7 Key Insights into LATAM by Deloitte

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Editor Coda
Feb 13, 2018

I recently had the opportunity to interview Kort Syverson of Deloitte about the opportunities that LATAM is offering the shared services industry. He shared his insight into the growth of LATAM as a strategic location and some thoughts as to why companies are benefitting greatly from setting up SSCs across LATAM. You can read the full interview below:

 

1. Why are businesses choosing Latin America (LATAM) as a location for their Shared Service Centres (SSCs)?

First, we need to look back 25 years or more to consider the history of shared services in LATAM.  Back then, we saw a lot of movement to India and low-cost Asia. The main driver was the access to educated, English-speaking resources but at a much lower cost. At the time, the difference between rates paid in the USA and those in India or Asia were significant. Companies were enticed by the cost savings, which could yield upwards of 50 percent savings. 

However, with time, the distance to Asia from the United States became burdensome – for example, 20+ hours on a plane – as did time zones and infrastructure. Also, as Asian markets became more saturated with shared services centres, competition for labor increased. Companies started to explore secondary and tertiary cities in the continued pursuit to sustain lower labor rates. These factors, complemented by the increasing capability of LATAM markets to provide skilled, lower-cost, English-speaking resources, caused companies to turn toward LATAM.

On a side note, every year, Deloitte conducts a survey with participation from 1,000 global SSCs. We always ask about location and the drivers. In 2017, the primary factor was to be closer to operations. Previous years had indicated cost and so we have seen the market put increased importance on being “closer to home.”

LATAM also offers the same or similar time zones – potentially eliminating the need for night shifts. You can also secure labor arbitrage, which refers to securing same level of work for lower costs, and high levels of service orientation. In fact, according to our 2017 Shared Services Survey, 69 percent of respondents suggested that shared services had a positive impact on service levels. LATAM is proving itself as a viable alternative to low-cost Asia.

2. Has there been a growth in SSCs across LATAM? If so, over what period?

There certainly has been growth. It’s hard to put a time frame on this, but let’s start with Costa Rica. We saw large American companies set up in the country over 15 years ago to serve North American operations, starting with engineering centres and then moving to focus on back-office. Then, we witnessed consolidation across LATAM in Argentina, Colombia, Mexico and Chile, with companies setting up SSCs to serve LATAM. This second wave saw the creation of Spanish-speaking centeres. 

About seven years ago, other LATAM countries took a hard look at how Costa Rica developed its shared services sector and sought to follow suit. The governments of these nations considered the English language capabilities and what individuals needed to develop their professional careers. At this stage, there was resurgence on a bigger scale with Colombia, Argentina and Mexico, following Costa Rica to help make English accessible to more. What we are now seeing is SSCs serving LATAM and the USA from LATAM. 

3. Is LATAM influencing the operating models of shared services organizations?

Yes, absolutely. The evolution of shared services locations started with Asia, then moved to Eastern Europe, and now LATAM is seen as a viable location. Now, many companies have a global network of shared services centres. Moreover, there are even true global centres in LATAM. You can find German, French, Portuguese and English in LATAM.

Deloitte has worked with a large bakery and an international bank that offer global coverage from LATAM. One of the key questions often asked by our clients is, “Can I do global work from LATAM?” While not prevalent, the answer is, “Yes, you can”. Both the bakery and the bank have found success with this. 

The final point to raise here is the concept of 24-hour processing. The benefits of regional SSCs mean that when the sun comes up in India, the work they have been doing can be passed on at night to Eastern Europe. You can see how LATAM complements that model. Adding another region has changed the way companies can work globally. 

4. Do SSCs in LATAM have a different approach to talent management, and do the local markets influence this?

I think a significant starting point to consider is turnover. My experience suggests that there is a common worry about diligently managing people. In one country, you may have a higher turnover than in another, which can also change depending on the function served (e.g. Finance, Contact Centre or IT). However, there are cultural differences that can drive turnover, and that’s part of the equation in LATAM.  And no two countries are the same. 

For example, in Costa Rica, the need for a career path, opportunity to work internationally, and internal opportunities are some of the drivers. Other considerations are transportation and continuing education. However, when we look at Mexico, benefits that matter in Costa Rica may not apply. In Mexico City, companies need to think about infrastructure. For example, a two-mile commute can take 60 minutes. Companies need to ask themselves, “What is my recruitable distance, and how do I stop them taking a closer job?” In other words, different cultures value different drivers.

5. How are businesses tackling the complexity of LATAM markets, particularly Brazil? Can you offer any advice on what they should be doing or considering? 

LATAM is complex, but many places are. Europe, for example, has unions and councils that impose their own regulations that corporations must be aware of. However, excluding Brazil, you will find that, despite some complex tax requirements, it’s possible to serve all the countries in LATAM from LATAM with relative ease. 

When it comes to Brazil, things are different; and I suppose Argentina has its challenges, too. Both countries have very complex tax laws, some down to a municipality level, affecting how you process transactions particularly in finance. Specific to Brazil, what tends to be the deterrent when moving work out of Brazil is the social cost, including withholding tax. I am by no means a tax expert, but I’ve been around long enough to see when the red flag needs to go up. In Brazil, large social benefits are paid to the employee, making them as expensive as the USA.  And, while taken at face value, this may be seen as an attractive reason to move work outside of Brazil, those costs will be recouped through taxes by the government for work done for Brazil outside of Brazil. 

If you are serving Brazil through a significant number of transactions and FTEs, you may consider creating an SSC in Brazil; the rest of LATAM could be served from another point. The main rationale for this approach is that the social cost is so high, you won’t get that labor arbitrage with Brazil that may be possible in other LATAM countries. 

6. Is there opportunity for investment in Robotic Process Automation (RPA) and Artificial Intelligence (AI) in LATAM? If so, what does the business case look like? 

RPA and AI have the potential to drive cost and efficiency, but the fact is that the labor rate is much lower in LATAM than in the USA. Therefore, when we deploy an RPA solution, the ROI to substitute workers in LATAM isn’t significant, unless we are doing it for control reasons. 

If a company is developing an RPA capability within their LATAM SSC that will serve the globe, then the business case becomes interesting. Companies may benefit from establishing centres of excellence that offer RPA that will move up the chain, eventually offering cognitive and AI – when the world gets there.

In summary, don’t look at this as a business case for LATAM, but a capability they should invest in to serve the rest of the world.  I like to see companies build the capability because technology like RPA is here to stay and will continue to evolve. 

7. Finally, what would you say is the economic outlook for LATAM over the next 5 years? 

I believe it’s important to look at indicators in LATAM countries to consider what we might see in the next few years. Every country is different and has been on a unique journey to say the least. We definitely continue to see investment in LATAM, and I would say the region is likely going to follow the global economy. 

Yet, when you peel back the onion in each country, there are political issues that can pose potential disruptions. For example, Colombia has a strong and fast-growing economy – arguably the fastest in LATAM – with lots of strong infrastructure and investment in education. There has been some instability, but, last year, a Peace Accord was signed to help stabilize the country. However, there is still some concern with the terms of the Peace Accord, which might mean the potential for future political instability.

For Argentina, Brazil, Chile and Mexico, the biggest issue has been the devaluation of the currency while the strength of the US dollar has increased. You can see this as a good or a bad thing. From a USA perspective, work becomes cheaper for American companies. At the same time, this – together with political instability – drives inflation as seen in Argentina. 

In summary, while the macro outlook should be good, there is still country-specific risk that must be considered.  

With thanks to Kort Syverson for his time and insight. 

 

On February 27th-28th sharedserviceslink is hosting its LATAM Shared Services Digital Summit. Many of the above points raised by Kort will be discussed and we urge you to register if you already operate in LATAM or if you are looking to establish an SSC.  
 

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