LatAm is More Than A Delivery Destination: Domestic Demand Takes a Front Seat

With so much focus on service delivery locations within Latin America, it can be easy to overlook what is happening on the buy side for services. Outsourcing by …

With so much focus on service delivery locations within Latin America, it can be easy to overlook what is happening on the buy side for services. Outsourcing by domestic Latin American companies reached the highest level TPI has ever recorded in 2010, and our data and experiences with clients this year suggests the momentum will continue through 2011. We are seeing outsourcing by types of companies that do not fit the traditional Latin American client profile, and we are also seeing new fundamental drivers that are leading companies to outsource.

Highest Penetration

Last year 25 percent of large Latin American companies (defined as those on the Forbes® Global 2000 list of the world’s largest public companies) were actively outsourcing, which is the highest penetration rate we have ever measured for the region. While Latin American companies are still less likely to outsource than their international peers (the global average penetration rate is 36%) the rise in penetration is significant because new companies are entering the market. We’re seeing midsize firms (between approximately $1 billion and $1.5 billion in annual revenue) seeking to outsource for the first time. It is also notable that outsourcing growth is occurring in many vertical industries, rather than being concentrated as a trend in a few.

New thinking is also driving domestic Latin American outsourcing. Many clients we work with are excited by the IT improvements and resulting competitive advantages that they can gain by working with a service provider. Cost reduction is still a major outsourcing driver, but more than ever clients recognize and value the business improvement that service providers can enable through their IT expertise. As clients demand more innovation and IT leadership, price becomes less of a factor when deciding among service providers.

Marking the Shift

The developments outlined above may signal a shift in the Latin American outsourcing market, but many fundamentals remain the same. IT still dominates outsourcing activity, as Latin American companies remain reluctant to outsource their business processes. Longstanding tax policies limit the value of offshoring and companies don’t aggressively pursue it, although companies are showing slightly more willingness to allow some functions, such as service desk support, to be transferred to another Latin American country.

These developments should be characterized as a series of small shifts rather than a dramatic major trend. We do expect these developments to gain momentum, and as they grow they could take the Latin American outsourcing market in exciting new directions.

 

Pablo Velasco is Director of CIO Services at TPI. Contact Velasco at [email protected] or visit www.tpi.net.

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