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Seeking Opportunity Arbitrage in LatAm

Seeking Opportunity Arbitrage in LatAm

By Eric Simonson, Everest Group

I often hear organizations wanting to attain benefits but with a desire to “minimize” risk. Understandable, but what they don’t realize at the outset is that this is a limiting mindset, particularly when most also agree they prefer sustained benefits. My preferred definition of global sourcing is “attaining a different profile of benefits from successfully managing a different profile of risk.”

Instead of trying to follow what has already been proven “safe,” the innovators in global sourcing are intentional about what risks their organizations can take and successfully manage in order to achieve the desired benefits. These risks may be in overcoming infrastructure disadvantages, creating delivery models that can withstand more variability, or choosing to cultivate an underutilized talent pool.

The single largest and most enduring challenge in global services is getting the right talent. The reality is people are much more difficult to “build” than facilities, telecommunications, policies, transportation, and other foundations of service delivery. Labor pools are also much less “portable” across geographic boundaries than hardware, office furniture, etc.

With this in mind, I see the biggest opportunity for achieving advantaged benefits – cost savings and greater levels of talent – from targeting attractive talent pools in locations that most consider “too risky.” I refer to this as “opportunity arbitrage” or seizing opportunity from access to talent that others are unwilling to pursue.

Different Look at Risk

I am not suggesting ignoring risk, but rather being precise in thinking about what is truly a risk relative to needs and desired outcomes. Looking back, almost all offshoring to lower cost destinations were pioneered by organizations willing to pursue opportunity arbitrage by going to locations before others would seriously consider them; and as a result, they advantaged benefits for an extended period.

Latin America offers several cities with opportunity arbitrage. The locations are not for every organization, but they deserve a bigger role than the current market demands. The most notable examples from my experience are Bogota, Colombia and San Salvador, El Salvador. Both locations are often “early outs” in the location selection process because of lingering reputations for violence and criminal activity. However, the issues that mar their reputations have little to no impact on service delivery operations.

The reality is that both Colombia and El Salvador are well connected to North America for air travel –major destinations for TACA, the leading airline serving Latin America and based out of El Salvador –and within four to eight hours flight time from many locations in the United States. Both are on positive terms with the United States government, the United States is both countries’ largest trading partner, and to date, both locations have been used for delivery of voice-based services in English and Spanish across the Americas.

Let’s look at both in more detail to understand what creates the opportunity arbitrage.

Bogota, Colombia

Concerns regarding drug trafficking and related violence stain Colombia’s reputation. However, violence in major metropolitan cities has decreased, and Bogota, in particular, is comparatively safe.

Unfortunately, these lingering concerns overshadow the reality of Bogota – a metro area of eight million residents (top 30 globally in population). While it should be viewed as one of the world’s leading cities, given that it is the capital of Colombia, a major business hub, and a cultural and educational center referred to as the “Athens of South America,” it is often overlooked by those unfamiliar with the region.

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Nonetheless, the above positive attributes result in a broad and deep talent pool, and leading service providers like TCS, Convergys, Unisys, Sitel, and others operating from Bogota will help pull increasing amounts of global delivery into the city.

Additionally, Fortune magazine just named Bogota as one the top 15 new cities in the world to do business in.

San Salvador, El Salvador

In the aftermath of the 1980-1992 civil war, El Salvador has continued to experience significant levels of violence. Although the country is regularly listed as one of the most violent in the world, most of the problems are centered around gang activity and do not specifically target US citizens or others visiting El Salvador (but they can be impacted just like any Salvadoran).

As the third largest economy in Central America, El Salvador has a population of six million, with two million residing in San Salvador. Within Central America, San Salvador is an important business center, and the country has adopted the United States dollar for its currency (no exchange rate risk)!

Approximately three million Salvadorans live in the US, which creates a close cultural tie to enhance bilingual capabilities. Sykes and Stream have large contact centers in San Salvador providing bilingual support (including technical) to take advantage of these voice skills.

For organizations working with service providers already operating in Bogota or San Salvador, both locations deserve serious consideration, as they should provide valuable opportunity arbitrage in the coming years. Risks do exist, but they need to be thoughtfully assessed in relation to the benefits, with a blind eye to neither the down- nor upsides.

Eric Simonson is Managing Partner of Research, Everest Group. Eric leads Everest Group’s research practice, which conducts original research on global services trends and issues.

About Kirk Laughlin

Kirk Laughlin is an award-winning editor and subject expert in information technology and offshore BPO/ contact center strategies.
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