Nearshore Outsourcing Growing For US Organizations

Nearshore Outsourcing 101: What It Means to North American Organizations Near-shore outsourcing is a form of outsourcing that involves the transfer of business or IT WHAT IS NEAR-SHORE OUTSOURCING? processes and development work to companies in neighboring or nearby countries within similar time zones. North American companies look to Mexico as well as other South American nations in Central and South America like MEXICO Argentina or Brazil. Why is Near-shore Outsourcing growing faster annually (10.5%) than Offshore Sourcing overall (4%)? BRAZIL ARGENTINA 100% NEARSHORE VS OFFSHORE 80% 60% 26% 40% DECLINE 10 years ago India had 70% of the world's outsourcing market. Today its share is 44%. 20% 0% 2004 2014 FACTOR NEARSHORE OFFSHORE Frequent Communication High X Limited High Interaction High Limited A Business Practice Familiarity Major - Moderated Cultural Differences Minor X Major Project Management Coordination X Limited Ideal O Implementation Speed High - Moderated O Control of Operations High - Moderated Why? ARE NORTH AMERICAN ORGANIZATIONS INCREASINGLY RELYING ON CENTRAL & SOUTH AMERICA AS A POOL FOR NEARSHORE OUTSOURCING? Offshore talent is often 10-15 time zones away. The logistics of scheduling conference calls is extremely challenging. TIME ZONE COMPATABILITY 19hrs Flying Time 10AM 7:30PM 5PM 10PM Latin American countries fall in the same time zones as the United States, which allows for real-time conversations, normal work hours and a higher quality of deliverables. Tasks completed overnight by someone in Mumbai are reviewed the following morning. 9AM If there are problems, the manager has to wait half a day to get the updates done. 11AM TOTAL COST OF OWNERSHIP (TCO) AND HIDDEN COSTS Traditional offshoring initiatives experience added costs related to complexity and coordination of services. "Chinese wages are now climbing at 15 to 20 percent per year.. thanks to a supply Detailed requirements / High attrition documentation -and-demand imbalance of skilled laborers in manufacturing regions, global pressure to Higher risk of loss of IP Travel expenses upgrade Chinese labor practices and wages, and increased employee demands for better pay Slow / Politicized immigration process Infrastructure limitations: Communication systems and conditions." - Wendy Tate, Associate Professor logistics at University of Tennessee Productivity loss due to time zone or inconvenient, infrequent, delayed "We factor an additional 30% into our costs to India communication for travel and other soft costs. Going to Mexico works out cheaper." AVAILABLE TALENT - U.S. Buyer, HFS Research A large selling point of offshoring to India, China and the Philippines is the high quality of education in TCO those countries. (Total Cost of Ownership) However, there is a very large pool of highly skilled, college-educated resources available in Latin America. TODAY IS Universities in countries including Argentina and Mexico are well-respected in the educational community. Brazil has the most Java programmers in the world and the second-most mainframe (COBOL) programmers. INCORRECTLY based on PRICE Large numbers of professionals in Latin America have attended universities in STRUCTURE and the United States and understand our market needs. RATE CARDS http://www.businessweek.com/articles/2012-03-15/outsourcing-a-passage-out-of-india Companies are reluctant to enter long-term projects with an offshore team, knowing that over half of the original team will be gone within one year. STAFF TURNOVER According to the Associated Chambers of Commerce and Industry of India, in 2010 the IT and BPO attrition rates in India reached a startling 55% However this situation has not been seen in Latin American countries; the family-oriented culture of these countries keeps many close to home and minimizes turnover rates. In China and India, the high number of holidays decreases productivity and frequently extends to project timelines. TOO MANY HOLIDAYS? 10+1 23 36 77 MEXICO has 20 ARGENTINA has 23 National or INDIA has 77 National or The UNITED STATES CHINA has 36 Special, National or Local Holidays per has 10 National and National or Civic on average 1 state holiday per state Non-Working Holidays Holidays Regional Holidays year per year per year. Anything that prevents good communication is an issue, but cultural design differences often pose an even bigger problem. CULTURAL BARRIERS According to the 2014 A.T. Kearney Global Services Location Index, Latin America has four countries in the top 20: Mexico (4), Brazil (8), Chile (13), Uruguay (36). Spanish is the second language in the US, spoken as a first or second language by an estimated 45 million Hispanics. US clients are frequently more comfortable on the phone with a Hispanic accent than an Indian accent. OFFSHORE TEAM "You can't just let things run remotely. You need to manage the resources and monitor the work locally. And that's a problem in India." - Program Manager, US, HFS Research Of all survey respondents, 26% indicated that cultural barriers 26% with their offshore providers were a problem. In many Asian countries, the incidences of IP theft and counterfeiting are widespread. INTELLECTUAL PROPERTY PROTECTION However many Latin American nations have signed Free Trade Agreements with the USA, which guarantee IP rights to foreign companies. The National Crime Prevention Council has issued warnings concerning China and India for piracy of intellectual property. RISK CONSIDERATIONS - INFORMATION PRIVACY The varying nature of privacy requirements across geographies puts added stress on the global sourcing model. Multiple national/sector laws plus state/provincial Some Countries with National Laws/Sector Few national laws EU Directive Implemented in Every Country Multiple Widely Varied National/ Sector Laws laws Laws