The LATAM Opportunity for BPO Services
Introduction
Central and South America have been making global news headlines recently due to the economic growth and opportunity that continues to present itself in this area of the global economy. Most of the nations in Latin America (LATAM) have finally and very recently left their checkered pasts and reputations as narcotics and gun trade routes behind and over the past 8-12 years have done a very effective and efficient job of creating political stability and economic growth. North American and European companies alike have taken notice of this accelerating opportunity, as illustrated by the fact that the region has become a receptacle of some 75 new BPO facilities comprising approximately $750M in foreign investment just in the past 3 years alone. Even with these impressive growth statistics, Ephor Group has determined the total capacity utilization of the BPOs in LATAM is in the lower 25% quartile, while the English speaking capacity utilization is even less.
Throughout 2017 the Ephor Group conducted significant primary research and on-site evaluations of both the country locales and the major metropolitan areas with in the region.
BPO Markets in LATAM
As a result this market research was consolidated into a comprehensive report in late 2017. For quality and comprehensiveness this data and the findings are cross referenced from secondary and tertiary sources, coupled with onsite evaluation and interviews with business, political and development professionals. Each data point is amalgamated from a minimum of three sources. In some cases, data is confirmed from as many as seven sources.
The information and findings presented in this briefing document is a summation of a larger report of the Business Process Outsourcing (BPO) LATAM market, its capabilities and opportunities for the region. The information was compiled in concert with the Ephor client base along with a network of operational executives, country level economic development and foreign investment organizations along with sector thought leaders from the region, then combined with the aforementioned data accumulated throughout 2017.
Specifically, the research report encompasses macroeconomic factors such as economic drivers and includes, in part, information surrounding the economic health of the countries and cities of study. This economic health was evaluated via an analysis of such factors as GDP sizing and GDP growth rates inclusive of a ranking among countries, trade surpluses including Balance of Payments analysis, foreign direct investment dollars and rules, corruption indexes, currency influx, and currency exchange risk. Further elements of the report contain specific political attributes of each candidate country and a “general findings” in terms of relations and foreign direct investment views of incumbent and newly elected government administrations.
As with any BPO site selection process, an evaluation of labor supply, cost, and utilization is critical. Therefore, the “Data Library” and summary report includes all salient labor data and information, including specific BPO job positions and descriptions (i.e. English speaking customer service professionals), supply and demand analysis, minimum wage requirements, detailed job level salary information coupled with information surrounding employer burdens, payroll-related taxes, incentive pay, number of national and local holidays, standard vacation and maternity leave benchmarks. This is done at both the country and local levels.
The report also includes an analysis of “How does a BPO operator and investor develop the Human Capital Supply Chain?”, such that recruiting, staffing and training infrastructure elements are understood within each locale, including job boards, country level and local level government assistance training programs, related career service data, staffing and recruiting organizations and commercial training institutions and their capabilities, along with all bi-lingual training entities.
In general the report provides a significant level of guidance and directional data and information which enables any BPO or customer service organization to begin to narrow its geographic search for the most optimal location to expand its operational asset base in LATAM.
BPO Success Factors:
Understanding specific skill requirements
Labor costs of those requirements
Labor supply of the specific skill requirements
How to recruit, train & on-board those specific skills
“Human Capital Supply Chain is Critical”
As the economic growth and in general specifically in the larger countries as political stability continues to proliferate in the region, countries and local governments are creating programs to attract direct foreign investment, accelerate the attractiveness of the market dynamics, and create an environment of assistance and support for the BPO sector. Each country and city identified in the report illustrated a designated BPO initiative as an economic development venue and job creator. Ephor emphatically states that LATAM indeed offers many strategic, geographic and economic advantages to Global BPO participants.
The BPO market opportunity in LATAM is no longer a closely-held secret among the most sophisticated (and largest) BPO providers. While the market is beyond the early-adoption side of the curve, Ephor suggests this window of opportunity is narrowing. As larger BPO and “captive” centers are early adopters in the region, mid-size and even a few smaller firms have begun to follow suit, taking full advantage of the many favorable aspects of locating its business processes to a near shore environment. Ephor suggest this trend in the very near term (2-3 years) will accelerate, especially when one considers the economic growth (GDP +2.5%) in North America, as such the demand for the nearshore cost advantage will increase the demand curve for outsourcing services.
Location Findings
There are many key considerations for growth-oriented BPO organizations looking to conduct site and expansion analysis within the region. First, LATAM is within close proximity to the USA, and falls within the same time zones. Even for European firms, the LATAM market is closer than India, Malaysia and other traditional locations for outsourcing. From the US, operational executives have found that they can have a more hands-on approach to LATAM operations, thanks to this proximity. Managers can, in certain circumstances, fly in and out within the same day or two days, minimizing time lost due to travel and logistics. Similar time zones to the US mean that employees in LATAM operational centers can continue a normal life and a regular working day similar to US counterparts, therefore creating significant operational synergies versus other, very distant BPO clusters. Cost savings in terms of flights and personal transportation in and of itself creates a compelling cost avoidance attribute to consider.
Geographic Advantages
Cost effective travel vs. other BPO markets
Greater workforce & cultural synergies between North American locations
Similar time zones to US
LATAM countries and locales, especially over the past 3-4 years have invested heavily in infrastructure as part of a larger package of “positive considerations” to attract foreign investment. This has resulted in modern telecommunications capabilities and power reliability on par with the United States and Europe. Foreign operators utilizing BPO centers can now expect (and forecast) that any downtime due to infrastructure reliability is similar to what they should expect in domestic power markets. Added to this are the greater macroeconomic factors (GDP growth, currency exchange rationalization, e.g.) that are putting these nations on the path for growth and greater stability.
Of significant consideration is the culture in most LATAM nations, which is far closer in characteristics and affinity to the United States culture, vs nations from afar. Ephor, on numerous occasions has taken clients or investors to several locales within the region to show them that, in many aspects, one feels right at home in these cities. Often one may not know if one is in Sacramento or Medellin, Miami or Panama, Colorado Springs or San Pedro Sula if “the street signs look the same.” This familiarity only helps the BPO organizations to provide better and more cultural alignment to US firms.
Along with infrastructure improvements, many LATAM nations now provide very attractive tax incentives, economic development incentive loans, and in some cases “tax free zones” for foreign operators considering creating a LATAM operational facility. Those incentives are varied and numerous. Ephor suggests that in the near future the environment for incentives will only become more prevalent for foreign investors.
Lastly, the report substantiated that the supply and quality of competent English-speaking skills is salient and growing. The LATAM market consists primarily of Spanish speaking populations with English as a second language (ESL). ESL in many geographies has become a requirement for a college level degree and in many of the secondary schools, especially in the larger countries, ESL is becoming a graduation standard. Of further note, a majority of the private educational institutions require approximately 5 years of English study as a graduation requirement. Students are increasingly aware of the advantages of having English language skills as a tool for career growth: therefore the region provides a compelling location for English-to-English services to the global economy. Therefore, Ephor asserts that the current supply, training capacity and ESL focus within the identified geographies, will provide adequate English language capacity to satisfy the long-term needs of the BPO sector in LATAM.
As a result of the report’s many favorable attributes of the region. Several large US firms have moved into the various countries of LATAM to fill their capability and capacity-oriented needs. Best Buy, for example, has many of its IT functions located in the region, taking advantage of local expertise and labor economics. TelePerformance, Sutherland Global, Allied Global, and “branded captives” such as HP, Google and Microsoft are a few of the many companies that have moved some of their operations to this favorable region. Additionally, many aggressive and knowledgeable mid-sized business based BPOs in North American are already taking advantage of the opportunities presented in LATAM.
In addition to general BPO site consideration information contained within the report, Ephor has recently completed a labor supply cost and utilization report of English proficiency specific to healthcare BPO market requirements. Ephor suggests that this report and site implementation analysis further emphasizes the critical need to include the development of a “proprietary human capital supply chain.” It is important to understand the size of the population applicable to the specific operational needs, their specific skill requirements and proficiency needs, as well as a thorough understanding of the cost attributes of implementing and operating in LATAM.
Additionally, and of most critical importance, the report provides an example of the many relevant financial considerations surrounding a near shore BPO implementation, which are combined and compared (through a comparison analytical model over a five-year timeframe) to domestic USA costs to determine the overall financial synergies and ROI on the start-up and implementation investments. This multiyear model provides the management information and financial guidance on the project and implementation planning needs
Finally, Ephor trusts this summary report illustrates the tremendous opportunity for BPO operational capacity in Latin America and provides the required summary information that promotes LATAM as a location for your organization’s growth and expansion.
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