Is the IT Industry Shifting Base to Latin America?

Latin America is leading in nearshoring. Image Source

Latin America is leading in nearshoring. Image Source

An interesting meeting between Sajan Pillai and Vicente Fox has sparked an idea that the IT industry might be leaning toward Latin America. Sajan Pillai is the CEO and Founder of UST Global, an IT company based in California. Vicente Fox is a leading businessman and the former president of Mexico.

IT Jobs on offer in Mexico

Pillai in his offer of training Mexican citizens and offering jobs banked on the reigning drug cartel in Mexico. In his offer, he supposedly said that the only hope for the young generation was to offer a lucrative alternative to being involved in the drug business.

Pillai offered to create a technology base in Mexico by training 30,000 Mexicans in the IT ways and hiring 10000 of the trainee graduates. This technology base according to him would help service the bigger IT markets in Latin America and in the US.

The conversation between Vicente Fox and Pillai was successful as Fox apparently agreed to partner with Pillai in the IT training endeavor. Pillai in his own words said, “That conversation lasted for about one hour, at the end of which he (Fox) stood up and said it was his life’s mission to change the economy and agreed to partner with UST.”

UST operations in Mexico

The conversation bore fruit as there are currently over 1,000 employees in Mexico in the UST offices. Mexico is also one of UST’s main focus arenas. Pillai stood by his promise to hire Mexicans and create a base in Mexico.

Breaking down Latin America’s popularity in the IT industry

The US and Latin America have a lot in common. Apart from fairly similar cultures given the intermingling, the relatively short distance between the countries makes it an ideal outsourcing destination.

In comparison to the visa process for Indians, the entry of a Latin American on a valid visa is not as hard. Chandramouli, working with the Zinnov Management Consulting as the Director – Advisory sales was of the opinion that the travel between Latin America and US was cheaper, faster and also easier, making it the preferred choice for certain kinds of professional services. He was quoted as saying, “Earlier for systems integration, where you install and customize a ready product for a customer, an expert from India would travel. But now, with rising visa restrictions for Indians, people are beginning to use Latin Americans.”

With nearly 300 flights that shuttle everyday between Mexico and the US, it is definitely an easier path. Zinnov further estimated the cost break between India, US and Mexico. The cost per employee in Latin America would be anywhere from $40,000 to $50,000 (inclusive of all costs). The same employee’s cost in India would be approximately $30,000 in contrast to $80,000 in the US.

Further the IT base in the country is rapidly growing and establishing itself as a force to reckon with. The basis of the increasing outsourcing industry is however attributed to the lower costs of hiring IT manpower. The costs of hiring services in areas like Ecuador, Chile, Costa Rica, Brazil and Mexico is nearly half the price of the same services in the US. The price factor therefore makes Latin America an attractive area to set up IT in.

Another important factor is that most of the talent can fluently converse in Spanish, a necessity in the US and some parts of Europe. Also there is an increasing need for close collaboration between teams, the ideal location of Latin America cannot be beat in that aspect. The local markets are growing and integrating IT.

Why India still has a fighting chance

The talent base required for professional services like application development and maintenance is five times better established in Bangalore than it is in Mexico. Mexico is establishing IT training centers similar to the NIIT institutions in Bangalore in an effort to bridge the gap and establish a better technological base.

Gartner claimed in a Forbes magazine article that Mexico ranked third after India and the Philippines in IT offshoring. In efforts to boost Mexico’s position, the Latin American countries are each individually pushing for offshoring initiatives to be established.

India also seems to have presence in some Latin American countries through various companies like ThoughtWorks, HCL and TCS. Roy Singham, Chairman and Founder of ThoughtWorks said that Brazil owing to its proximity to the US was receiving attention from his company in an effort to better serve the local market. The company has three valuable centers in Brazil, in Recife, Sao Paulo and Porto Alegre, apart from one in Ecuador in Quito.

HCL is increasing employee numbers in Sao Paulo, Sao Leopoldo in Brazil and in Guadalajara in Mexico. TCS likewise is following suit with three centers in Mexico, one in Queretaro and two in Guadalajara. Also Infosys has office locations in Monterrey and Mexico City in Mexico. The intention of having these centers is so that US clients can have offshore locations to contact that are not too far away. These centers usually service Latin America, North America and Europe.

These off shore locations in Latin America are important for the Indian IT industry because most of their clients in the US have locations in Latin America and expect their IT partners to also have closer locations.

In answer to how India will be affected by the move into Latin America, Gaurav Gupta, a managing partner from the Everest group, an outsourcing advisory firm, believed that the Indian talent providers have proven their capabilities in execution and scale with a talent pool that is vastly unbeaten. He was quoted as saying, “The appetite for other low-cost centers has gone up, but it hasn’t affected India’s outsourcing story.”

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