Get an exclusive sneak peek into the forthcoming book by Nacho De Marco- Outsourcing to Latin America: The Pros and Cons, and learn about the upsides and downsides of outsourcing software development to this region. This comprehensive guide illuminates the intricacies of outsourcing software to Latin America and equips readers with a lucid understanding of the possible benefits and drawbacks that come with this procedure.
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Rise in Information Technology Outsourcing Demand from Latin American Nations
The following industries commonly outsource their business procedures:
- Computer and Programming Services
- Banking and Accounting
- Inbound and Outbound Call Centre Services
- Healthcare Services
- Human Resource Management
Outsourcing specific processes can have immediate advantages, like facilitating prompt project launch and promotion. Besides, opting for outsourcing services upfront helps establish a robust foundation for long-term collaboration with the outsourcing provider, which can be of great help to the business in the future, especially when they require additional support for their in-house teams.
Organisations continuously aim at improving their processes and lowering expenses without affecting the quality of their deliverables. It is also crucial for businesses to seek fresh avenues for innovation and attract the best available talent. While it may seem like an arduous task, it is achievable. Outsourcing work to vendors beyond the United States can aid in maintaining a competitive edge while also growing productivity and minimising costs.
Several businesses are shifting towards outsourcing vendors beyond the United States to stay ahead in the competitive race.
The Emergence of Outsourcing in the Last Decade
The economic challenges encountered during the early 2000s drew the attention of many US companies towards the potential advantages of outsourcing. To stay competitive in the prevailing market, companies acknowledged the necessity of exploring novel options that would help deliver top-notch services without overburdening their overheads. Consequently, outsourcing became the talk of the town.
Owing to the enhanced flexibility it offered, outsourcing quickly became an essential aspect for several contemporary businesses. It eradicated the need for companies to hire extra personnel, as IT departments could handle specific tasks effectively.
As the demand for outsourcing services rose, the Internet paved the way for businesses to tap into the knowledge and expertise of skilled professionals from across the world. The digital transformation has made it possible for companies to explore a global talent pool and find the right individuals for any given task, regardless of their location on the world map.
To assert themselves in the market, businesses must leverage the prowess and skillset of expert personnel. Outsourcing may furnish an economical option to gain access to such specialists, enabling their in-house teams to focus on pivotal responsibilities instead of overseeing ancillary assignments.
Cost-cutting is undoubtedly a significant driver behind the decision to outsource, but it is not the only benefit. Outsourcing can also enhance productivity and creativity. As per IBM’s findings, 36% of companies who outsource are at the forefront of innovation, while 37% leverage it to expand their operations. AppSumo, GitHub, and Alibaba are a few of the names that have successfully adopted outsourcing strategies to augment their brand and maximise growth.
Advantages of Collaborating with Latin American Companies
In the recent past, several businesses have been lured towards China and India for outsourcing, primarily due to their cost-efficient tariffs and extensive workforce. On the contrary, some companies find Latin America to be a more appropriate option, for a variety of reasons.
Several companies have opted to outsource to Latin America, thanks to the presence of numerous favourable factors, such as access to a highly skilled labour pool and advanced development techniques. Such factors render Latin America a alluring choice for businesses seeking to outsource their functions.
Companies operating from different nations that rely on outsourcing to fulfil their IT demands should draw confidence from the political, social, and economic advancements in the region. This progress pledges a dependable and reasonably priced approach to accessing the technology that is pivotal for triumph.
Offshore corporations seeking IT services are inclined towards the following countries in Latin America:
Before we delve into the specifics of each issue, let’s briefly explore some of the key benefits and advantages that businesses can derive from outsourcing to Latin American countries. Here are some of the possible advantages of outsourcing to Latin America:
- Owing to business-friendly conditions, increased chances of success
- Similarities between American culture and that of other nations
- Skilled and dedicated staff members
- Reduced burden on the internal team
During the 1990s, outsourcing was a major concern for many, often perceived as a threat to the domestic economy and employment in the United States. It was anticipated that some positions would be relocated overseas, and while this did transpire, the global economy has, on the whole, reaped the benefits of this type of free trade. This claim is in accordance with Vivek Wadhwa’s statement.
Undoubtedly, cost-efficiency is a significant factor while determining outsourcing procedures. Reports suggest that it costs two to three times more to hire a competent professional in the United States than to hire someone with equivalent qualifications in Latin America.
Typically, the hourly charge of hiring a software developer in the United States is around US$150, whereas a developer with similar expertise based out of Latin America would likely demand a lower wage, as low as US$75 per hour. Such a proposition could lure companies seeking to hire exceptional talent at a reasonable remuneration.
In the upcoming Chapter 3, we will further elaborate on how outsourcing can enhance productivity while reducing expenses.
A Business-Friendly Environment
The United States has acknowledged that Latin America’s vibrant business culture is ideal for fostering collaborative endeavours. The A.T. Kearney Global Services Location Index5 Report of 2023 emphasises that Latin America is fast becoming a preferred outsourcing destination owing to its appealing commercial milieu, talented workforce, and reasonable living expenses. An increasing number of firms are opting for Latin America as their go-to location for outsourcing, potentially because of the region’s economic stability, affordable costs, and abundance of skilled labour. The report indicated that 15 of the top 20 overseas destinations were located in Latin America, underscoring the region’s suitability for outsourcing needs. These factors include, but are not limited to:
- Brazil, Ranked Fifth Globally.
- Chile (#9)
- Colombia at 10th Position
- Mexico Ranked 13th
- Peru (#20)
In the United States, corporations are progressively relying on outsourcing firms in Latin America to leverage the constantly growing talent pool of IT professionals in the region and to take advantage of the beneficial financial environment.
Santiago has cemented its position as one of the wealthiest cities in the world, recognised for its status as a prominent centre of technological innovation and entrepreneurial zeal. As per the research conducted by the London School of Economics and The Brookings Institute, Santiago’s economy has secured the fifth spot globally. Departing from its image as an IT outsourcing giant, Santiago presently accommodates two prominent enterprises, namely 500 Entrepreneurs: Latam and Start-Up Chile, that are making significant investments in local startups.
Similarities to American Culture
Having worked in both the United States and Latin American countries, it is evident that despite certain cultural differences, there exist more resemblances that can be leveraged to establish robust professional relationships. The United States and Latin American countries share a robust work ethic and appreciation for innovative business concepts, as well as a commonality that language and time zone barriers do not pose a significant problem for either region. It is plausible that additional similarities can be highlighted.
Although often overlooked, time zone discrepancies must be considered when outsourcing internationally.
Time zone disparities can pose a challenge in establishing a strong bond with an outsourced service provider based in a different country or region, where effective and reliable communication is crucial. It is imperative to anticipate and address any potential issues that may arise. For instance, what measures will be taken to establish a realistic timeline? Given the difference in time zones, is it likely that important discussions with developers and IT personnel will have to take place early in the morning to tackle critical matters?
Due to the substantial time difference of 12.5 hours between San Francisco and India, outsourcing to Latin America is gaining traction, as it has a much shorter time difference between their respective working hours. Furthermore, numerous major cities in the United States and Latin America are connected by direct flight routes, which makes its an attractive option.
Assuming your in-house team is in the United States and the external workforce is based in Argentina, you can have live and direct engagement with contract workers in that location.
Usually, there will only be a time difference of two to three hours between the two respective time zones, and this may vary depending on whether or not daylight saving time is being observed, providing a significant nearshore edge that can be utilised to foster a productive working relationship among IT personnel and expedite the progression and examination phases of projects.
There is a notable level of linguistic exchange between Latin American and English cultures. Multiple individuals in Latin America already have English as their second language, and according to Education First (EF) English Proficiency report conducted in 2023, countries such as Brazil, Chile, Peru, Mexico, and Ecuador demonstrate a greater preference for English compared to China. Besides, it is anticipated that the literacy rate in Latin American countries is projected to surpass 90% by 2023, which could equip individuals with more language skills.
New statistics demonstrate a spike in the number of people in the United States who are learning Spanish and Portuguese due to the increasing prevalence of English proficiency in Latin America. By 2023, it is anticipated that roughly 11.6 million Americans will be proficient in both English and Spanish. Additionally, there are approximately 48 million native Spanish speakers presently residing in the United States.
Forming a link between your in-house staff in the United States and your outsourced workers in Latin America can instill a sentiment of shared comprehension and ease while discussing sensitive issues, whether it be through phone conversations, online chat rooms, or emails. Partnering with a reliable outsourcing agency can offer the added advantage of multilingual support, enabling your staff to communicate with your workers in the language that they are comfortable with.