Henry Kissinger said that the absence of alternatives clears the mind marvelously. That has been true in outsourcing in recent years. It was marvelously clear that companies could reduce their costs through outsourcing to offshore locations with low-cost labor, especially in India. But now there’s a viable alternative: companies can outsource their work to low-cost nearshore locations.
The cost, time zone, and other advantages from outsourcing to a country that is a “neighbor” and has the same culture are significant. Western European companies have successfully nearshored their work to Eastern European locations for quite a while, and China is a great nearshore location for work outsourced from other Asian countries.
Now there are very trustworthy options for U.S. companies to outsource to nearshore providers in Latin and South America. And this alternative is changing the outsourcing landscape dramatically. An article in “Silicon India” dives right into the issue with its headline:
Softek and CPM Braxis Take Market Share from Top Indian Firms
Leaving the Indian IT majors including TCS, Infosys and Wipro behind, companies like Ness Technologies of Israel, CPM Braxis of Brazil and Mexico-headquartered Softtek are becoming attractive for top outsourcing customers such as GE, Citibank and several others, reports Economic Times. CPM Braxis, which counts GE, ABN Amro and Whirlpool as its clients, reported revenues of around $567 million in 2008.
“When it comes to new business from the first-time outsourcers, these local suppliers may be gaining at the expense of multinational and offshore rivals,” said Amneet Singh, Vice President, Global Sourcing at the Everest Group.
A member of PA Consulting’s management team and a sourcing advisory expert, pointed out the same phenomenon –
“All the Indian offshore players have started piling in South America.”
He points out the increasing amount of work companies outsource from the United States to delivery centers in Latin America and mentions especially the rise of Brazil and Chile as preferred destinations for service delivery.
Competition from a larger pool of service providers always has a good outcome in outsourcing. It leads to more efficient pricing and higher-value offerings. But with more fish in the pool, it becomes more complex for a buyer to find the right one for its needs.
So here’s a question that buyers considering nearshoring south of the U.S. border may want to think about. Is there a difference in benefits from outsourcing to a Latin or South American service provider as opposed to outsourcing to an Indian or U.S. provider that is expanding its global footprint and establishing facilities in Latin/South America?
What do you think – is the distinction important? How so? Post a comment and share your views on this.
Since 1998, freelance writer Kathleen Goolsby has studied outsourcing relationships’ successes, failures, trends, and best practices. She has interviewed more than 860 executives at buyer and service provider companies and is the author of “Critical Requirements for Building and Sustaining a Successful Outsourcing Relationship,” a chapter in Global Outsourcing Strategies: An International Reference on Effective Outsourcing Relationships (December 2006, Gower Publishing). As a freelancer, she also currently serves as the Senior Writer for Outsourcing Center (whose parent company is sourcing advisory firm, Alsbridge) and has authored dozens of articles as well as white papers. In a past role, she was editor of Outsourcing Venture (a former print publication). You can contact Kathleen at ksgoolsby@gmail.com.
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One of the major rules in business is that you need to know the lay of the land before moving into an aggressive competitive position. Providers that are established in North America and India do not know in detail the cultural and business idiosyncrasies of the Latin American culture to properly leverage and harvest higher benefits as a well as a long-established Latin American company can. For the past 20 years, Latin American countries such as Brazil and Chile have been preparing themselves to become global players, and they know well what kind of strengths they can leverage and which weaknesses they need to correct in their regions. This knowledge is critical to do business in Latin America, and many newcomers lack this knowledge and will have to go through a long learning curve to mature before they can be fully ready to provide proper services to their customers.
Culture, flexibility, adaptability, and resilience are not just concepts; these characteristics are deeply ingrained in the way Latin Americans relate to other people and businesses. They are crucial aspects in the way my company, CPM Braxis in Brazil, builds and sustains relationships with our outsourcing clients worldwide. Many providers that are newcomers want to impose their successful model in Latin America without clearly understanding what Latin America is all about, so they fail without understanding why.
In offshoring decisions there are various parameters which one has to look for. Some of them are vaery easy to figure out which are standard throughout the industry like financial strength, existance of company, data security standards, process certifications, technical capability, skill set availability, government support etc. But there are parameters which are very difficult to assess, which are cultural. As this industry is about people doing things, they are the most important factor. So one has to review culture throughly to ensure the success of the outsourcing relationship. Every outsourcing is about entering into a relationship. Like marriage, one has to focus on the soft side of it. My advice will be to hire an outsourcing expert or a person who has provided such services to evaluate the options and guide the company on its outsourcing decisions.
Why Do We Need an IT Outsourcing Strategy?
The recent economic downturn generates a lot of debate on the merits and demerits of different investment strategies. However, experts agree on one thing: the need to have an overall investment strategy, so that we do not fall prey to kneejerk reactions to day to day events. The same advice applies to business.
Business strategies are about making choices: choices about the course of actions that we want to take and what courses of actions that we do not want to take in order to meet the needs of stakeholders. What product mix that we want to introduce? What market that we want to go after? What should be our core competencies? A good business strategy will enable an organization to outperform its competitors. The same idea applies to IT outsourcing. Since outsourcing has become an important option in many business decisions, choices in outsourcing may impact the performance of an organization and may impact its risk profile. Therefore, one can argue that outsourcing should be a component of an overall IT strategy for a company.
Besides being crucial, such a document allows senior management to provide direction to managers who are making tactical project level outsourcing decisions, so that outsourcing decisions can be made consistently in the same framework. It is no longer necessary for each project considering outsourcing to revisit some of the fundamental choices that the organization has already been carefully thought through. That allows the project managers to focus on the tactical decisions that must be made on a project by project basis, such as which vendor to select.
Having an outsourcing strategy does not mean that it is cast in concrete. When the needs of the company changes, when new technology emerges, when new service provides emerges, one must revisit the company outsourcing strategy to see whether exceptions should be made or the overall strategy should be changed. The need for such changes does not negate the need for having an overall strategy.
Does your company have a overall outsourcing strategy? Can you share it with us?
Tsun Chow
I read with interest your post about the emerging nearshore alternatives to the traditional offshore outsourcing destinations. I’m happy to continue to see this trend get more coverage and it’s clear that the time zone and cultural similarities advantages will continue to entice more and more companies to seriously look at these alternatives. We started our company, Avantica, over a decade ago, when “nearshore” was not even a concept.
Well, many of the Indian players are setting shop in Latin American countries. The near shore concept is catching up in spite of some cost increases. One of the perceived advantages is communication happens almost in the sale time zone where as it is almost a 12 Hr difference with the east.
But, working real time is what always counts. Today, the outsourcing segment has grown to a great extent because of the fact that it contains a plethora of services and there is very little that an outsourcing firm can’t do.
Brazil has risen to be an appealing nearshore IT destination for US-based companies. David Shpilberg, Vice Chairman, CPM Braxis explains why in this Nearshore Americas video — http://www.youtube.com/watch?v=IeBdTEJb4eQ
It would be interesting to know what Kathleen has to say about outsourcing to university freelancers in the United States. I wonder if outsourcing is turning into insourcing in the USA?
http://www.outsource.fm/about
You said you wonder “if outsourcing is turning into insourcing in the USA.” Outsourcing, as it was originated by Ross Perot and EDS several decades ago, took place only in the USA. And there are many outsourcing firms located and thriving here. Outsourcing evolved less than a decade ago to include – sometimes, but not always – offshore resources. “Insourcing” is (like the words “outsourcing” and “offshoring”) sometimes mistakenly used. “Insourcing” often refers to the contracting model, rather than outsourcing. In an outsourcing context, “insourcing” refers to an outsourcing customer bringing its previously outsourced work back in house, and that isn’t the situation with the university freelancers on the Lance e-marketplace. The students on the Lance e-marketplace are using the outsourcing model of “onshore outsourcing,” which has been in place for decades (but doing so on a freelance basis). “Onshore” outsourcing refers to outsourcing work to companies/individuals in the same country. Quite a few American outsourcing firms are now hiring university students as well as rural workers to provide local talent pools that are more cost-effective. Offshore outsourcing firms, especially the giants in India and South America, are also hiring university students as well as rural workers for the US service centers they are establishing to support their U.S. clients’ work. And that’s a win-win-win in my opinion.
Thanks Kathleen. Appreciate your taking the time to reply to my comments. I like the way you really simplified the concept of outsourcing, in a day when the word “outsourcing” has such a negative connotation (of moving our jobs offshore!) and yes, you have really put us in the right perspective, on our onshore outsourcing to university students and yes rural USA.
I am surprised to notice hardly anyone searching for the keywords “onshore outsourcing”, which is probably because of lack of knowledge of prospective clients, who may not know the words for what they are looking for.
Your blog is definitely top notch and a must for anyone who wants to educate themselves on outsourcing and latest developments in the outsourcing industry.
Lance
The practice of getting work done or services performed by people in neighboring countries rather than in your own is definitely effective with cheap labor in Mexico and especially Costa Rica, an American ally.
I have wondered myself, how affordable outsourcing to usa is? I seriously doubt, if Outsource.FM is going to make any difference.
I believe outsourcing to neighboring countries is less expensive but it is becoming more complex for a buyer to find the right the person or company for highly skilled jobs.