LATIN AMERICA TRENDS & OPPORTUNITIES IN A GROWING MARKET FOR WORLD-CLASS GLOBAL SERVICES NEO GROUP INSIGHT SERIES - JUNE

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1 TRENDS & OPPORTUNITIES IN LATIN AMERICA A GROWING MARKET FOR WORLD-CLASS GLOBAL SERVICES NEO GROUP INSIGHT SERIES - JUNE 2015

2 LATIN AMERICA TRENDS & OPPORTUNITIES IN A GROWING MARKET FOR WORLD-CLASS GLOBAL SERVICES Neo Group, leveraging the data and analysis of its Supply Wisdom SM unit, is delighted to share a report on the state of the outsourcing industry in Latin America. This report highlights key trends, challenges and opportunities of the region and shares detailed research and insights on ten of the leading countries in the region: Argentina, Brazil, Colombia, Costa Rica, Dominican Republic, El Salvador, Jamaica, Mexico, Nicaragua, Peru. Since 1999, Neo Group has had a singular focus on global services and global sourcing. We believe in Talent Without Borders, that companies can create competitive advantage by leveraging talent globally. We help clients accelerate benefits and minimize risks associated with global talent and sourcing by advising them across their sourcing journey on critical decisions about what to source, when to source, where to source, who to partner with, how to manage and monitor their global operations, and more. Our commitment to reliable, objective data forms the root of our expert-led and analytics-driven advisory practice. Supply Wisdom SM provides companies with unparalleled depth of data on global markets and suppliers, as well as actionable guidance on how to proactively respond to changes in risks across global suppliers and locations. Supply Wisdom SM is a leader in real-time risk monitoring and management, leveraging proven methodologies, a sophisticated analytical engine, and a proprietary, comprehensive risk model, to deliver flexible, cloud-based solutions that help clients make rapid, informed decisions about sourcing, third-party oversight, location selection, vendor management, ongoing governance, and more. 2 TRENDS & OPPORTUNITIES IN LATIN AMERICA

3 has long been a key lever in helping organizations be more competitive. Traditionally, this has been accomplished by outsourcing support functions like IT, HR, Procurement, in offshore locations that offer scalability and lower cost. Increasingly, businesses are reshaping their outsourcing strategy to include more revenue focused functions and roles, including digital, analytics and industry processes, in order to realize deeper gains from global services and sourcing. To achieve these gains, organizations focus more on finding and retaining the right talent, as defined by specific skill sets and cultural alignment, and less on the traditional criteria of scalability and cost. Given the diverse talent, competitive costs and cultural fit available in Latin America, the region is becoming increasingly attractive to U.S. businesses looking for strategic partners for every blend of service, including ITO, BPO, and KPO. TALENT Talent development across the region has been impressive. In some locations, the annual IT-skilled graduate pool has quadrupled compared to just a few short years ago. Organizations like IDB and many of the countries themselves are investing in human resources development, making the future prospects even more attractive. Governments and universities are investing in the development of technology and English-speaking skills to support economic growth. Global companies have noted these trends and entered the region to get a piece of the pie. Companies like IBM, Capgemini, Accenture, EXL and Genpact have all set up shop and brought with them their business acumen, processes and disciplines. Regional players like Globant, Stefanini, Softek and Ci&T are expanding beyond their home countries and across the region. Perhaps most interestingly, the region is developing into pockets of specialized services. Countries are building reputations around a specific service offering. For example, analytics in Chile, high-end voice talent in Costa Rica, lower cost voice services in Nicaragua, digital services in Argentina and ERP in Mexico. CULTURE A new focus for companies has been selective sourcing, especially sourcing focused on revenue and customer engagement, which requires business and cultural affinity. In this, LatAm has a natural advantage over far offshore peers: cultural compatibility, proximity and a common time zone. These factors can be critical for functions and roles requiring increasing collaboration, deeper affinity and engagement. Latin America as a region is an attractive near shore destination, but each country offers its own nuances. Business climate and laws, labor costs, working hours, visa requirements, English proficiency, services maturity, infrastructure, operating costs, and so many more factors vary from country to country, and even from city to city. COST The region continues to operate at a lower cost than North America, and with competitors in locations such as India and the Philippines finding their own costs rising, it is becoming an even more attractive region to source services or setup shared services. Many LatAm countries are now compounding the natural cost advantage by aggressively offering incentives and specialized zones that make shorter-term investment even more favorable. When evaluating a sourcing location and supplier, companies must first consider their own requirements. Key considerations include business objectives, required skills (in terms of maturity and types), scalability needs, and so on. Once these criteria are identified, finding the right location and partner becomes a simple game of matchmaking. The following country overviews are intended to provide a better understanding of the diversity and quality of outsourcing capabilities available across Latin America. TRENDS & OPPORTUNITIES IN LATIN AMERICA 3

4 ARGENTINA Despite its lackluster macro-economic climate, Argentina offers clear advantages to the outsourcing industry. Low operational costs, fast improving telecom infrastructure, cultural compatibility with Europe and similar time zone to the US have fueled the growth of the outsourcing industry in Argentina. Global businesses primarily turn to Argentina for software development, contact centers, back-office operations as well as creative services. Although attrition rates have been high in the BPO sector and unemployment rates are also rising steadily, the services sector in Argentina has grown at a fast pace in the past few years. The country boasts of over 3,600 IT firms and more than 350 BPO companies, including major players like IBM, HP, TCS, Sabre and TeleTech. This growth can be credited to various government incentives such as tax exemptions, investments in the education sector, reduction of employer contributions up to 70%, lack of restrictions on foreign currency wire transfers for imports of goods or services, amongst others. As per the latest forecasts, analysts expect the Argentinian IT market to grow at a CAGR of 10.3% over continues to see growth in cities like Córdoba, San Luis, Santa Fe and Rosario, with roughly 60% of the IT firms maintaining a presence in Buenos Aires, as the city makes up 85% of the software talent pool in Argentina. The country has a lot to offer when it comes to skilled resources, adding more than 98,000 graduates and 11,000 postgraduates annually. Between 2003 and 2011, there was a 55% increase in R&D professionals in Argentina. With regard to language capabilities, Argentina has multi-lingual capabilities that include Spanish, Portuguese and English. As per Education First s English Proficiency Index 2014, Argentina was the only country with high English proficiency in the LatAm region, with all other countries scoring low to very low on the index. In terms of challenges, ease of starting a business in Argentina is much lower compared to many other countries in the region including Chile, Uruguay, Mexico, Colombia and Peru. Unsustainable government policies, volatile political conditions and frequent protests have negatively impacted services sector growth in the country. High levels of crime and corruption coupled with frequent power outages also act as deterrents for potential investments in the region. Despite these challenges, investors are optimistic that the October 2015 presidential elections will bring positive change. The current president, Cristina Kirchner, who faces corruption charges and has not been very popular, is constitutionally barred from standing up for re-elections for a third consecutive term. The promise of change on the political horizon brings with it a marketfriendly outlook for businesses. 4 TRENDS & OPPORTUNITIES IN LATIN AMERICA

5 QUARTER SUPPLY RISK INDEX ARGENTINA Q Q Q Q Proprietary 10-point risk scale measures overall risk based on analysis of 350+ data points related to Geo-Political, Macro-Economics, Financial, Quality of Life, Legal, Business, Scalability and Infrastructure (low score indicates low risk, high score indicates high risk). DID YOU KNOW? Over 3,600 IT Firms More than 350 BPO companies 98,000 graduates and 11,000 postgraduates annually Only Latin America country to be rated with High English AVERAGE ANNUAL SALARY (ITO/BPO/KPO) ENTRY LEVEL 16,500 LEAD LEVEL 23,500 MANAGER LEVEL 38,000 ITO Information Technology 4.87 INDUSTRY SIZE INDUSTRY GROWTH BPO Business Process % 9%.08 LABOR POOL ATTRITION RATE % 10-15% TRENDS & OPPORTUNITIES IN LATIN AMERICA 5

6 BRAZIL Brazil s appeal as a leading outsourcing destination in Latin America has grown tremendously in the recent years, boasting a large presence of major technology firms such as Deloitte, Unisys, Tata Consultancy Services, and others. This has not only created a huge qualified talent pool, but also aided in increasing access to specialized technologies for clients. Brazil has a strong IT industry of around 38B 11%. over 20 B with growth rate of 35%. Prominent technology service offerings include cloud computing, software and system integration, e-commerce and digital media technologies. BPO market occupies a smaller share, growing at a still impressive rate of around 8.3%, 15%, with offerings such as call center services and human resources outsourcing. Brazil s IT/BPO market is also attractive in the diversity of the industries it serves (more than 30 industry segments), including automotive, aviation, energy, industrial machinery and finance sectors. In addition to boasting a mature market, another main advantage that Brazil larger than larger many than of its offers is a labor pool that is significantly its LatAm counterparts. Besides Rio de Janeiro and Sao Paulo, several secondary cities have risen as viable destinations for operations, owing to cheaper labor and operational costs, substantial availability of talent, government initiatives, favorable bureaucracy, academic scenario, and more. These include Campinas, Recife, Porto Alegre, Belo Horizonte and Curitiba. Notable companies with operations in these cities include Google, Citibank, Motorola, IBM, HSBC, and Dell. Despite the large size of its labor pool, Brazil still faces challenges in meeting resource requirements of its rapidly growing outsourcing industry. For example, statistics indicate that around 750,000 additional professionals will be required over the next ten years, to cater to the growth rates of its IT services industry, of which 300,000 are required for the export market itself. Another critical challenge faced in recent times is large-scale political turbulence and social unrest, related to the rising unpopularity of President Dilma Roussef and high corruption levels, which have weakened residents confidence in the country s administration. Other concerns also exist, such as a complex tax regime, high crime rates for homicides, kidnapping, armed assault, and impending crisis of power shortage. The government has taken some corrective measures to improve the economic and political situation, including authorizing outsourcing activity in all business fields and new anti-corruption laws. 6 TRENDS & OPPORTUNITIES IN LATIN AMERICA

7 QUARTER SUPPLY RISK INDEX BRAZIL Q Q Q Q Proprietary 10-point risk scale measures overall risk based on analysis of 350+ data points related to Geo-Political, Macro-Economics, Financial, Quality of Life, Legal, Business, Scalability and Infrastructure (low score indicates low risk, high score indicates high risk). DID YOU KNOW? Leading exporter of ICT services in Latin America Second-largest emerging marking in the world after China. Third-largest market for computers and peripherals AVERAGE ANNUAL SALARY (ITO/BPO/KPO) ENTRY LEVEL 14,500 LEAD LEVEL 25,500 MANAGER LEVEL 49,500 ITO Information Technology % INDUSTRY SIZE INDUSTRY GROWTH.6 LABOR POOL BPO Business Process % ATTRITION RATE 15% 15% 1.10 TRENDS & OPPORTUNITIES IN LATIN AMERICA 7

8 COLOMBIA Supported by dynamic government initiatives and strong academia, Colombian outsourcing has come a long way. From being a violent and drug-fuelled country, it has become one of the most preferred destinations for investments in the LatAm region, with presence of major companies like Microsoft, HP, American International Group (AIG), British Telecom (BT), SAP, IBM, and Unisys. Some of the key verticals that Colombia provides services for include Technology, Healthcare, Automotive, Manufacturing and BFSI. Some of the most popular services include customer service, sales, technical support, payroll processing, customer relationship management, business intelligence etc. In 2015, Colombia topped the region as the best country for doing business with high levels of investor protection and ease of property registration. Moreover, Colombia has a very robust technology infrastructure especially when it comes to internet connectivity. In 2014, internet penetration in the country had increased by 19% compared to late 2012, with the number of broadband customers exceeding 9.5 million. In the past year, several service providers have launched high-speed LTE/4G services in almost all major cities including Bogota, Cali, Bucaramanga, Medellín and Barranquilla. Colombia boasts many incentive programs for investors, especially through its free trade zones, which comprise of more than 100 authorized and special permanent zones. In addition to several tax incentives, state-funded programs aim to strike a balance between skilled human capital and low operational costs, such as Digital Talent, which promotes tech talent by giving students in certain curricula 100% forgivable loans, and Vive Digital, which improves countrywide internet connectivity. To promote bilingualism (Spanish and English) and support its BPO sector, the Colombian government has also has established a national registry for bilingual individuals called ispeak to locate the right resources easily. Bogota also has a similar program wherein the government funds English language courses to increase the employability of students. All of these incentive programs effectively tap into the abundant resource base available in the country, with nearly 55% of its population below the age of 30, indicating a very attractive demographic scenario. More than 200,000 people graduate from higher education in Colombia annually. However, there are some geo-political factors that investors need to be wary of while considering Colombia. The ongoing war between FARC s (Fuerzas Armadas Revolucionarias de Colombia) rebels and the government has disrupted peace in the region for decades now. Also, the country is highly vulnerable to earthquakes and floods. 8 TRENDS & OPPORTUNITIES IN LATIN AMERICA

9 QUARTER SUPPLY RISK INDEX COLOMBIA Q Q Q Q Proprietary 10-point risk scale measures overall risk based on analysis of 350+ data points related to Geo-Political, Macro-Economics, Financial, Quality of Life, Legal, Business, Scalability and Infrastructure (low score indicates low risk, high score indicates high risk). DID YOU KNOW? 100 authorized and special permanent zones More than 200,000 people graduate from higher education in Colombia annually 9 cities with population over 500,000 Broadband connections increased form 2.2 to 8.8 million from , and expected to triple by 2018 to 7 million AVERAGE ANNUAL SALARY (ITO/BPO/KPO) ENTRY LEVEL 10,500 LEAD LEVEL 18,500 MANAGER LEVEL 30,500 ITO Information Technology 2.97 INDUSTRY SIZE INDUSTRY GROWTH.05 LABOR POOL BPO Business Process % 10%.13 ATTRITION RATE N/A 18-20% TRENDS & OPPORTUNITIES IN LATIN AMERICA 9

10 COSTA RICA As a strong emerging contender for outsourcing in Latin America, Costa Rica s similar time zones to the US East Coast and small but well-educated labor force have attracted several large brand names such as HP, Dell, Amazon, and Procter & Gamble over the last decade. BPO claims the larger share of the outsourcing market with call and contact centers, as well as shared and back office services. High value added IT services are also quite sought after in Costa Rica in areas such as digital technologies, design and engineering, financial analysis, regional centers, and software development, competing with regional counterparts such as Argentina, Chile and Brazil. Exports dominate both sectors (ITO/BPO) owing to lower local demand. Nevertheless, the domestic market is slowly picking up the pace with recent operations of companies such as UST Global. While San Jose remains the primary destination, operations have begun to spread to outskirt areas such as Grecia in recent months. Costa Rica offers a highly skilled labor force, owing to competitive educational standards. World Economic Forum s Global Competitiveness Report ranks Costa Rica s quality of education, electricity and telecommunications infrastructural facilities among the top in Latin America. In addition to factors such as multilingual capabilities, intellectual property protection and safety standards (ranked as the safest country according to the 2014 Latin America security index), Costa Rica also offers attractive investor friendly incentives such as the FTZ Regime that provides 100% tax exemption and a choice for either a 10-year or no expiration period. Despite being highly skilled, Costa Rica s labor pool is small, making outsourcing of large-scale operations challenging in the country. Higher operational costs and steep attrition rates prompted exit of companies in the recent past. Other issues related to bureaucracy, corruption and lack of transparency also exist. However, government s incessant efforts to promote quality education and skilled labor encourage an optimistic future for the country. 10 TRENDS & OPPORTUNITIES IN LATIN AMERICA

11 QUARTER SUPPLY RISK INDEX COSTA RICA N/A Q Q Q Q Proprietary 10-point risk scale measures overall risk based on analysis of 350+ data points related to Geo-Political, Macro-Economics, Financial, Quality of Life, Legal, Business, Scalability and Infrastructure (low score indicates low risk, high score indicates high risk). DID YOU KNOW? #1 Exporter of high value added services in Latin America 122 International companies 2 International Airports AVERAGE ANNUAL SALARY (ITO/BPO/KPO) ENTRY LEVEL 19,000 LEAD LEVEL 29,000 MANAGER LEVEL 65,000 ITO Information Technology % INDUSTRY SIZE INDUSTRY GROWTH.003 LABOR POOL BPO Business Process % ATTRITION RATE 8% 8%.035 TRENDS & OPPORTUNITIES IN LATIN AMERICA 11

12 DOMINICAN REPUBLIC The outsourcing industry in the Dominican Republic has seen tremendous growth, with contact centers being the fastest growing segment of the industry. There has been a significant increase in the number of outsourced seats, from 1,200 seats in 2002 to over 22,000 seats in With around 200 ITO and BPO companies, most of them in Santo Domingo and Santiago de los Caballeros, the industry is set to double the number of its bilingual agents from 10,000 to 20,000 by Key players like Rococo, VoiceTeam, Globcom, and Callmax, primarily offer services such as Inbound & Outbound calls, Interactive voice response (IVR), Automatic Call Distributor (ACD), Customer Relationship Management services, Helpdesk, IT Enabled Service, and employee sourcing. The impact of call center services is so huge that the country is being dubbed as The Call Center Republic. This growth is driven by cultural closeness and physical proximity to US, solid telecom infrastructure and lower operational costs when compared to other LatAm and Caribbean countries. The setting up of Network Access Point (NAP) of Caribbean has also aided in attracting communication and research companies to the country. The slew of measures taken by the government to encourage investments, including offering tax benefits, promotion of English learning through English Immersion Program, setting up of several contact center associations to optimize talent pool, have helped businesses to scale up their operations in the region. Despite these efforts, the outsourcing sector still faces challenges stemming from a shortage of skilled resources to do complex tasks. While the country is in high demand for Spanish-speaking back-office and other simple contact center processes, it lacks the necessary skill sets to offer higher-end software and application development services. Additionally, it is very complicated and time consuming to start a business in the Dominican Republic. High electricity costs, frequent unscheduled outages and outdated labor laws continue to plague the sector, deterring potential investors. 12 TRENDS & OPPORTUNITIES IN LATIN AMERICA

13 QUARTER DOMINICAN REPUBLIC SUPPLY RISK INDEX Q Q Q Q Proprietary 10-point risk scale measures overall risk based on analysis of 350+ data points related to Geo-Political, Macro-Economics, Financial, Quality of Life, Legal, Business, Scalability and Infrastructure (low score indicates low risk, high score indicates high risk). DID YOU KNOW? 200 ITO & BPO companies industry is set to double the number of its bilingual agents from 10,000 to 20,000 by 2017 Rated amongst the top 10 globally for advanced telecommunications structure AVERAGE ANNUAL SALARY (ITO/BPO/KPO) ENTRY LEVEL 10,000 LEAD LEVEL 16,500 MANAGER LEVEL 24,500 ITO Information Technology 0.02 N/A INDUSTRY SIZE INDUSTRY GROWTH.0009 LABOR POOL BPO Business Process %.03 ATTRITION RATE N/A N/A TRENDS & OPPORTUNITIES IN LATIN AMERICA 13

14 EL SALVADOR El Salvador is one of the most promising emerging outsourcing destinations in Central America, especially when it comes to BPO services. Key advantages include similar time zone as the US and low operating costs. In fact, El Salvador leads as one of the most cost-effective locations to operate a business in the region. Attrition rates are also lower when compared to other places in Central America such as Guatemala, Costa Rica and Panama. The country also scores high in terms of economic freedom due to its liberal business, fiscal, trade and investment policies, when compared to other economies in the LatAm region. The country has attracted more than 55 IT-BPO companies, both domestic and foreign, like Sykes, Teleperformance, Atento and Stream. Key services include data capturing, contact center services, customer service, software development, testing and application management. The government has been notably proactive in taking measures to encourage investments. Businesses benefit from attractive tax incentives like full exemption from income tax and municipal taxes. The implementation of International Services Law provides a number of tax incentives specifically for provision of services to foreign customers. Lower labor costs compliment these measures to promote the region as a business hub. The government has also made significant improvements to infrastructure, leading the country to now be rated as one of the best in LatAm. To ensure continued growth, measures should be taken to address ease of doing business concerns. The country currently ranks below regional competitors such as Panama, Costa Rica, Guatemala and Uruguay. High crime rates and increasing social violence in terms of warring gangs (mostly related to drug trafficking and extortion), with 481 murders in March 2015 alone and a 52% increase over 2014, also make investors wary. These issues are being tackled through programs such as El Salvador Crime and Violence Prevention Project a five-year 2 billion Safe El Salvador project that covers 55 municipalities. Other challenges such as its limited English speaking talent pool are also being addressed by the Salvadoran government through its specialized training programs, with 650 people certified fully proficient in English between July 2013 and December 2014, and more than 700 students graduating from bilingual schools annually. Over 170,000 students also register in higher education programs in the country every year. With this kind of support and potential pipeline of talent, El Salvador is expected to see immense growth in the future and become the next big success story of the region. 14 TRENDS & OPPORTUNITIES IN LATIN AMERICA

15 QUARTER SUPPLY RISK INDEX EL SALVADOR N/A N/A Q Q Q Q Proprietary 10-point risk scale measures overall risk based on analysis of 350+ data points related to Geo-Political, Macro-Economics, Financial, Quality of Life, Legal, Business, Scalability and Infrastructure (low score indicates low risk, high score indicates high risk). DID YOU KNOW? 60% of the labor force is 39 years or younger 17 free trade zones and service parks 170,000+ students register in higher education programs in the country every year AVERAGE ANNUAL SALARY (ITO/BPO/KPO) ENTRY LEVEL 7,000 LEAD LEVEL 12,500 MANAGER LEVEL 23,500 ITO Information Technology N/A N/A INDUSTRY SIZE INDUSTRY GROWTH.004 LABOR POOL BPO Business Process %.013 ATTRITION RATE N/A 20-25% TRENDS & OPPORTUNITIES IN LATIN AMERICA 15

16 JAMAICA Over the past decade Jamaica has grown beyond being just a tourist center to one of the most attractive destinations for investments. Being one of the largest English speaking nations in the western hemisphere, with a population of 2.7 million, Jamaica has attracted major companies like ACS Xerox, HGS, Global, and Sutherland Global Services. Some of the key service sectors include Finance & Accounting, Receivables & Debt Collection, Inbound Customer Service, Telesales/marketing, Tech support and Graphics. Over the years, global investor interest has increased exponentially owing to the healthy business environment created by the Jamaican government. In 2015, Jamaica ranked first in ease of starting Business and second in Dealing with Construction Permits when compared to other LatAm countries, according to the Doing Business 2015 Report. To further enhance the business environment, the government made goods and services purchased in Jamaica for use in free zones to be free of General Consumption Tax. To enhance its skilled labor force, the government has initiated several support programs such as Training Incentives Programs primarily for BPO and IT sector. The government also promotes investment by extending tax reliefs. Also, under the Jamaica Free Zone Act, companies operating from the Free Trade zones are eligible for further incentives. Nevertheless, increasing debt is a major obstructing factor for the country s economic growth. With debt to GDP ratio of 138 percent, the country lists as one of the highest amongst the developing countries. However, it should be noted that in September 2014, Jamaica successfully cleared all targets under its Extended Fund Facility (EFF) with the International Monetary Fund (IMF) through which the country has received a disbursement of 67 million. The debt scenario of the country is expected to recover in the coming months. 16 TRENDS & OPPORTUNITIES IN LATIN AMERICA

17 QUARTER SUPPLY RISK INDEX JAMAICA Q Q Q Q Proprietary 10-point risk scale measures overall risk based on analysis of 350+ data points related to Geo-Political, Macro-Economics, Financial, Quality of Life, Legal, Business, Scalability and Infrastructure (low score indicates low risk, high score indicates high risk). DID YOU KNOW? In 2015, Jamaica ranked ease of starting business Largest English-speaking workforce in the Caribbean center and BPO service in Jamaica AVERAGE ANNUAL SALARY (ITO/BPO/KPO) ENTRY LEVEL 10,000 LEAD LEVEL 17,720 MANAGER LEVEL 63,340 ITO Information Technology 0.10 INDUSTRY SIZE INDUSTRY GROWTH.01 LABOR POOL ATTRITION RATE BPO Business Process % 20%.02 12% 14% TRENDS & OPPORTUNITIES IN LATIN AMERICA 17

18 MEXICO Mexico is an attractive business hub with stable economic and political conditions, boasting a notable increase in government investments in infrastructure, mature outsourcing capabilities and a large pool of ICT professionals. Presently, the country hosts more than 2,000 IT companies with some major players such as IBM, Cisco, TCS, Intel, HP, Softtek and Hexaware. ITO hubs like Guadalajara alone have observed growth from 60 to 650 IT and electronics companies in the last ten years. The BPO sector has also seen tremendous growth, being one of the fastest growing segments of Mexico s outsourcing industry since Along with major hubs like Mexico City, Monterrey, Guadalajara and Queretaro, other places like Puebla and Juarez are also emerging. Some key sectors that Mexico caters to include Technology, Aerospace, Biotechnology, Automotive, Retail, Manufacturing and BFSI. Services such as customer support, product support, payroll processing, document processing, are some of the most popular services. Mexico s key strengths include a large talent pool with bilingual capabilities, time zone proximity to the US and robust telecom infrastructure. Mexico also ranks higher than other LatAm countries such as Argentina and Brazil in ease of doing business, with Colima scoring the highest on this parameter, while Mexico City scores the lowest. The Mexican government is taking on a number of incentives to create favorable conditions for foreign companies, including cash benefits and tax credits, tie-ups with universities to encourage research and development, and initiatives like Mexico Conectado to improve internet connectivity across the country. However, high levels of crime (including cybercrime), corruption, illegal payments and drug-fuelled violence (although on a decline), along with resulting protests, disrupt businesses and negatively impact potential investments. Operational costs in terms of power tariffs are also quite high (30% higher than the US). Moreover, it can be challenging to recruit people with adequate management skill sets and strategic vision at managerial levels, which can be a deterrent for large-scale operations. 18 TRENDS & OPPORTUNITIES IN LATIN AMERICA

19 QUARTER SUPPLY RISK INDEX MEXICO Q Q Q Q Proprietary 10-point risk scale measures overall risk based on analysis of 350+ data points related to Geo-Political, Macro-Economics, Financial, Quality of Life, Legal, Business, Scalability and Infrastructure (low score indicates low risk, high score indicates high risk). DID YOU KNOW? More than 2,000 Information Technology (IT) companies More than 100,000 engineering and technology students graduated in th largest economy in the world AVERAGE ANNUAL SALARY (ITO/BPO/KPO) ENTRY LEVEL 14,000 LEAD LEVEL 24,000 MANAGER LEVEL 37,500 ITO Information Technology % INDUSTRY SIZE INDUSTRY GROWTH.5 LABOR POOL BPO Business Process % ATTRITION RATE 5% 7%.25 TRENDS & OPPORTUNITIES IN LATIN AMERICA 19

20 NICARAGUA Once disrupted by political turmoil, Nicaragua has emerged as a promising investment market in Latin America. Due to its proximity and affinity to North and South American markets, this Central American country has attracted several major companies such as Sitel, Concentrix, Convergys, SPI Global Claro, and British Telecom. Nicaragua offers non-voice BPO services such as data processing, payments processing, and reconciliations for vendor accounts, audit and compliance, and shared service center process. The country also offers KPO services including recruitment process, survey analysis, payroll administration and financial services, and logistics operations. Common ITO services include mobile applications development, software development, tech support, and hardware and servers maintenance. According to the 2015 Doing Business Report, Nicaragua advanced 7 ranks to position 119 in its global position compared to By simplifying the ease of starting a business by reducing the procedures and time required to start a business, Nicaragua moved to 120th rank as compared to 140th rank last year in Starting a Business parameter, becoming the only country in Central America to have seen improvement. With nearly 76% of the population under the age of 39, the country projects an ideal demographic scenario for investments. In 2013, the government sanctioned an inter-oceanic canal and related project at an estimated cost of 40 billion. It is being called the world s largest infrastructure project, with the potential to double the economy of Nicaragua. This project has received mixed reactions from the industry with several protests erupting against it, primarily opposing the transparency of the project and the canal s environmental implications. As a small country, Nicaragua faces scalability challenges due to a small labor force, which makes it unsuitable for large outsourcing operations. Nicaragua s greatest advantages, however, are its cheap labor costs and generous tax incentives designed specifically for the outsourcing sector. To keep up with the demand for skilled resources, the Nicaraguan government has collaborated with the National Free Zone Commission (CNZF) and the Inter-American Development Bank, to establish a capacity-building program called Opportunity Builder, which aims to identify and train a young bilingual workforce to staff the call center industry. 20 TRENDS & OPPORTUNITIES IN LATIN AMERICA

21 QUARTER SUPPLY RISK INDEX NICARAGUA N/A N/A Q Q Q Q Proprietary 10-point risk scale measures overall risk based on analysis of 350+ data points related to Geo-Political, Macro-Economics, Financial, Quality of Life, Legal, Business, Scalability and Infrastructure (low score indicates low risk, high score indicates high risk). DID YOU KNOW? The minimum wage in FTZ s in Nicaragua is the most competitive in Latin America as of 2014, ranging from 1/3 to 4x lower than other countries In 2015, reduced the time of starting a business from 36 days to 13 days, a reduction of 64% In 2013, there were more than 136,000 students enrolled in higher education AVERAGE ANNUAL SALARY (ITO/BPO/KPO) ENTRY LEVEL 9,000 LEAD LEVEL 17,500 MANAGER LEVEL 28,000 ITO Information Technology % INDUSTRY SIZE INDUSTRY GROWTH.0003 LABOR POOL BPO Business Process %.01 ATTRITION RATE N/A N/A TRENDS & OPPORTUNITIES IN LATIN AMERICA 21

22 PERU Peru has emerged as a leading alternative to mainstream outsourcing destinations in Latin America, prompted by factors such as a relatively stable political environment and lower costs that have attracted several multinational players such as Microsoft, Cisco, Pfizer, IBM and Scotia Bank. Contact center services are one of the top outsourcing operations in Peru, with more than 50 centers currently present in the country, growing at a rate of about 15% annually. This is supported by the emergence of newer technologies such as virtual agents, voice biometrics, and text-to-speech software, and services such as trilingual call center services and electronic factoring. Strong growth is also forecasted for the IT industry, with an increase in services such as web and mobile applications driving an expected growth rate of approximately 11% in the coming years. Domestic market occupies a larger share of the revenue in the sector when compared to exports. Peru's IT-BPO revenues both the industries when compared to exports. Peru s IT-BPOexport export revenues largely come from other Latin American countries and to some extent, Europe (largely Spain). Peru offers a strategic advantage in its labor costs, which are much lower than in Brazil, Argentina, Chile, Uruguay and Mexico. In addition, the Peruvian government has undertaken a number of investor-friendly incentives. This includes strong tax incentives for businesses investing in scientific research, development and technological innovation projects based in Peru; and infrastructure measures such as national fiber-optic backbone network project to provide high-speed internet services to around 5.1 million citizens. While most outsourcing operations are based in Lima, lower operational costs and a decent academic environment is attracting operations to alternative locations such as Arequipa, Trujillo, Piuria, Chiclayo and Junin. However, lack of a mature market and critical shortage of skilled labor contribute to an unsustainable low cost environment, challenging employee retention (especially in BPOs) and also deterring large-scale operations. Lack of multilingual capabilities is another key challenge. To overcome these issues, the government has raised its education spending to 3.5% of GDP for 2015 from less than 3% last year, and aims to raise it to 6% by Additionally, measures such as provision of grants and scholarships for promising students are expected to improve the situation. 22 TRENDS & OPPORTUNITIES IN LATIN AMERICA

23 QUARTER SUPPLY RISK INDEX PERU Q Q Q Q Proprietary 10-point risk scale measures overall risk based on analysis of 350+ data points related to Geo-Political, Macro-Economics, Financial, Quality of Life, Legal, Business, Scalability and Infrastructure (low score indicates low risk, high score indicates high risk). DID YOU KNOW? , GDP increased by 6.7%, reaching a value greater than US 200,000 million 42% of post-graduate students are pursuing degrees related to business and engineering Over 50 contact centers from Spain, Argentina, USA, India, and France, among others AVERAGE ANNUAL SALARY (ITO/BPO/KPO) ENTRY LEVEL 8,500 LEAD LEVEL 18,500 MANAGER LEVEL 34,500 ITO Information Technology 0.71 INDUSTRY SIZE INDUSTRY GROWTH.01 LABOR POOL BPO Business Process % 14.9%.04 ATTRITION RATE 4% 12.5% TRENDS & OPPORTUNITIES IN LATIN AMERICA 23

24 CONCLUSION As organizations continue to focus on driving down costs and increasing value, Latin America will continue to offer attractive characteristics: proximity to the US, similar time zones, cultural compatibility, bilingual workforce, competitive costs, and promising talent. To leverage these offerings effectively, companies must first understand their own needs and expectations, and then map them against the capabilities available across the region. At this time, scalability is one of the most limiting factors, narrowing the possible matches to just Brazil and Mexico. For other factors, companies will face a much more level playing field, making location and supplier selection more complicated. However, this selection process should remain more of a science than an art, leveraging data and analytics to support decisions at every stage. Our research and experience supports the following generalizations: High-end digital talent can be found in Argentina, Mexico and Brazil. Bilingual call centers and higher end voice services can be found in Costa Rica. Low cost call centers can be found in Panama, Guatemala, El Salvador, Honduras, Nicaragua and Colombia Analytics can be found in Chile Small pockets of technical talent can be found in Uruguay and Colombia, which offer a low competition alternative to more popular locations such as Mexico, Argentina and Brazil As a diverse region in terms of talent and services, Latin America offers a wealth of outsourcing opportunities for every blend of service, including ITO, BPO, and KPO. Understanding the different opportunities and challenges in each country is critical to finding the right partner in this region. 24 TRENDS & OPPORTUNITIES IN LATIN AMERICA

25 CONTRIBUTORS Atul Vashistha CEO Sandeep Suresh Head of Research Laurence Blanchette Marketing Manager NEO GROUP CAN HELP The global sourcing landscape is constantly evolving. For a deeper discussion on navigating this landscape to maximize value from your outsourcing relationships, contact one of our lead advisors. GLOBAL HEADQUARTERS 6200 Stoneridge Mall Road 3rd Floor Pleasanton, CA, 94588, USA Telephone: Atul Vashistha CEO Info@NeoGroup.com Kevin English Partner & Senior Advisor Kevin@NeoGroup.com Hermant Puthli Partner & Senior Advisor Hermant@NeoGroup.com Pankaj Sharma Partner & Senior Advisor Pankaj@NeoGroup.com ASIA/PACIFIC HEADQUARTERS No. 13, 1st Floor, C Block Embassy Heights, Magrath Road Banglalore , India Telephone: GLOBAL PRESENCE SAN FRANCISCO NEW YORK ATLANTA AUSTIN BANGALORE MUMBAI NEW DELHI AMSTERDAM BOGOTA SAO PAULO MANILA KUALA LUMPAR SYDNEY TRENDS & OPPORTUNITIES IN LATIN AMERICA 25

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