Outsourcing Movement in Latin America

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    A Frost & Sullivan white paper sponsored by Unisys and published in 2004 made some interesting observations about outsourcing in Latin America. Apparently, the attention to the region is paying off for the service provider, which announced in August 2005 two major deals.

    As the report, “Making IT Outsourcing Work: Top IT Consumers in Latin America Speak Out on How to Successfully Implement IT Outsourcing,” points out, like many other places in the world, companies and government entities in Latin America experienced explosive growth in the adoption of technology through the 1990s. Among the larger entities, the researchers estimate that “anywhere from 15% to 70% of IT budgets are designated to IT outsourcing projects.” The largest markets are Mexico and Brazil, with Chile showing signs of accelerated adoption.

    What distinguishes those endeavors in Latin America from the ones taking place in the US and Europe?

    The two most interesting differences are these:

    First, the majority prefer to work with companies that have a “strong local presence.” (This could mean a multi-national service provider that has operations in the country where the company is located.) The expectation is that a local presence leads to better communication, greater trust, and faster response to client needs. There was no mention of offshoring to India or elsewhere in the report.

    Second, whereas cost savings is typically the biggest driver of outsourcing elsewhere, in Latin America, the motivator is gaining a focus on strategic business initiatives in IT.

    Fewer organizations go for a single service provider solution — preferring a mix of multi-national providers and local providers. Government agencies are slower to try out outsourcing, though that’s changing.

    Also of interest: The largest “IT consumers” of outsourcing services prefer to have the work done in their own premises. Their reasoning: “…Assimilation of the IT partner to the end users’ business processes is much smoother, as suppliers gain a better understanding of the day-to-day business operations.” Since this tends to cost more, that goes along with the observation that cost savings is secondary to other considerations.

    The biggest areas of potential growth consist of network management and managed network security, which Frost & Sullivan predicted would increase by 50% during 2005.

    The profile of Unisys’ September 6, 2005 contract win announcement neatly meshes with the characteristics described by Frost & Sullivan. The four-year, $27 million contract with ECOPETROL, Colombia’s state-owned oil company, is being shared with Synapsis, a Latin America-based service provider (Unisys expects to gain $14 million; Synapsis expects $13 million). Under the contract, Unisys will manage the network, security and service desk operations and maintain 200 servers located at ECOPETROL sites in Bogotá, Barrangcabermeja and Cartegena (through a Unisys Managed Services Center in Bogotá). Synapsis will administer applications and provide data center management, telephony and videoconference services.

    A couple of weeks earlier, Unisys had announced a contract extension to manage call center services for Compañía Anoníma Nacional Telefonos de Venezuela (Cantv). This deal is valued at about $12 million over two years. The work consists of operator assistance and other customer relationship management services.

    I should note that Latin America is also becoming a destination for US companies to take its IT and business process outsourcing work, but that’s the story for another day. If the topic interests you, Baker & McKenzie and NeoIT are hosting a free Webinar on November 30, 2005 at noon Central Time, specifically about getting work done in Argentina, Brazil and Mexico. To sign up, send email to Julie LaEace, [email protected] or call (312) 861-7998.

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