Lack of LatAm Quality Standards: Will it Reduce Nearshore Market Share?

When buyers look at the Nearshore region, they may see a lot of talent, but they may not see many ways to mitigate risk. That’s why quality standards …

When buyers look at the Nearshore region, they may see a lot of talent, but they may not see many ways to mitigate risk. That’s why quality standards and their certifications are so important to be implemented, according to Jane Siegel, Director of IT Sqc, Senior Scientist at Carnegie Mellon University and special guest speaker at Nearshore Nexus, April 26, in New York City. With the exception of a few forward-looking initiatives (like Chile’s focus on IT standards), the LatAm public and private sector for the most part are unaware of the business value that certifications like ISO can accrue.

Meanwhile, providers from India with strong quality standards in place are gaining more visibility, even on home turf in the Nearshore. As Siegel tells us in this special interview, the fact is that buyers want to see quality, and are willing to pay for it.

In terms of implementing quality standards, especially for higher level value added work, how do providers from the Nearshore region compare to those from rival geographies like India?

 

Siegel: In terms of service providers from certain geographies, none of the other locations have adopted the same level of quality standards as the major Indian companies. If you go to any major Indian provider – Wipro, Infosys, HCL – they will have in place anywhere between six and ten different standards that they’re certified with. This is also true for any of the big global companies like Accenture, IBM, HP. Those firms have been involved in international standards development through ISO for a very long time, and have a history of understanding the need for quality standards and incorporating them into their service delivery. They see the business value in clients being assured of having defined and certifiable processes in place when they take on a project.

But in Latin America, those global providers need to be differentiated from the homegrown firms, which often don’t bother much with quality standards. The tendency for many smaller LatAm service providers is to assume that if they do good work, they’ll be able to grow. In some cases that strategy has worked, but in many cases companies reach a size of a 1000 to 2000 employees and then they can’t expand into international markets because they haven’t planned for or figured out how to get those certifications in place.

So is the lack of quality standards in Latin America significant enough a factor to lose the region outsourcing market share in the coming years?

Siegel: It’s a very significant factor, so potentially yes. In Latin America if you go to IBM Brazil, they will have all of the certifications, and can compete with the best providers anywhere in the world. That’s a decision they’ve made to increase their competitiveness with other providers. So when a buyer is looking for a Nearshore solution, if they want a high level assurance of quality, they’re often willing to pay the higher price. The alternative is going with a mid-size or smaller homegrown LatAm service provider. That provider might have very talented people, but if big clients can’t mitigate their risk by seeing proper quality standards put in place through certifications, they’ll be less inclined to take their business there.

 

Why has the Nearshore region been unable to implement those quality standards? What are the obstacles that stand in the way?

 

Siegel: One obstacle has been the economics of it. Service providers have to absorb a large expense in order to implement quality standards. But there’s also a key role for the public sector in this. In China for example, the government sees quality standards as an issue of competitiveness, and so it has been subsidizing the cost of certification and standards execution for many Chinese companies. To put this in perspective, those efforts started only about five or six years ago, whereas for India, they started in the 1980s. In Latin America, there are a few notable initiatives, but those efforts still haven’t really started. That means the Nearshore is effectively decades behind in this area, and will need to be quite aggressive if it wants to catch up.

That leads to the second obstacle – awareness on the part of decision makers about what role quality standards play, and their ability to acquire the company new business. Latin America still has not understood the important of quality certifications. That being said, one thing that is starting to happen is that Latin America companies doing good work are starting to get acquired by the bigger global players (think CPM Braxis that recently got bought by Capgemini).

What should buyers be aware of when dealing with quality standards and certifications?

 

Siegel: It doesn’t matter what the nature of the outsourcing work is, high capability providers that operate internationally know what standards they need to comply with and will have invested in them. But realize that it does cost to be assured of that quality, and buyers should not be naïve about that. Globally the one standard that virtually every company that’s doing international business has in place is ISO 9001. That’s essentially the ‘floor’ for doing international business – the basic requirement. But all it says is that the provider has some kind of quality management system in place. It doesn’t really give the buyer a notion of how good the provider’s processes are, or what the specifics are of its quality management system.

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So one of the issues raised in the international standards community is whether there needs to be some modification, or some additional certification. Something new is needed to really give clients concerned about ITIL compliance an idea about whether those practices are being implemented by a service provider they’re considering.

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