Do Violence Fears Hold Back Outsourcing in Latin America?

Latin America has the highest murder rate in the world, and while some don't believe this deters companies from operating in the region, others say "it is holding back the industry.” Nearshore Americas examines the impact of perceptions of violence for Latin America.

Latin America

Latin America is the the world’s most violent region. Almost one in three homicides on Earth take place here, according to a 2014 United Nations report, and its murder rate of 23.4 homicides per 100,000 is nearly double that of Africa. From action movies to news headlines, violence is well known to even those who know little else about Latin America. But is it really a deterrent for companies wanting to work in the region?

The answers are mixed when you talk to people in and around the outsourcing world. “When I speak about Mexico to people who are thinking about offshoring locations, this is something that will come up,” said Johan Gott, senior manager at management consulting company A.T. Kearney. “So the reputation risk is still clearly there…It is holding back the industry.”

Gott says perception is the main issue. Yes, the statistics are bad, but usually when you’re on the ground in a location with some BPO and IT penetration, the employees are going to and from work without issue. Crime has a very low probability to create an actual business continuity issue. He can comfortably recommend companies to set up operations in Mexico, for example.

The big players in the industry know this. But what a well-informed and well-researched decision maker will think isn’t the primary issue. The problem is when a location’s reputation precedes the reality and knocks a market off the list of candidates before the company gets serious about doing its homework. “Countries should be concerned about executives that make decisions based on what they know without research,” he said.

Juan Manuel González, ICT industry manager of consulting firm Frost & Sullivan, agrees. “The main challenge that Mexico faces today to strengthen call center outsourcing services exports — especially to the United States — is to reverse the perception of insecurity in the country,” said González.

Frank Holder is from outside the industry, working as Latin America expert for Berkeley Research Group, but his firm does market-entry analysis to help companies that are thinking about international expansion decide where to go. He says that the concern over violence and security is “not one of the decisive factors.” Firms will not opt for a more-secure country due to that reason alone. First and foremost are the workforce benefits, wage costs, local markets, and dozens of other factors that have routinely made relatively insecure countries like Brazil and Mexico more appealing than Chile and Argentina.

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Source: United Nations Office on Drugs and Crime

 

But when all other things are equal, it can make the difference. One call center company BRG worked with was undecided on whether to chose Panama or Costa Rica. The decision was nearly down to a coin flip, but ultimately the safer environment in Costa Rica won out. In this case, security was the tiebreaker that kept the firm from going to Panama. “We’ll see them narrow it down to several countries,” said Holder. “It may be an Asian country, two countries in Latin America, and then security really matters.”

He is also quick to point out that violence isn’t the only issue. Especially for companies outside the services sector, theft is a huge, rampant problem in Latin America. So as with the increased physical security, insurance that executives may need while traveling, and other precautions to avoid attacks, companies have to add in the extra cost of cargo theft and know they will lose more merchandise in certain locations than others. Holder says that those tangible dollar figures on the balance sheet — the cost of insecurity — are what keep companies away more than a nebulous fear of violence.

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Violence Concerns Are Overblown

On the other hand, many in the industry think the talk about violence curtailing growth in Latin American outsourcing is overblown. “I have not seen any companies changing business directions due to violence,” said Carlos Amaral, a director at the Dallas-based advisory firm Alsbridge.

Even during a major outbreak of cartel killings and abductions in Monterrey, Mexico, in 2011, he did not see one business leave the area or cancel its plans for local expansion. Colombia is the same story. He says the country “used to be very scary” but now the image has changed. People in the industry know the reality, and given Colombia’s ongoing economic growth in a region where many nations are struggling, industry companies are only moving to Bogotá.

On a recent trip to Brazil, he also heard nothing about security issues. In 2015, if any company is nervous about the nation, it is probably more due to the currency devaluation, national recession, and scandal-ridden second term of President Dilma Rousseff. “Employee security is always a factor,” said Amaral, “but companies do not stop investing in their future. Latin America is still a great place to invest and grow.”

Jason Brown, VP of operations in Latin America for customer management company Convergys, says it really only takes one evening in Bogotá, to realize it is a large city full of good restaurants, cafés, and green spaces more than it a hotbed of criminals who shot up streets in 1980s action movies.

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“It’s hard for people to get until they experience it — and then they fall in love with it nine times out of ten,” said Brown about the capital. “We are breaking through some of the perception issues…I think some people are really feeling and understanding that Colombia is stable, Colombia is growing, Colombia is a good option.”

Juan Carlos Lopez, president of operations in Mexico for IT consultancy NEORIS, doesn’t think companies are scared to come to Mexico. He admits that there are issues in the country and certain places that you don’t want to go, but he says this isn’t different from some areas in the United States. Mexican cities, like U.S. cities and those throughout Asia, each have their own concerns due to culture and history. But the local threat isn’t curtailing the industry. “In the end, business is business,” he said. “Business follows the path to new business, and Mexico is a country of opportunity.”

For a company used to doing business in Seattle or Munich, he says there are some precautions and processes they must employ to adapt to work in a less-secure environment. But this is neither a national problem nor a regional problem. “Unfortunately we have adapted and learned how to live with this, not just in Mexico but in the world,“ said Gonzalez. “This is happening in every part of the world and we have adapted to that.”

Making a Difference

San Pedro Sula is the murder capital of the world. Honduras’ second largest city, it has a murder rate of 169 homicides per 100,000 people, twice the rate of the nation and more than six times higher than Colombia, Brazil, or Mexico. It is understandable why an executive would not want anything to do with the city that has become the fiercest battleground of the gang wars that have inflamed all of Central America over the past decade.

But there is a budding IT call center industry in San Pedro Sula, and it is doing a small part to create opportunities for many who feel they have none. One business park is home to about six call centers and at least three more are located in other areas in the city. KM2 Solutions was the first one in the park, opening about four years ago, and client services manager Carolina Pinett thinks that companies coming to the city is mutually beneficial.

The industry has been enough of a jobs boon that some people have even moved from her hometown, the Honduran capital Tegucigulpa, and the Bay Islands to work in San Pedro. It’s a win/win and, in her view, these workers who relocated are the most loyal. “I think it’s been great for the country overall.”

She thinks that KM2, in particular, is helping the local community since it offers flexible schedules that appeal to students. Many employees are able to hold down a good job while they study for a degree that will help set them up for an even better future and avoid the pitfalls that too many of their compatriots have fallen into.

The company even embraces some locals who other firms won’t even grant an interview. “There are people who have been deported from the United States, which we prefer to call returnees, who would not have an opportunity elsewhere,” said Pinett. “A lot of them have tattoos, they’ve lived in the States for all their lives, some of them didn’t know Spanish, and didn’t have anywhere else to go. Other companies wouldn’t have taken them because of how they look. They found their opportunity to work here.”

The IT and BPO services sectors have brought many jobs and economic benefits to countries throughout the region. The Colombia call center industry, for example, recently eclipsed, $1 billion in annual revenue, according to Frost & Sullivan. Many have already realized that the relatively low levels of violence in places like Bogotá or Monterrey rarely affect business.

Some undoubtedly continue to be scared off. But this is just leaving more room for others to reap the market benefits. And as more companies like KM2 — and those that took a chance on Colombia, Brazil or Mexico earlier — embrace the areas the fearful avoid, it will only do more to dispel the notion that Latin America is too violent to be an outsourcing powerhouse.

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