, when COVID arrived along with the war in the Ukraine, we saw a much more significant flow of investment from Eastern Europe to Latin America. In addition, a small stream of IT professionals have left Eastern Europe to work at software delivery centers in the region. I believe we will continue to see greater cooperation and joint projects bringing together the best of both regions.

Thank you for such an insightful conversation.

This article comes from magazine:
FOCUS ON Business #16 May-June (3/2024)