By Mohit Joshi

The Globalization of technology and other knowledge services has been one of the hallmarks of economic activity in the past decade – with a humble start in remote development, this has now morphed into a $50+ billion dollar business (USD). In the United States (US), it is estimated that 80% of Fortune 100 companies have an active global sourcing program. Additionally, global sourcing has moved beyond technology to transaction processing, call centers, medical transcription, business modeling, analytics, research and radiology.

To date India has remained the hub for this activity, however as more companies adopt global outsourcing other countries are becoming viable candidates for establishing IT and BPO operations. For example, China brings a large educated labor pool to the table while Eastern Europe promises a highly educated workforce and proximity to key European markets. Finally, Latin America due to its proximity to the US and shared time zone offers significant potential.

For technology and business process outsourcing companies and US corporations, Latin America offers a very attractive option for global sourcing & delivery given:

1. Time-zone and physical proximity to the largest economy in the world – Mexico, Brazil, Chile and Argentina (the four Latin American giants) all fall in the EST +/- 2 hour zone. This is a significant advantage for activities that need to be done in US day time – an example is a developer taking requirements from business users. This could be done (and is being done) from an Indian programmer working night shift but over the long run there are morale and productivity issues due to such a stringent schedule. In addition to time zone, there is also physical proximity – the aforementioned developer based in Mexico for instance could fly to Dallas for a 1 day workshop in a couple of hours – his Indian counterpart would need to sacrifice an entire workweek to make the same trip.
2. Language skills – Hispanics are the largest minority in the US and this means a requirement for Spanish language specific skills. Potential offerings could include bilingual Call Center as well as programmers who can design user interfaces in Spanish.
3. Cost – Though more expensive than India, work done from the region would still offer a 35-40% discount over US rates.
4. Containing risk through truly global delivery – As corporations increase the proportion of services offered from India, a Latin America component could ease country risk concerns and allow them to use the model to a greater extent.

For Service providers, the fast growing local market (especially in the financial services industry) Latin America is also a big draw – as these corporations mature and develop sophisticated products and services, they need the developed market expertise that external providers can deliver. This would include large scale system redesign, new application development and consulting services for business process changes.

As we look at the options available from a sourcing and delivery perspective, four countries stand out in Latin America:

1. Brazil is the largest country (in terms of area, population and the size of its economy) in the region and one that also has a large local market. It is a low cost location compared to other countries in the region and has a large local talent pool. It is a Portuguese speaking country and English/Spanish speaking talent is harder to source.
2. Chile has been actively positioning itself as a springboard to Latin America given its robust legal and regulatory framework and the ease of doing business there. Santiago has a lot of potential to emerge as a major global delivery center given a large population concentration and top tier universities. It is a much smaller country (with a population of 16 million) and scale would be a challenge for service providers.
3. Argentina has long been known in the region for its well educated, English speaking talent. With the devaluation of the peso, it has also become a very cost effective location. The negatives for Argentina include an unfriendly regulatory environment and the fear that a Peso comeback would destroy the business case for a global delivery location (though the peso is currently worth about 30 cents, it had parity with the USD in 2000.)
4. Mexico has historically been known as a manufacturing and component assembly location with its “maquiladoras” located close to the US border. It has a large educated, technically adept population and an excellent private university system. The country has historically unfriendly business laws but is in the process of changing these to attract investments. On the flip side, Mexico along with Chile is a comparatively expensive location.

In conclusion, the Latin America region has significant potential to develop a knowledge based, export oriented industry. Service providers and corporations have been looking at the option closely and the next few years should see sourcing and delivery from the region becoming an important complement to work being done currently in India & China.

Mohit Joshi is the CEO of Infosys Technologies S. De RL De CV, the Mexico subsidiary of Infosys Technologies limited, a Global Business Consulting, IT services and Business Process Management firm. Mohit has been working with Infosys since 2000 in a variety of business development and client management functions. In his current role, Mohit is also tasked with working with Infosys Executive management in defining the firm’s Latin America strategy.