Klender of Deloitte: List of global corps setting up in LATAM grows.

Narayan Ammachchi

Latin America is quickly establishing itself as a preferred destination for global corporations seeking to set up shared service centers (SSC), with more and more players pursuing new locations in Brazil and the Andean states to perform back-office functions. “Proximity and cost structure are some of the factors favoring the region,” says Mark Klender, Principal, Deloitte Consulting, which has recently surveyed nearly a hundred global corporate executives to gauge shared services trends and preferences.

The number of shared services centers is declining in the U.S. and Canada, but rising in Latin America, particularly in South America, the survey found. When Deloitte conducted a similar survey in 2011, Latin America had come second after Asia, but this time round the region has turned out to be ‘the first destination of choice’ for setting up SSCs.

More than 11 percent of respondents said they prefer Brazil, while only 10 percent preferred India, which the consulting firm regards as ‘the mainstay’ of the sourcing industry. In the survey, a considerable number of executives expressed interest in Mexico and Argentina.

Another interesting piece of news is that nearly 50 percent of SSCs servicing Brazil today are based within Brazil, and the South American country’s major cities such as Sao Paulo, Rio and Itajaí are increasingly becoming the hotspots for shared services centers.

More striking still, many corporate companies are using their LatAm centers to process back-office functions for operations in Europe and Asia.

As an example, Brewer AmBev, which has a very large regional shared services in Sao Paulo, is serving not just operations in the region, but also the firm’s operations in Canada. Diageo’s SSC set up in conjunction with the Indian outsourcing company Genpact is also exploring ways to  serve the British liquor company’s operations in Europe.

Long list of Shared Services

Many global multinationals have already set up SSCs in the region. “The list is long and the names include HSBC, MacDonald, Pepsi, Walmart, Amway, Siemens, Roche, Nestle, Johnson and Johnson, Procter and Gamble,” said Klender.

What is playing to the advantage of Latin America is the region has many countries and a majority of their residents speak a single tongue. “Many firms are setting up one SSC for every four or five countries. In other words, they set up one SSC in South America and another in Central America,” said Charles Arid, global practice leader, shared services, at PricewaterhouseCoopers (PwC).

According to Deloitte, labor cost and availability of workforce has continued to be the decisive factor defining where you will locate your shared services center. Availability of physical space, technology infrastructure and skills in languages are the ​​other factors of importance.

Interestingly, analysts say, most of the SSCs are serving as pan American centers but a vast majority of them are concentrated in four major countries – Brazil, Chile, Mexico and Argentina. That is because global multinationals in Latin America have 75 percent of their operation in generally two or three countries.

Klender says the number of SSCs will increase in the days ahead as the region consumes more goods and services. The consumer goods company Unilever, which sold its finance shared services to Capgemini, has joined hands with IBM to handle HR functions for its workers in Brazil, Mexico and Chile.

“Organizations are increasingly leveraging shared services and outsourcing initiatives to reduce costs, increase efficiency, achieve greater agility and improve compliance,” Arid said.

Where Are the LatAm Vendors?

Though SSCs are growing in number across Latin America, it is hard to find a regional vendor servicing a global client. Many SSCs set up by homegrown companies appear to be run by their own subsidiaries.

Analysts say a lack of knowledge about the benefits of setting up specialized centers for discreet business functions is holding back many small and medium businesses from leveraging shared service centers. Many don’t trust the argument that SSCs help cut cost and are also unwilling to conduct a feasibility study.

Corporate firms, on the other hand, are appearing more willing to outsourcing their back-office functions than set up captives or SSCs with third party vendors.  A past survey from HfS Research showed 70% of companies preferring to outsource and 52% increasing investments in shared services.

Klender says the biggest challenge for corporate companies is selecting the right country to set up the shared service center. “If you pick the wrong country you may not be able to save as much cost as you had expected,” he said.

“Shared services market is maturing in the region. LatAm companies don’t need to have their back-office functions processed in countries like India,” Klender added.

Start-up accelerator Wayra and MercadoLibre have joined forces to fund and train early-stage technology entrepreneurs in Argentina. The e-commerce portal MercadoLibre said it would ‘co-invest in certain ventures’ selected by Wayra, a start-up accelerator from Spanish telecom giant Telefonica.

The agreement comes weeks after Wayra issued a call for young entrepreneurs to send in their applications for venture capital by May 26.  The e-commerce portal is likely to invest in companies capable of creating new applications and services to its community of buyers and sellers. MercadoLibre recently announced the launch of an investment fund of $ 10 million that will be entirely focused on new ventures that use their platforms.

According to analysts, MercadoLibre’s aim is to strengthen the e-commerce ecosystem in the region it operates. MercadoLibre is “an ideal partner for acceleration and internationalization of our companies,” said Andrew Sabol, Country Manager of Argentina Wayra.

By Jon Tonti

Some small to medium sized software providers in Latin America seek specialization in business verticals and languages while others do not.  Experience can create value, but is method or know-how the principle ingredient.  NSAM talked to four Nearshore software development experts to understand how providers find their niches and how important those niches really are.

Often is the case a company moves in a particular direction because of the talent it hires.  Arin Sime, CEO of Agility Feat explains that after initially setting out to provide outsourced development services without a particular focus, his company began hiring people with exceptional ability in design, user experience, and frontend web development. “You find awesome people and you build the business around their exemplary skills,” said Sime.

The expertise of Agility Feat’s Costa Rican nearshore team enabled Sime and his colleagues to focus the business towards startups or small and medium companies (that behave like startups) that need design, process flow architecture, and implementation in an end-to-end lifecycle.  The US leadership team of Agility Feat already had good experience in startups and offshoot technology projects for small and medium sized companies; hence the melding of the skill sets from both sides of the organization produced a unique company with more focused services.

Ruby, Rails, Python, Mobile…..             

Others outfits like Tekton Labs specifically chose their technologies based on gaps in the marketplace.  “We chose Ruby on Rails, Python, Mobile and other open source technologies because they are something new in Latin America and especially in Peru,” said Kenneth Lopez, a consultant at Tekton.  “Most of the other companies here in Peru were only dealing with Java and .NET so the differentiation helped us grow.”  Lopez added that the company then employed SCRUM methodology (a derivative of Agile, which is already the standard in LATAM according to some experts and thus a non-differentiator).  The business verticals in which Tekton works developed more organically through referrals from other clients.  “We ended up working in retail, health, digital marketing, and human resources by chance,” explained Lopez.

In contrast to the organic movement into business verticals at the behest of current and potential clients, Tekton also draws upon its accumulated knowledge base in areas such as digital marketing in conjunction with Rails development for Facebook apps to push new ideas to potential clients.

Personal experience plays no small part either.  Mauricio Duran, president of Definity First was invited to intern at Microsoft at the at age 21 straight out of Mexico, where his company has operations now.  He was quickly impressed by the powerful tools and technologies offered by Microsoft.  “I was a UNIX guy, but ever since that year in 1997 I feel Microsoft tools and technologies are the right thing to use because of their reliability, scalability, and support,” said Duran.  “Despite, Microsoft being a giant company they have limitations too, I saw where I could build the stuff [on top of the Microsoft techs] that they didn’t have the time to build.”

Some firms that have grown organically in certain directions based on client and overall market need have run into skill shortages when going far into a specialized technology, which is not a problem specific to Latin America, says Barnaby Sheridan, Senior Partner at Velocity Partners, which has operations in Argentina, Uruguay, and now Colombia.  “We have stuck to base technologies like .NET and open source, and have stayed away from particular industries, we can do work for any client that has a software intensive model,” he said.  In terms of organic growth spurned by client demand Sheridan mentioned that “Ruby is huge and we have also seen a big call for more test automation.”

Although Agile methodology is not considered a differentiating factor anymore and instead the standard for nearshore software providers, there are many companies that run halfhearted Agile systems and don’t live and breathe it.

Maturation = Specialization, not Necessarily

It might seem intuitive that as software providers mature they naturally go in the direction of specialization in particular business verticals or technologies.  We have it drilled into us in business school the need to differentiate and specialize.  However, with software development firms, that is not necessarily true.  “If the metrics that you are using for success of the company are number of employees, countries you are in, or locations you have it might be more advantageous to reach larger-broader markets and not specialize too much,” commented Sime.

Some think specialization must yield better results, but is that true?  “Specialized providers have the sales advantage because the buyer thinks they get more for their money, I don’t want to harp on process, but if you are a good development shop and know what you are doing, it shouldn’t really matter,” commented Sheridan.

Lopez also does not believe buyers will automatically get more value from providers that specialize in certain business verticals.  “I think it is more about the company and the culture that will deliver value.  When we started with health companies in Peru, we didn’t know anything about health, insurance, or medical services, but they saw the value we could provide with our technology and methodology.  They provided the industry knowledge, we became experts, and it worked very well,” he stated.

Although Agile methodology is not considered a differentiating factor anymore and instead the standard for nearshore software providers, there are many companies that run halfhearted Agile systems and don’t really live and breathe it.  Sheridan commented that if a company is not going to specialize in a platform or business vertical, specializing in a methodology is another way to differentiate.  Of course, the provider must be wholly faithful to the methodology for it to be a true differentiator.

However, there are contrasting viewpoints to the method triumphs specialization assertion.  Sime explained that because of his US team’s wide ranging experience in multiple platforms the company originally set out to offer development services in any language by hiring on a client by client basis if need be. “Ultimately it is not a great business strategy, you are trying to be everything to everybody. Now we specialize in Ruby on Rails development and Python,” indicated Sime.

Duran also thinks that there is value in using providers that have extensive knowledge in a particular domain as those developers building the product have seen it all with respect to the behavior of said technology.

Specialized Shops Turning Away Business or Reselling it?

Some development shops that have decidedly gone towards particular technologies reject projects that are based in other technologies where their expertise is lacking.  To the contrary, other shops will take the contract and farm it out to another firm with the necessary expertise.  That begs the question, how much of this goes on?  “I think a fair amount,” stated Sime.  He mentioned that Agility Feat has considered doing it with projects close to their domain of expertise, but has stopped short because it would distract from the company’s core mission.  Sime informed that if his company were to take part in such activities his company’s name would still be on the final product so Agility Feat would have to ensure the quality of all aspects of the development process and final product.

“Yes, that happens a lot, a lot, a lot.  Especially in countries like Peru or other countries where the companies don’t have a lot of experience with new techs like mobile or Ruby on Rails they end up selling the contract over and over again until it is acquired by some company that is actually good at it,” remarked Lopez.

When asked about the pitfalls of reselling contracts and extending the chain of responsibility for an end product Lopez explained that transparency is the only way to ensure success.  “The companies that approach us and say they have a contract that belongs to company X in New York, which was then passed to a company Y in Mexico, and now company Z in Peru or whatever, are really open with the client because the development team has to talk directly to the client.  In that situation it will work, when you try to hide it and there are intermediaries in the communication channel that is where I will not go and don’t recommend anyone to go. With full transparency and direct access to the client there should be no problem.”

By Michael Puscar

Medellin – blessed with a beautiful natural landscape, friendly people and green parks – has seen incredible growth over the past two years. This city in Colombia is today one of the most innovative cities in the world. With abundant human talent and conducive business climate, Medellin is fast becoming a perfect destination for enterprises seeking to establish high-tech operations. The city has, over the years, transformed from the center of Latin American drug trade to a growing high-tech hub.

My firm, Yuxi Pacific Group, set up a satellite office in Medellin in early 2011. Over the past two years, we have recruited more than 80 employees and more than doubled our revenue.

Despite recent success, Medellin does have some problems. Country’s growing economy has benefitted the educated middle-class community, but people residing in hillside neighborhoods (called comunas) have remained poor. Many residents in impoverished neighborhoods are caught in the crossfire of crime syndicates –– Urabeños and Oficina de Envigado –– trying to take control of the city.

In San Javier (also known as Comuna 13), a densely populated neighborhood, armed groups have made life miserable for thousands of residents.

Some of these neighborhoods are known as “invasion barrios” and are volatile. Many hillside neighborhoods are not officially recognized by the Municipality of Medellin and therefore receive little or no official government assistance. Though the city has grown in stature on the international stage, many residents here are still struggling to avoid street violence and provide a quality education to their children.

There is little doubt that only education can defeat this cycle of poverty and hopelessness. Enterprises thrive in countries where children are given good education. That is what motivating Yuxi Pacific Charitable Trust.

Recent initiatives of the Trust have become popular among local residents. Yuxi Pacific Charitable Trust operates independently and intervenes directly to help poor communities with projects focused on youth education.

Arming Schools with Computers

We visit impoverished neighborhoods and identify a school that is deprived of basic needs to provide good education. This year our work will focus on Institución Educativa Cedepro, located in an invasion barrio in the City’s 13 de Noviembre neighborhood.

But philanthropy is not about writing a check or buying equipment but a constant, ongoing and multi-faceted commitment to uplift a community. We equip schools with computers and our employees volunteer to work for the welfare of student community.

Our efforts start well before classes resume. Our staff walks into the school and helps to select the best space for computer lab. We help schools get internet connectivity and provide training to teachers who later supervise computer labs.

People express their gratitude with a smile. For me, this effort is personal. I was raised in a working-class family and, when I was 11-years-old, my parents pooled together their savings to get me a computer (a Commodore 64). That computer changed my life. If the computers and education that we provide can make difference I think it is worth the effort.

The author is the Chief Executive Officer of Yuxi Pacific Group.

The Brazilian Ministry of Science & Technology is offering funding to overseas technology companies interested in developing innovative software and IT services inside Brazil – a move reminiscent of CORFO’s (Chile) creation of StartUp Chile launch several years ago.

The government has allocated 25 slots for foreign tech start-ups in its “Start-Up Brasil” accelerator program designed to foster innovation in Brazil’s software and information technology services industry.

“Shortlisted enterprises will be eligible for up to US$ 596,000 in funds,” said the Ministry in a statement.

‘Start-Up Brasil’ has a budget of US$ 19.8 million and aims to support 75 domestic companies besides their foreign counterparts.

“We want to encourage entrepreneurs in the area of information technology. This area is strategically important for us to develop new business for Brazil,” said Brazil’s Minister of Science, Technology and Innovation, Marco Antonio Raupp.

Participating companies are required to have been operational since the past three years and to develop innovative products or services that use software and IT services.

Foreigners whose projects are approved will be given temporary visas to Brazil.

In addition to the Brazilian federal government, the start-ups will also receive funding from  accelerator companies.

“Private funds can range from US$ 9,897 to US$ 494,854 per company selected, depending on the accelerator associated with the project and its stage of development,” the statement said.

The accelerator companies include Acelera Brasil (Microsoft Participações), Wayra, 21212, Aceleratech, Papaya, Acelera MG (Fumsoft), Outsource Brasil, Start You Up, and Pipa.

The deadline for start-ups’ entries is May 31 and the shortlist will be announced in July.

The entrepreneurs will be physically located within the accelerator’s infrastructure, and benefits will include physical workspace, legal advising, coaching and mentoring.

Chile received more than US$ 9 billion in foreign direct investment in the first quarter of this year, according to official figures released this week.

The FDI inflow increased 87 percent compared to $4.87 billion received in the previous three months. More than five billions dollars flowed into the country in March, the highest monthly foreign investment in the past 16 months, according to the Central Bank.

According to ECLAC, Chile received more than 30 billion USD in foreign direct investment in 2012, making it the second largest FDI recipient in the region after Brazil.

Last year, Latin America and the Caribbean set a record in foreign direct investment (FDI) (6.7% more than in 2011), despite  international conditions characterized by shrinking FDI flows worldwide.

Chile has also stepped up its investment elsewhere in the region. “Outward direct investment by LAC countries came from Brazil, Chile, Colombia and Mexico, while in 2012 they came almost exclusively from Mexico and Chile,” says ECLAC.

CEO Regal: Quality found in Uruguay

By James Bargent

For high street bookstores, squeezed by the explosion in e-books from one side and the dominance of online retailers like Amazon on the other, the death rattle has been sounding. However, for an enterprising pair of literature lovers backed by a nearshore software development team, the new digital age has instead been marked by the sound of opportunity.

E-book retailer Zola Books was the brainchild of former literary agent Joe Regal and ex-Sotheby’s’ AVP Michael Strong. “They realized that there was a gap in the market for book readers, publishers and authors – to bring all those parties together in a social environment,” said Charlie Berg, Zola Books’ Chief Technology Officer.

Within that environment, users can not only purchase books but also construct their own literary social media network, sharing recommendations, reviews and even underlined passages with their peers. They can also connect with authors, who can use Zola to market directly to readers via a free email-marketing platform, and monitor sales information with a custom dashboard.

Retailers and publishers can also connect with their customers, to collect economic data or market new books, and independent booksellers can even claim a free branded storefront.

In addition to this, there are the Zola curators, bloggers and reviewers who share their comments and recommendations for the latest releases with their followers, and, for those who favor the less subjective views of algorithms, there is Zola’s “Curation Engine” – a custom built recommendation engine.

Revolution Brought About By Technological Advance

Two years into its life, and many of the Zola Books team’s innovative ideas about literature, retail and technology are now being made reality by nearshore ITO operations. The driving force behind the move into nearshoring was Berg, who has 20 years experience in the outsourcing sector, as well as around a dozen start-ups on his CV.

Berg’s first forays into outsourcing were focused on the offshore market, particularly India, but it was his more recent experience of working with ITO operations in Ecuador that influenced the direction he has taken Zola in.

While working as head of technology at a New York digital development firm, Berg first turned to nearshoring after finding a shortage of quality US-based engineers for projects that required a team of developers integrated into the production cycle.

The results, he says, were impressive. “This is a more agile approach, you are in touch with these people as if they were in your office, using Skype, IM, emails etc and they are involved in the day-to-day development,” he said.

Berg returned to Ecuador while looking for development teams to augment the resident engineers at Zola but turned his attentions elsewhere after having trouble recruiting in sufficient numbers.

Uruguay: Burgeoning Nearshore Destination

After dismissing Argentina over concerns about political and economic stability and Costa Rica over price, he turned his attentions to Uruguay, which colleagues in New York’s CTO Club – a private members club for technologists – had recommended as a burgeoning nearshore destination.  “I’ve had such a good experience with Latin America in general and this was the next place to look,” he said.

On an exploratory trip, Berg evaluated conditions in the country and met with ten potential service providers.

Uruguay, he found, may not be the cheapest destination – some of the quotes he received were as high as costs in the United States and on average at least two thirds of the price – but these high prices were matched by high quality conditions. “[Uruguay] is first world – there’s no question,” he said. The infrastructure is the equivalent to the United States.”

He also found the country possessed the high quality human capital he had been searching for. “I was very impressed, there was no question in my mind that these guys are as capable as US engineers or engineers in India or anywhere elsewhere.”

With their nearshore software development team up and running, the Zola Books team is now eying up an expansion into Europe and the UK. Berg, meanwhile, hopes to facilitate that expansion with a tech team that blends various IT development models. “My ideal company would have engineers in the States where I can actually talk to them and they can talk to me and the product definition people, they would be supplemented by a nearshore team and then for special projects that are more separable I might use an offshore.”

Berg believes this flexible model is not just the future for Zola, but the way forward for all IT operations. “I think that what’s going to happen is it will come to a mix of resident engineers, nearshoring and offshoring,” he said, “because in my mind it is driven by the project and what you are trying to get accomplished and because they offer different value.”

For Zola, meanwhile, by creating their own unique retail model, offering book lovers their own different value, Regal and Strong hope to find the opportunity in the publishing world’s crisis.

Capturing the systemic and noteworthy advancements in Mexico economics, IT and political leadership over recent months, Nearshore Americas today announces a special series of white papers that will be published in our pages over the next several months reporting on these newly arising market conditions.  

The white papers, stemming from a collaboration with the country’s leading global technology advocacy group – MexicoIT, are oriented to provide unusually deep insights to the foundational shifts occurring in Mexico that are giving way to improvements in education, investment climate, fluency in global services and overall business attractiveness.

The first two white papers are now available for free download in Nearshore Americas “Premium Reports” section. They include:

• Taming the Aztec Tiger: Turning Mexico’s Economic Successes into a Win-Win for Global Sourcing
• The Nieto Factor: A New Government Aims to Strengthen Mexico’s Global Value Proposition

The Nearshore Americas editorial team is currently researching several other papers that will be published throughout 2013, reporting on the influence of major outsourcing firms in the country, special achievements by small to medium software and services exporters and also detailed portraits of contributions made by innovative firms  in digital animation, gaming and mobile applications. Watch our pages for further updates!

U.S. low-cost airliner JetBlue has announced the introduction of daily flights between two American cities and the Haitian capital, Port-au-Prince.

There will be daily flights to Haiti from both New York City and Fort Lauderdale-Hollywood, said the carrier in a press release.The service will begin on December 5, 2013.

JetBlue said it has plans to offer one daily flight to New York’s John F. Kennedy International Airport (JFK) and twice daily flights to Fort Lauderdale-Hollywood International Airport (FLL).

On their arrival in Fort Lauderdale, passengers can catch flights to other destinations in the United States including Boston, MA; New York (JFK, LaGuardia and Westchester County); Newark, NJ; and Washington, DC (Reagan National).

Customers traveling on JetBlue’s new nonstop service from Port-au-Prince to New York will be able to connect to Buffalo, NY, Boston, MA, and Chicago, IL, among other destinations, the carrier noted in its statement.

Charles Antoine Forbin, Consul General of Haiti in New York, thanked the U.S. carrier, saying the flight service would ease the traveling between the two countries and help Haitian Americans participate in the rebuilding of the Caribbean country.

“With expansion into Port-au-Prince, we plan to meet the demand for quality service to Haiti by offering competitive fares to the large Haitian diaspora in the United States. In turn, we look forward to helping to support the community on the island,” said Scott Laurence, vice president of network planning for JetBlue Airways.