Call center providers are thriving in Latin America, thanks to increased popularity of near-shoring and robust domestic demand.
BY MARY SUTTER AND
Latin Trade Magazine
SAN JOSE, Costa Rica — From headquarters in the United States, Convergys runs a sprawling global operation of 70,000 employees in 68 call centers and other offices. Last October, the company opened its second center in Heredia, Costa Rica, outside the capital of San José. “Our clients value the high quality of bilingual attention that is offered by Costa Rica,” says Christine Timmins, senior vice president at Convergys. “The ability of our Costa Rican operations to meet this demand is precisely why we have expanded our growth here.”
As of mid-2011, Convergys had increased staffing in Costa Rica from 1,200 employees at the end of last year to 1,900 and is looking to hire another 150 workers.
Convergys is not alone in its expansion. Pacific West Site Services, which launched in Costa Rica in 2000 to provide maintenance, janitorial and other facilities-related services, inaugurated a shared-services center in San Jose in December that handles business processes, such as accounting, as well as technology services.
Costa Rica has successfully carved out a niche in the outsourcing industry, largely based on these centers staffed by educated, bilingual locals. The Costa Rican Investment Promotion Agency estimates that call centers account for 40 percent of all jobs created by foreign direct investment.
Costa Rica, ranked 19th on the 2011 A.T. Kearney Global Services Location Index, is one of just nine Latin American and Caribbean nations to make the consulting firm’s list of the top 50 markets worldwide. A.T. Kearney scores and ranks the countries on the basis of financial attractiveness, people skills and availability, and the business environment.
“There is such a great value for human resources in Costa Rica, as well as such a strong commitment to the development of software and technologies,” says Pilar Portela, corporate manager of development for Pacific West, an affiliate of California-based SBM Site Services.
Despite impressive growth in Costa Rica, Panama and the Dominican Republic, activity in Brazil, Mexico and Argentina overshadow levels in the smaller countries, particularly in the higher-value IT service sector. Uruguay’s position is disproportionate to its size, and Colombia is quickly emerging as another important center.
A.T. Kearney expects Latin America to grow in importance. Although India and China led the firm’s latest ranking, Mexico led Latin America, at No. 6. A.T. Kearney attributes Mexico’s strong international showing to a “decline in wages over the past year, the increased attractiveness of near-shoring and a well-developed talent pool.”
On the index, Chile slipped from No. 8 to No. 10; Brazil held steady at No. 12 for a second consecutive year. “Ten to 15 years ago, India had 70 percent of the outsourcing market,” says Philip Peters, CEO of Zagada Markets, a specialist in analyzing the industry. “Today, India’s global share is about 44 percent. India is still growing, but, at the same time, the size of the pie has grown.”
Clients from the United States and the United Kingdom drive demand — about 90 percent for outsourcing services worldwide, according to Peters. A shift to near-shoring has favored service providers in Latin America, Peters and other experts say.
Companies that contract services to nearby countries do not have to travel as far to review, update or adjust systems. At the same time, the labor market for customer centers in countries such as the Philippines has gotten tighter and more expensive, especially for the Americas-oriented night shifts, so offices in Latin America can be more competitive.
“It’s the physical proximity to the biggest market, the United States,” says Fabrizio Opertti, a trade and investment lead specialist at the Inter-American Development Bank, of the near-shoring trend.
Beyond time zones and pricing is “the cultural affinity of Latin America with U.S. culture. … English is widely spoken with a neutral accent,” Opertti says. Plus, “one of the biggest Spanish-speaking markets in the world is the United States.”
Countries such as Argentina and Uruguay also have a strong affinity with Europe, he notes. “They are serving Europe not just in Spanish but in Italian, German, French and other languages.”
But business-process outsourcing (BPO) encompasses much more than call centers, industry experts and executives emphasize. It can include data entry, document filing and storage, accounting and more.
Hewlett-Packard has set up its own BPO center in Medellin, Colombia, to handle internal back-office needs worldwide, Opertti says.
The investments by companies such as HP highlight the fact that the wholly-owned operations of multinationals and other big firms represent the largest contingent of service providers in Latin America, Opertti says.
Global outsourcing specialists such as Infosys, Accenture and Tata Consulting Services all have offices and operations in Latin America.
And over the last three years or so, Peters, of Zagada Markets, has observed major investments by private equity and outside firms in IT services as well as consolidation among smaller providers of business-processing services.
Private equity firm Apax Partners last year agreed to pay about $1 billion for Tivit, a Brazilian IT outsourcing company. Capgemini, the European consulting and outsourcing giant, announced in September that it would acquire a 55 percent stake in Brazil’s CPM Braxis for 517 million reais (about $300 million).
The investments reflect opportunities both near and far, industry executives say. Latin America is increasingly consuming services, not just providing them, says Blanca Treviño, CEO of Sofftek, which was founded in Monterrey, Mexico, in 1982 and today has offices on four continents.
“We now see companies in Latin America using services delivered from India or China, or anywhere else in the world. I guess that’s globalization working in every aspect of the industry,” Treviño says.
And for that reason, she dismisses regional comparisons.
“It’s not a matter of Latin America or India or China — it’s a matter of India and Mexico and Colombia and Brazil … each bringing unique ingredients for a more flavorful buffet,” Treviño says.
Latin America cannot compete, on a volume basis, on projects that require hundreds of dedicated workers, maintains Claudio Muruzábal, CEO of Neoris, the IT consulting and services provider spun off from Mexican industrial conglomerate Cemex a decade ago.
The company recently obtained global service partner status with business software developer SAP. Neoris promotes its ability to execute sophisticated, value-added service that demands close collaboration with the customer — an area where Muruzábal says the company has an edge. “More advanced clients want the best talent at the best price,” he says.
Strong economic growth is fueling in-region demand for the IT providers, executives say.
“We are experiencing double-digit growth in all our markets, including Mexico,” says Muruzábal.
Softtek’s Treviño says Mexico is growing for her company but that the supply of outsourcing capabilities is outpacing domestic demand, so it can be leveraged for export.
“The largest IT service market in the world is still the United States, and the outsourcing segment in the United States is growing at a very attractive rate,” she says.
The financial services industry is the biggest client base for Softtek, which also is experiencing growing demand from retail, software and high-tech companies, Treviño says. “The consumer product segment is an honorable mention.”
Tata Consultancy Services reports that its growth opportunities are concentrated in Mexico and Brazil and, among the smaller countries, Colombia and Peru. “The primary reason for this is that lots of local players in the region are expanding their global footprint, which in turn obliges them to increase their IT spend,” says Ankur Prakash, vice president and COO of Latin America for Tata.
“In the same way, lots of global players have a significant presence in these countries because of the huge volume this market represents, which also allows the service providers to bring in their global competence and customize it to the local requirements,” Prakash adds.
Brazil’s booming economy has created huge opportunities in the domestic market for outsourcing providers, experts and industry executives say.
Within the space of a few years, a Brazilian company may have gone from $300 million in revenue to $5 billion, Neoris’ Muruzábal says. “But it still has the infrastructure of a small company.”
When announcing its purchase of CPM Braxis, Capgemini estimated that the annual growth rate of the Brazilian IT services market would exceed 10 percent through 2104. For Sofftek, Brazil is its second-biggest market, after the United States, Treviño says.
Like many other sectors in fast-growing Brazil, the outsourcing providers are struggling to find the type of educated specialists they need, a problem not limited to one country. “The IT industry on a global basis is facing a talent crunch,” says Muruzábal of Neoris.
The outsourcing industry — both IT and business processing — ultimately depends on people.
“The challenge [in Latin America] is in human capital — to keep working on the supply,” says Opertti of the IDB.
The bank is working on strategies for different countries so they can capture more outsourcing business, he says. Part of that is looking at ways to adapt practices from other regions. India is home to what Opertti characterizes as “finishing schools,” where graduates with technical degrees are given practical job training. The Philippines has similar programs for potential workers that often are public-private partnerships with educational institutions, he says. “We [in Latin America] need to promote the value of IT education,” Muruzábal says. Neoris’ own efforts include programs that target students who are still in high school.
The company also looks to open centers in cities that are close to universities so it can attract more talent. These locations often offer a lower cost of living for employees who also might be reluctant to relocate, Muruzábal notes.
Witness one of the region’s most vibrant centers for IT — Rosario in Argentina, which is home to a number of public and private universities and institutes. Neoris operates a center there, as does Argentina’s Globant, among others.
However important technical education may be, Latin America must not overlook the competitive advantage of English, says Peters. India might graduate 1 million engineers every year, but “70 percent of them are not functional in English,” he says. “Speaking English is a huge economic weapon,” Peters says. “I am not sure that Latin American governments understand … but it is borne out in increased salaries.”
English certainly is part of Costa Rica’s long-term strategy. The country already boasts Latin America’s highest literacy rate, at about 96 percent, and President Laura Chinchilla has set an ambitious goal: that 100 percent of high school graduates are proficient in English by 2017.
This article originally appeared in the July/August issue of Latin Trade magazine.
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