As enterprises in the global services industry continue to undergo significant change and head toward digital, the make-or-break factors in sustaining that growth continue to be location and talent. Amid the rise of disruptive technology, changing consumer demands, pressure on margins, and the reduction of go-to-market time, companies are looking at other geographies to find the right digital talent for their service delivery.
In a recent report by IT management consulting and research firm Everest Group, the company broke down the key differentiators for the world’s digital sourcing hotspots, which uncovered some encouraging results for Latin America on the world’s digital stage. Nearshore Americas spoke with Bhawesh Tiwari, Senior Analyst at Everest Group and author of Global Hotspots for Digital Services.
Breaking down the Report
Regionally, the report assesses Latin American locations that are established in providing digital services, including Mexico, Brazil, Argentina, Colombia, Chile, Costa Rica, and Uruguay. “We also assessed emerging locations such as Guatemala, Peru, and El Salvador, but these locations are not featured in the report as the market activity for digital services in these locations was limited,” stated Tiwari.
During his research, Tiwari looked at the service delivery footprint of leading service providers and global in-house centers (GICs, or captives), which helped form a view on the market activity in each location. This information was sourced from request for information (RFI) exercises with service providers, interviews with service providers and GICs, and Everest Group’s proprietary market activity databases, which are maintained by a team of analysts who track developments across locations, such as new center set-ups, expansions, and mergers and acquisitions.
The ranking of countries is based on three main considerations: talent availability, cost and risk. Talent availability includes both entry-level and experienced level talent across all digital segments, namely social & interactive, mobility, analytics, cloud, and next generation technologies. “We have also layered in specialized focus on digital service delivery in the form of digital innovation centers or centers of excellence for digital service delivery to form a holistic view of quality and quantity of talent available in a specific location,” stated Tiwari.
Latin America is relatively immature for digital services delivery when compared to India and Nearshore Europe. Even so, the research shows that the region is experiencing a spate in nearshore demand, which is being supported by its provision of medium- to low-complexity digital services. “The positioning of digital capabilities across geographies have to be viewed in a relative sense,” said Tiwari. “There is definitely evidence that mobility and analytics-related work is happening in Latin America; however, the scale and maturity of service delivery is still evolving as compared to the scale and maturity achieved by other sourcing geographies.”
On the scale of operating cost (which factors in compensation, facilities and technology expenses) versus availability of talent (which considers relevant entry-level and experienced talent for digital services), Buenos Aires appears as an “aspirant” nation, and is the lowest rated country in Latin America, while Sao Paulo ranks a little better due to its sizable IT talent driven by cloud services. On a global scale, the cities of Bangalore, Mumbai and Hyderabad are clear leaders, offering low costs and high availability of talent.
The report shows that nearshore in both the Americas and Europe only makes up 16% of FTEs in the global digital services sourcing market, 2% of which are represented by Mexico, Brazil and Argentina, suggesting that the region has plenty of room left for growth.
Locations such as Argentina, Brazil, and Mexico offer strong IT skills and can act as digital hubs for next generation technologies. Costa Rica has been an attractive location for English language delivery and IT infrastructure support and is emerging as a hotspot for social media support and cloud infrastructure management by drawing on synergies with existing operations.
According to Tiwari, organizations are very sensitive about integrating new digital products and services with their business philosophy and culture, so they prefer nearshore locations to support digital service delivery as it enables regular interaction and coordination between delivery centers and business leaders. “Latin America is a key nearshore geography for the US and can leverage its proximity to play a larger role in driving the digital agenda for US based organizations,” stated Tiwari. “Also, the region is perceived as a close cultural ally of the US and Canada by North American organizations, and can become a location of choice for supporting digital service delivery to North American markets.”
There is evidence of increased leverage of Latin American locations for supporting the US. Leading service providers have expanded their presence in Latin America to support US clients especially in areas of cloud infrastructure management and social media support. Same time-zone advantage and geographical proximity are key reasons driving this shift.
It’s also hard to ignore that Latin America has a large, rapidly growing domestic market driven by multiple digitization initiatives in many regional countries, meaning that local digital service delivery is also an attractive opportunity for players operating in the region.
Catching Up with India
India’s digital sourcing market is the clear frontrunner in the digital services industry, accounting for approximately 55% of the market in terms of FTEs. This leadership is driven by the availability of high-quality talent, synergies with existing sourcing operations in the area, and low operating costs. However, key nearshore locations such as Latin America are well-placed to grab the digital opportunities as digital disruption pushes organizations from traditional remote delivery models to newer agile nearshore and onshore models.
“Digital service delivery is very talent-centric, so the focus of talent development is key to developing digital capabilities,” Tiwari explained. “The growth of the industry is creating specific opportunities for different geographies. Nearshore locations can play a larger role in real-time innovation, content localization and contextualization, and multilingual delivery, whereas offshore hubs, such as India, can be leveraged for large-scale development support.” Developing the point further, Tiwari explained that leading digital players have consciously adopted an intentional locations portfolio to benefit from the best of all locations. “This goes to say that digital services are creating complimentary growth opportunities for offshore and nearshore locations.”
Another focal point in the region should be differentiated government support, which firms require for delivering digital services or planning to set-up digital delivery centers in Latin America to encourage investments.
Evolution and Competition
Digital should be viewed as a highly competitive and a rapidly evolving area. The technologies of today are being challenged by the technologies of tomorrow and the rate of obsolescence is high. Players involved in digital service delivery should be mindful of this and should proactively develop capabilities in next generation technologies. Regular and conscious investment in R&D should be made to remain competitive in the market.
Aside from technology and innovation, a customer-centric focus is a central theme behind the development of any digital product or service. Hence, players should focus on a consumer driven digital agenda and should regularly interact and interface with clients to create targeted and meaningful solutions that can enrich the customer experience.
So what does all this mean for the region? How viable is Latin America as a digital sourcing hotspot? According to Tiwari, the outlook is good: “Latin America is well-positioned to ride the digital wave. The focus of digital service delivery is innovation, hence why the same time zone is imperative for real-time innovation and R&D. The presence of these factors make the region a strong candidate for driving the digital agenda for US based organizations.”
The strategy of choosing the right locations for digital service delivery is critical, and will become even more so as this industry continues to grow, so it’s encouraging to see that this new research is further backing-up Latin America’s viability as a digital sourcing hotspot.