Destination: Latin America - The Growing Offshore Demand for an Outsourcing Alternative

“Offshoring is when a company takes one of its factories that it is operating in Canton, Ohio and moves the whole factory to Canton, China”With this simple statement we give thanks to well-known author of The World is Flat, Thomas Friedman, for he puts the very complex concept of offshoring into a fairly understandable one. But the concept of offshoring is far from a simple strategy that firms across the globe partake in. Although one cannot introduce offshoring as a new concept, its rapid global expansion throughout more countries is certainly shedding light on the development of a new dynamic. Offshoring, formally known as “the relocation of production processes abroad”(Bottini & Ernst, 2007), has proved to become a major strategy in the business world and in the face of a rapidly evolving specialization in technological advances. Furthermore, “outsourcing’s continuing growth is due to increasing expertise, reduced costs of more reliable transportation, and the rapid development and deployment of advancements in telecommunications and computers” (Heizer & Render, 2011).

Although offshoring/outsourcing may easily seem like a very cost-effective transition for a firm to lean towards, there are many risks that come about when analyzing potentially negative impacts of the strategy. One aspect that has streamed a constant debate throughout the domestic workforce is the enabling of hiring offshore labor as a result from workers hesitant to relocate to the developing countries. Furthermore, ethical debate has been sparked for the profit firms gain from such extreme cuts in production costs when comparing with costs for the same job in the United States or when focusing on compliance or lack thereof safe labor practices in the developing countries. On one end, there could be a positive economic growth and development through a change in the country’s specialization pattern and an improvement in firm’s productivity. Firms then face the risks with an implication of high adjustment costs through unemployment or inequality.

Undeniably, the strategy of offshoring for firms has a rollercoaster of opportunities and risks. Though taking a deeper look into current approaches, there are many firms that outweighed the opportunities from the risks. The leading countries in 2009 for desirable outsourcing destinations based on A.T.Kearney, Inc. were India, China, Malaysia, Thailand, and Brazil. But as analysts begin to take a broader look at the global trends in activities of ITO (Information Technology Outsourcing) and BPO (Business Process Outsourcing), there seems to be an up and coming interest in a focus on the Latin American countries such as Brazil, Mexico, and Argentina. Firms now have an array of countries to choose from rather than just one- and Latin America has arrived front and center offering “low-cost Spanish-language capability and a growing, relatively low-cost, skilled bilingual workforce…with time zones and cultures closely aligned with those of the United States” (A.T. Kearney, Inc., 2007). With so many attractive qualities, firms are starting to question why they didn’t think of Latin American before!

This new focus on Latin America’s development and opportunity growth with outsourcing has targeted the most evolving sectors, including IT maintenance, software development and operations support to business process outsourcing (BPO), shared service centers, as well as call centers. To many, these broad sectors may not seem too familiar. But if we take a look at leading global companies such as General Motors, Exxon, Procter & Gamble, and American Express, we can have a better idea of just what kind of affect the development in Latin America has on the most important firms because they have taken the step to set up large off-shore operations. While Brazil is a top information technology outsourcing services provider and has the largest call center market in Latin America, Mexico contributes to more of the successful developments by serving consumer goods and telecommunication services to U.S. Hispanic customers. Among the key outsourcing providers in Mexico include Telvista, AtenciónTelefónica, Hospanic Teleservices Corporation and Impulse Telecom. Many global leaders in telecommunications have taken the initiative to set up large operations in the northern cities of Tijuana and Monterrey to position them as the leaders in Mexico’s contact center and BPO market. Interestingly, “the major international call centers in Mexico typically have anywhere from 35 to 70 percent of their positions staffed by bilingual agents” (A.T. Kearney, Inc., 2007). This is of primary importance because it faces one of the factors that contribute to Latin American country’s competitive advantage of language skills.

With each Latin American country having something different to offer firms, the list of expanding regions is growing rapidly. But before firms indulge in this interesting alternative, they are taking a step back and looking at the options that are readily available and mature. This includes limiting their offshoring decisions to the leading countries within Asia that continues to prove its stability. Many U.S. companies continue to pursue offshore initiatives in response to the growing necessity of savings on operations costs and use Asian countries as a primary option due to their extremely low wage rates. However Asian countries seem to have much more potential for enhancing access to supreme performance. A prime example of this is seen in John Hagel’s article, “Capturing the Real Value of Offshoring in Asia”, by recognizing eTelecare’s accomplishments in performance. ETelecareGlobal Solutions, Inc. was founded in Philippines in 1999 and is a provider of complex business process outsourcing solutions as one of the leading call center operators in Asia. While it has won numerous awards with the quality of its customer service, eTelecare has been able to reduce the average handling time on inbound calls by 25%. Hagel continues by shedding light on another opportunity for positive performance, which are the offshoring manufacturing operations. Far beyond observing the labor rate savings, there is significant performance improvement in offshore product development. For example, “in electronics hardware products, the time to market can be reduced by as much as 40%” and “software development projects cans have 15% or better off the [production] schedule, without reduction in quality” (Hagel, 2004). Removing labor cost factors allows firms to view Asian countries for more of its potential; now how do the Latin American countries compare?