Nearshoring in Latin America
Latin America explodes with vibrant people, colors, smells, and landscapes. The region draws worldwide tourists and houses one-of-a-kind ecosystems; but it also has an increasingly-popular pull on successful enterprises looking to expand their operations.
Nearshoring in Latin America means working with countries in the same time zones as US- and Canadian-based companies, allowing international teams to operate unhindered during shared working hours. Likewise, the currency in many LatAm nations is actually the US dollar, while local economies are still much cheaper than those of their North American neighbors.
These advantages– along with a high understanding of business culture and widespread mastery of the English language– ensure that this megadiverse region also provides businesses with mega-advantage.
In this article, we take a closer look at 4 of the best countries in Latin America for nearshoring.
Nearshoring in Mexico
According to World Bank statistics, Mexico’s IT outsourcing industry grows 10-15% each year. In fact, the country is now the third largest IT outsourcing market worldwide, charting at about US $46 billion. As the trend rises to outsource software services, Mexico is quickly making a name for itself as one of the most competitively advantageous options.
In a nutshell:
- Mexico ranked as 15th economic power worldwide (according to GDP)
- Mexico is the United State’s biggest trading partner
- Mexico is the 2nd most-visited flight destination from the US
- Mexico offers the world’s most comprehensive Free Trade Agreements
- Mexico is the world’s 15th largest FDI (Foreign Direct Investment) recipient
- Mexico ranked 1st in Latin America for Ease of Doing Business
- Mexico is the world’s 13th top export country
- Mexico ranked 4th in the world’s most satisfied countries
The Advantages of Nearshoring in Mexico
Mexico uses the same time zones as the United States, and many locations observe daylight savings changes on the same dates as their northern neighbors. This implies that Mexican teams work simultaneously with those in the U.S., and scheduling meetings and calls is a painless process. With a large number of direct flights—often taking no more than an hour or two—from many U.S. locations to Mexican airports, the country is also within close reach for travelers, easier and less expensive to reach than offshore countries. Much like business travelers up and down the U.S. east and west coasts, many professionals crossing the border in either direction arrange their flights as day trips, without overnight stays. Business hubs such as Guadalajara and Mexico City are also well-connected to freeway systems (Getting to Mexico, 2020).
Don’t forget the cultural closeness. In the border states and beyond, many Mexicans watch U.S. television, root for U.S. bands and sports teams, shop with U.S. companies, connect with their friends on the same social media, and share political and cultural perspectives. Language barriers practically do not exist. Among business people and in the IT industry, English proficiency is generally at a professional level, although many are fluently bilingual. Professional English competence is a graduation prerequisite in universities and technical degree programs. Familiarity with U.S. business culture also entails a customer-focused mindset that emphasizes tangible results, responsive communications, flexibility, collaboration, creativity, and efficient time management; we often hear from clients that their experience with outsourcing companies in other regions did not rise anywhere close to the same quality (Moskal, 2017) (Advantages, 2020).
The country’s 120+ universities and technical schools graduate about 120,000 students with engineering and IT degrees every year (Latin American, 2019). Mexico holds 2 slots in the list of top 10 Latin American universities, with both institutions renowned for their data science and engineering programs (Top 10, 2019). All over the country, software developers join in many noncompetitive forums, conferences, and social groups– learning from each other and fomenting a culture of innovation (Técnicas, 2020).
At the federal and state levels, Mexican government provides financing and resources to advance the IT industry, strengthen nearshoring connections, and grow business with North American companies. A few of the most important, countrywide initiatives include:
- MexicoIT organizes events that introduce foreign companies to Mexico. It also educates about the advantages of nearshore outsourcing and IT investment in Mexico, and helps connect U.S. and Mexican businesses.
- MexicoFIRST aims to grow Mexico’s highly-educated and competitive IT talent pool.
- ProMéxico fosters investments that advance the country’s technological innovation and R&D.
- CONACYT supports R&D and technology infrastructure investments and IT innovation projects.
- PROSOFT provides financial stimuli to investing in and developing IT projects in Mexico.
- Reto Zapopan gives entrepreneurs free support in starting innovative new tech companies.
Challenges Facing Nearshoring in Mexico
In the past decade, some fear has surrounded the much-publicized network of cartels in Mexico. However, for urban companies, the uncertainty has proven to be much more dangerous than the violence itself; most gangs work far from populated business districts, and both public and private entities have increased the security in and around office buildings. Further, IT service providers have strengthened their network of back-up infrastructure, ensuring that operations continue smoothly and safely from a number of prepared locations (Tanaka, 2011).
Forrester Research summarizes it the best: “Companies interested in the cost and quality benefits of offshore labor, but which require a closer, less risky solution, should strongly consider Mexico as an important nearshore option.” Over the past decade, Mexico has made significant strides toward becoming a diversified economy, with a deep skill base that offers more than just low-cost labor. It’s close enough for the convenience of shared time zones and pain-free communication, while still enjoying the many benefits of outsourcing. The country has invested in its physical and digital infrastructure and talent pool, evolving into a versatile producer of high-value tech services.
Nearshoring in Ecuador
Although Ecuador is only about the size of Nevada, the South American nation is one of the 17 megadiverse countries in the world. Its regions span from the blazing-hot Pacific coast, to the cooler Andean interior, the lush Amazon rainforest, and the magic of the Galapagos Islands (Discover Ecuador, 2020). What’s more, it’s home to top tech infrastructure and booming IT education, some of the advantages it offers to companies who nearshore in this fascinating nation.
In a nutshell:
- Population of 16.9 million (60% urban and 90% literate)
- Debt to GDP ratio is 45.6% (2nd highest in Latin America)
- GDP growth is one of the steadiest in Latin America
- Ranked 4th on the World Economic Forum’s top countries in Latin American that invest in human capital
- Ranked in the top 8 Most Educated Countries in Central and South America
Advantages of Nearshoring Ecuador
Because of Ecuador’s latitude 0° location, it doesn’t need to observe the northern tradition of Daylight Savings. This means that the country is especially convenient for North American businesses, accessible to all time zones in the Americas. From November to March, Ecuador aligns with Eastern Standard Time; and the other half of the year, Central Time. In summary, it shares a time zone for at least part of the year with 38 states of the US, and is only a couple of hours away from the rest.
In January of 2000, in an effort to reverse Ecuador’s economic crisis, the country changed its official currency from the Sucre to the U.S. dollar (Roura, 2020). This has dramatically stabilized the economy, and also makes calculations and money transfers easier and more predictable for US businesses. It also means never having to exchange money during Ecuadorian site visits.
Software Development Workforce
Quito, Ecuador’s capital city, is the proud hub of a rapidly-expanding software development workforce. The city houses some of the country’s best universities, which feature exacting computer science programs that graduate an average of 1,200 students per year (Laughlin, 2011). It also features a booming young professional population– a combination of factors that adds up to a young, growing, and highly-trained IT talent pool (THE Latin American Rankings, 2018) (Leary, 2019).
On the US News and World Report’s Best Countries Ranking, Ecuador actually scores higher than the U.S. in the “Open for Business” category. Further, president Lenin Moreno passed the Productive Promotion and Attraction of Foreign Investment Law in 2018, making it even more attractive for certain outsourcing industries (IT being one of them) to benefit from investments. IT nearshoring enterprises enjoy tax exoneration and eased bureaucracy, with ample talent that’s trained in international business culture.
Government-supported IT Industry
The Ecuadorian government hasn’t left foreign investment alone in bolstering the country’s tech industry. In fact, the following list of government-sponsored programs is just a sample of the strategy that Ecuador is putting into practice to make itself more digital.
- Digital Economy: According to the Ministry of Telecommunications, its 12-year strategy seeks to “drive the development, entrepreneurship, productivity, competitiveness, and innovation of the nation’s businesses through the use of telecommunications” (Ministerio, 2018).
- Reduced Taxes on Tech Devices: More than a specific program, this declared law opens accessibility to computers and smartphones, lowering by at least 15% the standard rates of import taxes (Legal Team, 2019).
- Smart Quito: A $1,100 Million dollar effort to connect the country’s capital as its first smart city, with apps that inform citizens of public transportation, public events, and more (Quito busca, 2019).
- Yachay City/ University: “Knowledge,” in the indigenous Kichwa language, Yachay is a government initiative that builds a “city of knowledge.” It is based on international tech influence, and features one of the country’s best universities, focused on technology and engineering.
- ActiVaR: Latin America’s first VR training program, this government initiative leverages VR technology to train students entering into public and technical schools (leary, 2019).
Challenges Facing Nearshoring in Ecuador
Complex Hiring Laws
A new constitution in 2008 included a number of amendments to favor employee rights– a positive improvement from a previously unrepresented labor force. That said, these laws included complications in the hiring process for outsourcing companies. With knowledge of the proper steps, however, these rules aren’t too difficult to navigate, and even incentivize a larger nationwide workforce (Legal Team, 2019).
Ecuador is actually known for some of the safest cities in Latin America. However– like in any populous area– petty crime, robberies, and pickpocketing all occur. The country has actively combated these issues with the installation of a nation-wide security camera system and augmentation of police forces. For business and travelers alike, this means highest levels of trust and lower chances of loss (Top 12, 2019).
Ecuador is high on the quality of life index, even boasting “sumak kawsay” (“good living,” in Kichwa) as a constitutional right. This commitment to standard of living is evident, in the country’s deserved reputation of friendliness and open community. From indigenous Andean families to booming tech-filled metropolises, Ecuador’s inviting atmosphere attracts foreign interaction– in tourism, in business, and in nearshoring collaboration.
Nearshoring in PERU
Peru holds an important place in both the history and modern trajectory of Latin America. It is legendary as the stronghold of the Incan Empire, and was later the seat of Spain’s South American administrative capital during the colonial period (Historic, 2020). In modern days, it’s a tourist hot spot, known for its impressive ruins, fine cuisine, and vibrantly-progressive cities.
In a nutshell:
- Peru’s economy is the 39th largest in the world and the consistently fastest-growing in Latin America
- Peru’s GDP is 54% comprised of the service sector
- Peru holds the world’s most stable macro-economy
- Peru ranked as U.S. News’s top 30th country for doing business
- Peru’s Foreign Direct Investment (FDI) increased $3107 million in just 3 months
- Peru is the world’s 20th best nation for free trade
- Peru is known for its consistently low level of public debt
Advantages of IT Nearshoring in Peru
The Peruvian economy stands out for its consistent, nearly 20-year growth. Its stability and highly-sophisticated wealth management over the last two decades has even lowered the national poverty level from 59% to 20% (Peru, 2019). At the same time, costs are markedly low relative to those of North America, forming a combination that’s very attractive for doing business. The US dollar is worth about 3.5 times the Peruvian Sol (Convert, 2020). This also means that salaries are relatively low in comparison to those in North American companies, making the country an attractive outsourcing destination, especially for BPO services like Information Technology.
In recent years, Peru has made strides to bolster its digital connections. Nearly half the country has some form of internet access, and more and more services are being offered online; the government has even made many processes available on mobile applications. Peru’s technological infrastructure is so developed, in fact, that major companies like IBM, Microsoft, and Cisco have entrusted large operational centers to its network (Peru News, 2016).
As with both Ecuador and Colombia, Peru’s time zones align with the US East Coast. This makes communication easy to coordinate with the countries of North America, where working hours are shared and there is no 12+-hour delay in message responses. In addition to the fact that this eases project operations, it also provides a much higher level of control, where immediate meetings and check-ins can answer questions and provide clarifying instructions.
Peru’s government has noted its service outsourcing potential, and therefore invested public support into bolstering its IT, education, and modern business sectors. These are just some of the programs in action:
Innóvate Peru: Supporting initiatives of innovation across sectors, which pull together IT resources and novel ideas to foment Peruvian enterprises.
Start Up Peru: A subsection of Innóvate Peru, which has invested over $10 million USD in start up companies.
National Competitiveness Plan: Approved until at least 2030, the strategy invests over S/2 billion yearly to increase resources for Peruvian enterprises and entrepreneurs. ws
Challenges Facing Nearshoring in Peru
Peru juggles several languages: Quechua, Aymara, Spanish, and others from various indigenous groups (Pulgar-Vidal, 2019). It’s no wonder that adding English into the mix hasn’t been easy for the country. That said, Peruvians who do speak English generally have a more neutral accent than Asian natives, for example, more easily communicating with North American speakers (Dyske).
Costs in Peru are low and the economy stable, creating a fertile bed for Nearshore planting. Its IT infrastructure and growing tech enterprises are also helping to foment the country’s general and English education sectors. Peru is now a nation to watch, for more than just its world-renowned cuisine.
Nearshoring in Colombia
Colombia may often bring up images of coffee and cocaine, but it’s done impressive work at diversifying its economy and infrastructure, while nearly eliminating the infamous drug violence. In fact, the country is known as the “Revelation of Latin America,” with indicators that predict long-term stability (Colombia).
In a nutshell:
- Colombia’s economy is the 45th largest economy in the world
- Colombia’s trade freedom is 81.2%
- Colombia is South America’s oldest democracy
- Colombia holds 53 of the top 400 universities in South America
- Colombia is ranked as US News’s 12th best country to study abroad
- Colombia ranks #34 on the world’s Transformation Index BTI
- Colombia is a growing tourist hotspot for its mix of history and modernity
Advantages of IT Nearshoring in Colombia
Colombia shares a time zone with Ecuador, Peru, and Panama, which means that it resides in Eastern Standard Time for part of the year, and Central Time for the other part. Coordinating meetings, managing projects, and communicating among teams is therefore a painless breeze, as shared working hours eliminate delayed responses.
Colombia’s economy is based on the Colombian Peso (COP). Currently, in 2020, one US dollar is equivalent to 3,853 COP, which means that your dollar goes a long, long way. For a start-up with less initial funding, it’s an ideal location to enter the market.
According to the OECD, it ranks second in Latin America for completion of college for people between the ages of 25 and 34. This means a ready and well-educated workforce is available in the country. The country also boasts 2 of the top 10 universities in Latin America (Universidad de los Andes and Universidad Nacional de Colombia), with a total of roughly 2,500 programs (undergraduate and graduate) that offer IT-related degrees (Top 10). .
- The Ministry of Sciences (Minciencias) supports projects in science, technology, and innovation, across a variety of industries. In 2020, the ministry has an available budget of $392,363 million COP.
- Ministerio de Tecnologías de la Información y las Comunicaciones (MinTIC) aims to create a “digital society that stands out in Latin America and the world,” investing to create digital and accessible, public systems in communications, postal, education, and more.
- Computers to Educate will have donated world-class computer education to all Colombian children by 2025, equipping its population to competitively engage in the top global economies, across all sectors.
Challenges Facing Nearshoring in Colombia
Although Colombia has gotten a bad rap for security and corruption issues, it has progressed leaps and bounds since its peak turmoil in the 1980s and ‘90s. Rather than maintaining its former reputation as a drug-filled metropolis of crime, Medellín has transformed itself into the “City of Eternal Spring” and “the world’s fastest-growing tech hub” (Papadopoulos, 2019). The national government, likewise, worked hard to reach a peace treaty with rebel fights– achieving wonders in stabilizing both security and economy.
On top of all the specific advantages gained through doing business in these LatAm nations, Nearshoring rises a cut above the rest when compared to other outsourcing models. Cross-globe collaborations result in time delays and inefficient communication; these longitudinally-distant nations also fail to share the same number of linguistic, cultural, and monetary similarities.
So, looking to expand a business internationally, with all the conveniences of local teamwork? Contact your friendly neighborhood IT experts, and get Nearshoring in Latin America.