Will Haiti Forever Change Outsourcing in Latin America? Experts Respond

The devastation of the Haiti quake is bringing up questions about the influence the United States should exert in Western Hemispheric issues over the coming months and years.

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By Kirk Laughlin, Editorial Director

By Kirk Laughlin, Editorial Director
While Haiti is the poorest nation in the Americas, there are numerous other countries that struggle with democratic freedoms, economic stability and educational investment. These issues happen to be the very same issues that drive how global services leaders scrutinize whether, and how much, to invest in a particular country. This raises a key question: How much impact does investment in outsourced services assist in the economic growth and political stability of an emerging economy? And, furthermore, will the expansion of Latin America-based outsourcing grow even stronger with the rising awareness of the positive impacts US businesses can deliver to these emerging economies?

Nearshore Americas asked several industry thought leaders about these issues. You may be surprised by some of the answers – as always feel free to voice your opinion in leaving a comment at the end of this article.

Worries Over Risk will Hurt Poorer Countries

Michael Corbett, President of the IAOP Michael Corbett, Chairman of the IAOP

Traditionally, underdeveloped countries have been able to lift themselves from poverty based on their natural resources or by being a sought-after location for trade and tourism. Outsourcing has the potential to be an even more powerful force for lifting people in poor countries out of poverty. Regardless of where a country is located or the natural resources it may or may not posses, every country has the one thing outsourcing needs – people.

When poor countries educate their people and connect them to the Internet those new workers become immediate contributors to the global economy.  They can help meet the needs of companies and their customers anywhere around the globe.  And, the value of these new workers only grows over time.  As the overall economy becomes more knowledge-based their brain power becomes the new natural resource fueling continued growth.

Sadly, the power of outsourcing both here in the Western Hemisphere and elsewhere around the world is not being fully realized. Why?  Because leaders in the developed countries lack the political will to support outsourcing.  Instead, in the US for example, outsourcing is attacked by political leaders as ‘anti-American’ because of its short-term impact on domestic employment.

Although it would be nice to think that outsourcing in Latin America might expand as a result of recent events, the reality, I fear, may prove to be quite different.

Instead of companies that outsource being seen as socially responsible, they are instead forced to work hard to hide what they are doing for fear of political and consumer backlash.  Political leaders in the world’s top economies are not leading globally at all, they are actually helping to vilify the very companies taking those first, risky steps.

What’s happening in Haiti right now may actually make the situation worse, not better.  It’s going to cause some executives to think even longer and harder about outsourcing to poor countries with fragile infrastructures.  Imagine if you were running an international corporation that was dependent upon work being done by Haitians in Haiti.  The recent tragedy would give further pause to even the most forward-looking businessperson.

Although it would be nice to think that outsourcing in Latin America might expand as a result of recent events, the reality, I fear, may prove to be quite different.  Without the political will at home and given the risks that the recent events in Haiti highlight, we may well see a decrease not an increase in companies outsourcing to the world’s poorest of countries. Corbett is Founder and Chairman of the International Association of Outsourcing Professionals.

More LATAM Governments will See Outsourcing Upside

Peter Ryan is a Senior Analyst at Datamonitor Peter Ryan is a Lead Analyst at Datamonitor

There is no question that ongoing US investment will be crucial in the development of Latin America as a location for the delivery of added-value services. With an economy moving into recovery, albeit slowly, American enterprises are certain to have learned recessionary lessons in regard to cost management and removing as many non-core overheads as possible from their balance sheets.  Housing the delivery of these services in Central and South America is certain to continue.

However, the potential investment role played by firms based in other developed and developing nations also cannot be overstated in importance.  Latin America will equally benefit from possible delivery engagements with companies based in Spain, Portugal and other parts of Western Europe that are interested in taking advantage of price point arbitrage, a large labor pool and ever-increasing language skills among university graduates.  As well, the increase in interest among Indian-based services organizations for possible roll-outs in Latin America has been strong over the past few years.  And, with Indian labor becoming more saturated forcing higher wage rates, being able to diversify into a region in which services work may be done at lower price points is an excellent diversification move.

It must be recognized that openness to foreign investment in LATAM is very strong currently

In sum, investment from any location in Latin America is certain to be a positive thing for that region.  Not only will the associated increase in jobs help develop a growing middle-class, it will also bring about economic and political stability, and reduce the ideological swings that have pervaded this region historically.  In addition, it will also put pressure on universities to increase emphasis on language skills, business education and technology, all of which will have significant knock-on impacts on raising living standards and the value of services performed for internal consumption and export in these economies.

While not every country is certain to adopt investment strategies favoring foreign investment, it must be recognized that openness to foreign investment in LATAM is very strong currently, and should demand remain strong from the US and abroad, there is considerable chance that more governments will look to this path for economic growth. Ryan heads call center analysis at Datamonitor. He previously wrote a special report on Cuba Outsourcing for Nearshore Americas.

Regional Investments Should be Effective and Sustained

Sandeep Karoor is Managing Director at NeoAdvisory Sandeep Karoor is Managing Director at NeoAdvisory

The world and humanity at large continues to live through turbulent times. Haiti while an integral part of the America’s, is the poorest nation in the region. As the extent of the devastation continues to unfold several thoughts come to mind. Developed nations have built support infrastructures that can quickly and effectively respond to a devastation saving scores of lives in the process. Poor nations continue to struggle in provisioning an effective response to meteoric devastations.

Further, poor economic state adversely impacts democratic freedom and investment in education – two primary levers that propel quality of life. The focus then should then be on improving the economic conditions of poor nations.

Poor economic state adversely impacts democratic freedom and investment in education – two primary levers that propel quality of life.

Many a nation is blessed with natural resources that are in high demand across the globe. These natural resources lay the platform for a stable economic platform, thereby provisioning the basic needs (and many a want!) of its citizens. Each nation has to figure out what are its competitive advantages? What are its centers of excellence? What are its risks?

Consider San Salvador. Due to its multi-lingual capability, the city is strong in voice-BPO services to support Spanish speaking customers in the United States and elsewhere in the world. The average annual salary for voice based BPO, is significantly lower than other Latin American countries. According to International Services law, any investor, foreign or local, may receive full income tax exemption for investment in call centers, business process outsourcing, software development and R&D. It is anticipated that the IT and BPO exports from San Salvador will grow by 25 percent and 35 percent respectively over the next five years.

Another example, consider Bogota, considered the rising star in Latin America for services off-shoring. Once perceived to be unsafe, it has transformed itself as one of the best locations to do business in Latin America ahead of many other Latin American countries that come readily to mind. A good educational system is producing quality talent of approximately 67,000 graduates every year.

The role of developed nations and policies implemented towards cross border trade of goods and services is equally important. Effective and sustainable investments by developed nations in poor nations such as Haiti deserve a prioritization that ranks high on the agenda. Haiti has bilingual capabilities in English and French. Other than Canada it is the only other independent nation in the Americas that designates French as an official language. Guess the United States, Canada and France need to invest in and implement a long term plan to assist Haiti’s phoenixical rise, helping Haiti to eventually shine brightly in the near and long term. Karoor is managing director at NeoAdvisory

It All Starts with Smart Policy – From Both Sides

Arie Lewin, professor of strategy and international business, Duke UniversityArie Lewin, professor of strategy and global  business, Duke University

We see an increasing number of Business services moving to Latin American companies.

For example, Nicaragua aspires to be come a “BPO Economy” like Costa Rica. But availability of people with English language skills is very low. They are basically dependent on the ability to pay private language school fees. This in spite of a government policy that favors teaching English. But in reality the government policy makers are still thinking that teaching English is equivalent to capitulating to imperialist wishes. In Central America, Panama and Costa Rica are two countries that see the link between attracting business services outsourcing and economic development.

Brazil is a country where the outsourcing industry is undergoing sharp growth and many companies are serving internal clients.But there is also a growing number of companies serving international clients including Spanish clients. Brazil is following a clear national policy to develop another lever for growing the economy by linking directly to national investments in training engineers and scientists. US policy is basically irrelevant to Brazil.

It certainly remains a hard sell to have US invest in human capital in these countries.

Argentina, Chile, Peru and Bolivia are also in the game. National policies there are not that well defined. All of these countries are wooing Indian Providers as well as US based providers. For the US the danger is that more and more innovation work is being offshored (but mainly outsourced offshore) to a growing population of small and medium size players all because of shortage of talent in US. It certainly remains a hard sell to have US invest in human capital in these countries. Lewin is Director of the Center for International Business Education and Research (CIBER).

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There is no question that ongoing US investment will be crucial in the development of Latin America as a location for the delivery of added-value services. With an economy moving into recovery, albeit slowly, American enterprises are certain to have learned recessionary lessons in regard to cost management and removing as many non-core overheads as possible from their balance sheets.  Housing the delivery of these services in Central and South America is certain to continue.

However, the potential investment role played by firms based in other developed and developing nations also cannot be overstated in importance.  Latin America will equally benefit from possible delivery engagements with companies based in Spain, Portugal and other parts of Western Europe that are interested in taking advantage of price point arbitrage, a large labor pool and ever-increasing language skills among university graduates.  As well, the increase in interest among Indian-based services organizations for possible roll-outs in Latin America has been strong over the past few years.  And, with Indian labor becoming more saturated forcing higher wage rates, being able to diversify into a region in which services work may be done at lower price points is an excellent diversification move.

In sum, investment from any location in Latin America is certain to be a positive thing for that region.  Not only will the associated increase in jobs help develop a growing middle-class, it will also bring about economic and political stability, and reduce the ideological swings that have pervaded this region historically.  In addition, it will also put pressure on universities to increase emphasis on language skills, business education and technology, all of which will have significant knock-on impacts on raising living standards and the value of services performed for internal consumption and export in these economies.  While not every country is certain to adopt investment strategies favoring foreign investment, it must be recognized that openness to foreign investment in LATAM is very strong currently, and should demand remain strong from the US and abroad, there is considerable chance that more governments will look to this path for economic growth.