Renewed Threat To Offshoring Powerhouses

When it comes to offshoring, India and China are often the locations of choice, but recent events suggest their dominance could soon come under threat from the Latin American continent, that, in theory, offers many companies everything they could possibly hope for.

According to A.T.Kearney’s ‘Destination Latin America: A Near-Shore Alternative’, Latin America offers “significant value and resources when compared to Asia” and “has what many U.S. and some European companies want: low-cost Spanish-language capability and a growing, relatively low-cost, skilled bilingual workforce”.

Add the benefit of time zones well aligned to the United States and it’s easy to see why many American companies are beginning to eschew the benefits of Asia and are starting to look south rather than east.

No-where has this trend been better illustrated than in A.T.Kearney’s annual Global Service Location Index, which was published last week. According to the new index, Latin American countries have three entries in the top ten, with Brazil ranked highest at number five. Chile comes in at seven and Mexico at 10, to complete the list. It’s worth noting both Argentina and Uruguay also feature in the top 25.

The annual study, which is the fourth of its kind, uses 40 metrics to compare the financial attractiveness, people skills and business environment of 50 countries worldwide, and claims, although the wage cost advantage of offshore locations for office services would last for another 20 years, wages in offshore locations for traditional services such as IT and call centres, have started to rise considerably - and no-where has this been more prevalent than in India.

All of which is great news for a Latin American economy that can offer a range of high-class services to both Spanish and England-speaking customers at costs comparable to those offered in the far-east and on the Indian sub-continent.

In the past few years, a huge number of leading global companies have outsourced crucial business functions to Latin America, among them Exxon, Procter & Gamble, American Express and Unilever. Vendors such as IBM, TCS and Infosys, have also established a presence in the region.

According to the A.T.Kearney study: “An increase in internationally standardized certifications, as well as an improved business environment (as reflected in improved investor confidence and lowered country risk) offset the inflationary pressures.”

However, problems in the region do persist.

Brazil, for example, still has the lowest score in Latin America on the World Bank’s “East of Doing Business” metric. And on these pages Kris Timmermans of Accenture claimed harbour capacity in South America was beginning to cause huge supply chain problems.

The A.T.Kearney study also heavily contrasts a recent presentation made at a CIPS conference by Mark Berrisford-Smith, a senior analyst at HSBC, who claimed Brazil does not compare favourably with other emerging nations in the sourcing world because of its growth rates. “Brazil does not fit into the dynamic model of India and China,” Mr Berrisford-Smith said. He went further: “It is not a super dynamic economy. It is not a manufacturing superpower. It’s not the supplier we believe it to be.”

It seems then there are some contrasting opinions as to Brazils standing in the world, however despite this, at present the positives far outweigh the negatives. Whilst the majority of companies currently doing business in the region are overwhelming from the US, it would be a surprise if a growing number of European companies didn’t follow their lead in the near future. Time will of course tell