Q&A: The rise in tech outsourcing to Latin America

Joe Edwards, Executive Director of Tonic3 and W3, talks about the benefits of outsourcing tech talent to Latin America

In recent years, Latin America has seen a significant rise in the number of global organizations outsourcing both software and tech talent to the region. While there are a number of contributing factors currently at play, increasing government support for entrepreneurial activity means there is a renewed focus on graduating more tech talent. Additionally, recent rollbacks on tech visas in the U.S. have caused a large number of American technology companies to look elsewhere for tech talent and outsourcing solutions.

We spoke to Joe Edwards, Executive Director of Tonic3 and W3, about why outsourcing tech talent to Latin America is both cost-effective and beneficial for companies around the world.

 

How would you describe the current tech landscape in LatAm?

The technology sector in Latin America has developed beyond just being an outsourcing hub for the U.S. and Europe. Today, attention on the technology sector in Latin America has grown significantly. While the best developers in Latin America were always as good as the best developers elsewhere in the world, there’s been a recent explosion of talent coming out of the region. The investments, both public and private, in Latin America’s technology infrastructure over the last 8-10 years are starting to pay off and have created larger and deeper pools of talent across the region.

This growth is also producing attractive internal markets in Latin America. For example, MercadoLibre, Latin America’s “eBay,” was very successful in Argentina and continued to find success as it expanded across Latin America. This story is repeating itself with other tech-driven firms and we are now seeing that Latin American companies no longer need to go outside the region to be successful because the LatAm market is large enough and sophisticated enough to sustain them.

 

What are the biggest factors contributing to the outsourcing of software and technology to LatAm?

The short answer is “overall value.” When working with a partner of any kind in any business setting, there are at least four key considerations: quality, timing, ease of use, and price. Outsourcing is a global market and Latin America produces quality work that is on par with the best in the world.

With regards to timing, the business culture in LatAm looks a lot more American these days – especially in the technology sector where “on-time” and “on-budget” is a huge deal. Furthermore, time zone and cultural affinity between the US/Canada to LatAm is very high compared to the rest of the world, making for an improved ease of use. Being in meetings during normal working hours with two teams who “get” each other are aspects that make or break a project.

When it comes to price, costs in LatAm can be higher than India, East Asian countries, and some Eastern European countries, but lower than North America and Europe. While outsourcing to Latin America is not the lowest per hour regarding pricing, it often ends up being the lowest cost for a project with a good outcome overall. What kills the budget is rework – low per-hour prices don’t mean much if you have to burn three times the hours to get it right.

 

What are the benefits of this?

I think the benefits of seeing Latin America as a place for outsourcing is that the “mix setting” I described hits a sweet spot for many American and European businesses. Latin America combines the right mix of high-quality work, similar work culture, and discounted pricing vs. home markets.

 

Are these levels of outsourcing sustainable in the long-term?

Yes, within all the caveats of international business. Like any other cross-border endeavor, several dynamics are at play and can fluctuate over time. Traditional measures like the Economist magazine and academic measures such as exchange rates, political stability, ease of doing business, etc. all have a role to play. However, the macro-trends are rock solid. Technological sophistication is on the rise all across Latin America and the cultural affinity and time zones aren’t going to change. Therefore, LatAm will be attractive for a very long time for U.S. and European firms to look for a partner.

     

What cities/hubs have been making the greatest progress?

The usual suspects. Outsourcing follows the traditional hubs of business dynamism in Latin America. São Paulo, Brazil, Buenos Aires, Argentina, Mexico City, Mexico, and Santiago, Chile make the LatAm business world turn.

 

What outsourcing trends are you noticing – are there any services that are particularly in demand?

One interesting trend we’re seeing is more development teams setting up multiple hubs within their own country. In the U.S., specifically in Texas where I live, we have an influx of companies setting up shop because Texas is relatively attractive vs. other states in the U.S. In some of the larger Latin American countries, we’re seeing the same trend; secondary cities arise as places where technology companies set up shop as a supplement to their main operations in the traditional economic centers. Blending in these secondary locations gives companies flexibility, new pools of talent, and cost-efficiencies that can be passed on to their partners.

Regarding services, we’ve seen a rising interest in UX and design-driven projects, artificial intelligence, and staff augmentation engagements around specific skills such as Java, JavaScript Frameworks (like Angular, React, Vue), Node.js, and PHP. 

 

For companies outsourcing from Europe, what impact will GDPR have on the future of this practice?

GDPR represents a catalyst opportunity for homogenizing the industry’s best practices in general and, as with most new regulations, I think there will be some adjustment as we work through the implementation repercussions.

For projects that handle sensitive data, sophisticated offshore companies already work within clients’ corporate security standards, so I see an impact on the industry in general, but not particularly on offshoring. It won’t significantly change the dynamic working with sophisticated offshore partners, in that the key to success will continue to be the close working relationship between client teams and offshore teams. I do see it impacting the lower-tier offshoring companies who do not have the sophistication or infrastructure to do it well. When choosing a partner, you’ll need to be careful about selecting any small shops.

 

Is there anything else you’d like to share?

My team has worked in development outsourcing for 20 years, and we’ve learned there are three key factors to success. Firstly, have native workers in the mix.

If the end product you’re developing is destined for the U.S. market, then there should be Americans involved in the key decision-making. Over the years, we’ve found that, especially in B2C contexts, just “speaking the language” is not enough to deliver a home run. You need to have people within the delivery team with roots in the target country, and that understand the culture.

Secondly, have a neck to ring. A good nearshore partner will give you a single point of contact who will be responsible for delivery throughout the entire process. If that point of contact is a native to your culture or country, even better.

Finally, have an organized team. It’s crucial that companies delegate a single point of contact that has enough weight within the organization to make decisions. It doesn’t matter how good your nearshoring partner may be, if you as a client can’t keep to timelines, share the right information, provide timely input, etc. you are asking for a headache.