In addition to great beaches, Latin America is also becoming a popular offshore outsourcing destination. How do Argentina, Brazil, Chile, Costa Rica, and Mexico compare to Tier 2 cities in the United States? A.T. Kearney’s annual study, while global in scope, attempts to compare them from a regional perspective.
The company ranked Brazil the No. 1 Latin American location in 2007; it did not complete a study in 2008. Last year Chile took over the top spot in the region, which makes the earthquake recovery process even more crucial, given the country’s booming global services industry.
Christian Callieri, Principal, A.T. Kearney, says nearshoring is attractive to U.S. companies for the following reasons:
- Location. They want locations closer than Asia for easier and more affordable travel. “Some buyers believe closer proximity often breeds better relationships,” he says.
- Diversification.
- Round-the-clock coverage. Many suppliers want workers toiling 24 hours around the globe so they can meet the demands of time-sensitive buyers.
- Risk mitigation. The Mumbai attacks “escalated the risks in India.” Callieri points out India has always had terrorist attacks but “this one raised the profile.”
The executive says Midwestern U.S. cities typically can’t compete against Latin America on a cost basis. But they are attractive on other levels: in this economy, talented people who have the skills they need are available. And the United States has the infrastructure necessary to make outsourcing work. “The United States is rarely the first choice but becomes competitive if a buyer has specific requirements,” he says.
Here’s how the 2009 study rated each of the locations it studied:
Argentina. Callieri says Argentina has a well-educated workforce. Its Achilles heel is its political environment. “The large fluctuations in the exchange rate haven’t helped either,” says Callieri.
Brazil. Brazil benefits from being the most populous country in the region. Its service providers offer cost-effective programs for American companies especially in IT. And its infrastructure is good.
Chile. Even in the aftermath of the earthquake, Chile offers “a stable economy at Latin American prices,” according to the executive. It also has a well-educated work force and excellent infrastructure. Chile‘s twin challenges have been a smaller population and the relatively low number of English speakers. However, governmental agencies like CORFO, the Chilean Economic Development Agency, have instituted programs to develop English language skills among the labor pool.
Costa Rica. Costa Rica benefitted from being one of the nearshoring pioneers with its relationship with Intel, Callieri points out. “It’s an attractive market,” he says. “One of Costa Rica’s main disadvantages is its small population.”
Mexico. One of its big pluses is Mexico “is quick and easy to get to” from most of the United States. Cost is another attraction. Mexico also scores high because of its breadth of quality people. Callieri reports many of the Mexican states have intrastate competition to capture outsourcing investments, which raises everyone’s game. “Mexico does suffer from environmental issues and economic stability,” the A.T. Kearny executive points out. Last year’s violence in the north produced some bad press, but a Mexican national topping the recent Forbes list of the richest people on the planet may help.
U.S. cities. Location, skills, English capabilities, political stability, superb infrastructure – smaller U.S. cities have them all. The negative is cost. Today the U.S. locations are still more expensive than their competing nearshore cities. Companies choosing U.S. cities believe customer satisfaction or the availability of hard-to-find skills are worth the extra cost.
Lessons from the Outsourcing Journal:
- A new A. T. Kearney study found nearshore locations are gaining in popularity with U.S. businesses for the following reasons:
- Location. They want locations closer than Asia for easier and more affordable travel.
- Diversification.
- Round-the-clock coverage. Many suppliers want workers toiling 24 hours around the globe so they can meet the demands of time-sensitive buyers.
- Risk mitigation. The Mumbai attacks escalated the risks in India.
- Smaller U.S. cities can compete with nearshore locations, but they are more expensive.