Capgemini – one of the strongest performers in Latin America BPO, is about to see some dramatic growth, according to Felix Massun, the firm’s Vice President of Latin American Business Development. Massun outlined recently the growth rates the company expects going forward and offered insight into the core opportunities and obstacles he believes Capgemini faces in doing business in the region. Consistent with a column TBR wrote for Nearshore Americas in 2012, government policy represents both an opportunity for sales and an impediment to conducting business in the region.
Capgemini has accelerated its activities in Latin America growing headcount in the region from approximately 400 employees in the region in 2005 to more than 9,000 today, with 60% inorganic growth and 40% organic growth. Major acquisitions since 2005 include:
- Network Consulting Group in 2007, which added 200 employees, primarily in Brazil and Argentina
- CPM Braxis in 4thQ10, which added about 5,500 employees
Massun estimates approximately 2,300 Latin American employees focus on BPO services delivery in to local and U.S. markets, up from 200 in 2008. Massun indicated Capgemini plans to more than double its BPO services staff by 2015 to 4,800 people.
Regional expansion will still split between what TBR defines as high-cost and low-cost functions. Low-cost functions revolve around BPO services delivery and will continue to be performed from Capgemini hubs in Guatemala, Chile and Brazil, while Capgemini’s technology consulting hubs will be built out in Brazil, Argentina, Columbia and Mexico. The intersection of these two discrete labor pools in Brazil results from the country’s high BPO and technology consulting services consumption and its history as an early landing spot for services firms expanding into LATAM.
Massun believes the major opportunities in Latin America are:
- Offering a standard platform servicing all 20 countries in the region
- Technology integration and BPM services reaching across the 20 countries
- A global delivery model providing Capgemini with greater coverage than most competitive entrants in the region
He believes the major obstacles in the region are:
- Tax costs for cross-border services
- Document management for cross-border services requiring the physical invoices to be returned and stored in the country of origin
- Regional companies unfamiliar with the concept of BPO services
Massun’s above comments about global services delivery in Latin America dovetail with TBR discussion about working within the European Economic Community (EEC) as well as comments EMC CEO Joe Tucci made in a Q&A session at an analyst conference about U.S. deficit challenges when asked what was keeping him up at night.
Global technology firms operate in a manner that is ahead of sovereign nation’s public policy thinking and best practices. The U.S. benefits from having, for the most part, solved these interstate commerce challenges over a century ago. The EEC struggles to blend disparate and entrenched nation states into a cohesive regional commerce zone that sits in a very precarious position given the sovereign debt crisis confronting their region. As New York Times columnist Paul Krugman suggests, the flaw in the EEC rests in a common currency manipulated by different national treasuries, whereas in the United States the Federal Reserve Board speaks with one voice about monetary policy.
Government Policies and Tax Benefits
In Latin America, therefore, inadequate regional policy coordination represents sales opportunity and staffing threats. Services firms operating in the region have to learn the idiosyncrasies of business commerce and advise their clients on the best way to deliver products and services to be efficient and compliant with country-specific tax policies. At times, Capgemini finds it more efficient to provide support services from India in certain situations rather than from adjacent Latin American countries.
The location of services-delivery-hub depends on available labor resources qualified in both technical and language skills; state-mandated benefits costs and state taxes on business and commerce. In short, firms spend a lot of time and energy looking at ways to minimize tax liabilities based on services point of origin. Massun believes tax liability can be cut in half depending on where the services originate. As services commodization accelerates, that tax liability arbitrage will become a bigger factor in regional resource locations and is increasingly being referenced by TBR clients as one of the factors compelling them to look outside of Brazil when expanding their Latin American presence.
Nations seeking to increase employment can capitalize on the regional policy disconnects with tax credits for local hiring. Massun says Capgemini targets Chile and Guatemala for expansion due to attractive incentives regarding employee education investments. Brazil will be an attractive market for services firms, but many seem to have made the decision to build out their regional hubs elsewhere given more favorable tax treatment.
The free market profit motive will determine global corporate behavior as the firms seek economies of scale. Nations have yet to fully understand global services economics and the way in which their local policies will impact employment opportunities. The need for BPO and technology services will not abate. The need to locate labor in specific countries, however, will be determined as much by market demand as by the economic thought leadership national governments bring forward to plug sovereign parochial interests in the global economy.
Governments have a lot of catching up to do lest they drive jobs out of their countries based on economic shortsightedness. Technology firms recognize this and will increase their focus on public policy impacts to benefits burden as services commoditize.
Geoff Woollacott oversees a number of large-scale custom consulting projects TBR’s Professional Services Practice executes. Geoff also content reviews pieces of the syndicated research stream. Stephanie Artigliere covers European players, such as Capgemini, Atos and T-Systems in syndicated reports and project work, such as TBR’s Global Delivery Market Landscape.