Discover the advantages and disadvantages of software outsourcing to Latin America with a preview of Nacho De Marco’s upcoming publication, Outsourcing to Latin America: The Pros and Cons. This guide provides an insight into the complexities of outsourcing software to Latin America and allows readers to gain a better understanding of the potential benefits and drawbacks of this process.
In order to read the whole thing, you can get it here for free!
An Increase in Latin American Countries Seeking to Outsource Information Technology
These sectors now see the most frequent occurrences of outsourced business processes:
- Computing and Programming Services
- Banking and Accountancy
- Inbound and Outbound Call Center Services
- Health Care Delivery
- Those Dealing With Human Resources
Outsourcing certain procedures can provide immediate benefits, such as enabling projects to be launched and promoted quickly. Furthermore, by outsourcing these services initially, it can create a strong basis to develop a long-term relationship with the outsourcing provider, which will be invaluable to the company as it develops and requires additional support for its in-house teams.
Companies are constantly striving to improve their processes and cut costs without compromising the quality of their products or services. It is also vital for organisations to explore new opportunities for innovation and to attract the most talented workforce available. This may appear to be an insurmountable task, yet it is achievable. Outsourcing outside the United States can help to maintain a competitive advantage while simultaneously increasing productivity and reducing costs.
In order to maintain an advantage over the competition, many businesses are turning to outsourcing firms located outside of the United States.
The Rise of Outsourcing in the Past Decade
For many companies in the United States, the economic difficulties of the early 2000s highlighted the potential benefits of outsourcing. In order to remain competitive in the current market, businesses recognised the need to find innovative solutions that would allow them to provide high-quality services at a reasonable cost. Consequently, the notion of outsourcing came to the forefront.
Due to the increased flexibility it provided, outsourcing rapidly became an integral component of many modern businesses. It allowed companies to avoid the necessity of hiring additional staff, as certain tasks could be assigned to IT departments.
As the demand for outsourcing services increased, the Internet opened up a new range of possibilities for businesses to access the skills and expertise of professionals from all over the globe. The digital revolution has enabled companies to access a global talent pool, making it much easier to find the right people for the job, regardless of their geographical location.
In order to remain competitive, businesses need to capitalise on the specialist knowledge and expertise that can only be provided by highly qualified personnel. Outsourcing may be a cost-effective solution for acquiring such specialists, as well as freeing up in-house teams to focus on their essential duties rather than taking on tasks that are not essential to the success of the business.
Whilst cost reduction is certainly a major motivating factor in the decision to outsource, this is far from the only benefit. Productivity and creativity can also be improved through outsourcing; according to IBM’s research, 36% of companies who outsource are at the forefront of innovation, with 37% using it to expand operations. AppSumo, GitHub, and Alibaba are just a few of the organisations that have successfully implemented outsourcing strategies to increase their brands, as well as optimise their growth.
Gains from Contracting with Latin American Companies
In recent years, numerous businesses have been drawn to the cost-effectiveness and abundance of labour in China and India, making them the primary destinations for outsourcing. Conversely, other organisations have seen Latin America as a more suitable choice due to a range of factors.
Many corporations have chosen to outsource to Latin America due to the presence of several advantageous factors, such as access to a highly skilled workforce and the availability of advanced development techniques. These factors make Latin America an attractive option for companies looking to outsource their operations.
Businesses based in other countries which rely on outsourcing to fulfil their IT requirements should be encouraged by the political, social and economic progress in the region. Such development promises a reliable and cost-effective way to access the technology needed for success.
Countries in Latin America that are most in demand by offshore corporations for IT services include:
Prior to delving deeper into each individual issue, let us take a brief look at some of the most prominent benefits and advantages which businesses gain from outsourcing to Latin American countries. The following are some of the potential advantages of outsourcing to Latin America:
- Conditions favourable to business success
- Some ways in which American culture is comparable to that of other countries
- Proficient and devoted employees
- Less strain on the in-house team
In the 1990s, outsourcing was a cause for concern for many and was often viewed as a threat to the domestic economy and employment in the United States. It was predicted that some jobs would be transferred overseas, and while this did indeed happen, the world economy as a whole has benefited from this form of free trade. This is according to Vivek Wadhwa.
It is clear that cost savings are a major consideration when deciding to outsource. It has been estimated that employing a qualified worker in the United States is two to three times more expensive than employing someone of the same calibre in Latin America.
The hourly rate of a software developer in the United States is typically around US$150, whereas a developer of comparable skill level in Latin America may be open to a lower wage of US$75 per hour. This could be an attractive option for businesses looking to hire high-quality talent at a competitive rate.
As we go into Chapter 3, we’ll talk more about how outsourcing may help you save money while increasing productivity.
A Friendly Business Climate
The United States has recognised that Latin America’s dynamic corporate culture is well suited to collaborative ventures. This is evidenced by the A.T. Kearney Global Services Location Index5 Report of 2023, which demonstrates that Latin America is increasingly becoming a desirable outsourcing destination due to its attractive business environment, highly-skilled workforce, and cost of living. More and more companies are looking to Latin America for their outsourcing needs, perhaps due to the region’s economic stability, low costs, and abundance of skilled personnel. In fact, the report showed that 15 out of the top 20 offshore destinations were situated in Latin America, highlighting the region’s suitability for outsourcing requirements. These factors include, but are not limited to:
- Brasil, Ranked Fifth, in the World.
- Chile (#9)
- Rank 10: Colombia
- Placed Thirteenth, Mexico
- Peru (#20)
In the United States, businesses are increasingly turning to Latin American outsourcing companies to benefit from the expanding pool of IT professionals in the region and to capitalise on the favourable economic climate.
Santiago is recognised as one of the most prosperous cities globally, due to its position as a major hub of technological advancement and entrepreneurial activity. Data collected by the London School of Economics and The Brookings Institute has placed Santiago’s economy as the fifth-best in the world. Moving away from its reputation as an IT outsourcing powerhouse, Santiago is now home to two major firms, 500 Entrepreneurs: Latam and Start-Up Chile, which are making substantial investments in local startups.
Parallels to American Culture
Having had the opportunity to experience working in both the United States and Latin American countries, it is evident that, although there are some slight cultural differences, there are far more similarities that could be used to build strong professional connections. Both the US and Latin American countries share a strong work ethic and respect for innovative business ideas, as well as the fact that language and time zone restrictions are not as much of an issue for either region. It is likely that there are further commonalities that can be identified.
Regions of Time
Time zone variations are typically disregarded, however they must be taken into account when outsourcing across international borders.
Time zone variations can be a source of tension when trying to create a strong relationship with an internationally-based outsourced service provider, where clear and dependable communication is of paramount importance. It is important to consider the potential issues that could arise. What approach will be taken to come up with a realistic timeline? As a result of the difference in time zones, is it likely that conversations with developers and IT personnel will need to take place in the early hours of the morning to address important matters?
Given the twelve and a half hour time difference between San Francisco and India, outsourcing to Latin America is becoming increasingly attractive due to the reduced time gap between working hours and the availability of direct flights between some of the most populous cities in the United States and Latin America.
It is possible to have real-time interactions with contract employees located in Argentina if, for example, your internal team is situated in the United States and the external personnel are based in that country.
It is possible that there will only be a two or three hour time difference between the two time zones, depending on whether daylight saving time is in effect. This nearshore advantage can be used to facilitate a productive working relationship between IT staff, as well as expediting the development and testing stages of projects.
It is evident that there is a significant degree of linguistic interconnectivity between Latin American and English cultures. English is already a second language for many people in Latin America, and the Education First (EF) English Proficiency report of 2023 found that Latin American nations, such as Brazil, Chile, Peru, Mexico and Ecuador, have a stronger preference for English compared to China. Additionally, it is predicted that by 2023 the literacy rate in Latin American countries will exceed 90%, which will open up opportunities for individuals to become more proficient in a variety of languages.
Recent figures have revealed a surge in the amount of individuals in the United States who are studying Spanish and Portuguese, as English fluency in Latin America has become more commonplace. It is expected that by 2023, approximately 11.6 million Americans will be able to converse in both English and Spanish with ease. Furthermore, there are an estimated 48 million native Spanish speakers living in the United States.
By establishing a connection between your Latin American outsourced workers and your in-house staff in the United States, you will create an atmosphere of mutual understanding and comfort when discussing delicate matters, be it over the phone, in an online chatroom, or via email. Working with a reputable outsourcing firm will provide the benefit of multilingual support, thus allowing your personnel to communicate with your workers in their preferred language.