Outsourcing to Latin America: Pros, cons, top destinations

by Andy Nguyen
outsourcing to latin america

Outsourcing is commonly associated with countries like India, China, and some countries in Eastern Europe. Not many companies consider outsourcing to Latin America. 

But Latin American countries, like Brazil and Mexico, are now emerging as equally competitive locations for outsourcing.

In this article, we’ll cover the advantages and disadvantages of outsourcing to Latin America. We’ll also cover the services you can outsource, parameters to consider, and the ten best outsourcing destinations in Latin America. 

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4 key advantages of outsourcing to Latin America

Outsourcing is a business process where one company hires a third-party company to perform services or create products. That third-party company may be located in a distant location (offshore) or somewhere close by (nearshore).

Startups and even established businesses may outsource some processes because their current employees lack the skills or cut costs.

And while you have many outsourcing hotspots like India and Ukraine, Latin American countries like Brazil, Mexico, Colombia, Peru, etc., weren’t traditionally associated with outsourcing. 

But they’re now fast gaining popularity.

Here are three main reasons for this shift:

1. Education and expertise

Latin American countries like Mexico and Colombia are coming into the spotlight as places with rising education standards.

According to the Organisation for Economic Co-operation and Development (OECD), Colombia has the second-highest number of college graduates (aged 25-34 years) in Latin America.

Similarly, Mexico has many engineering graduates every year from over 120 technical universities situated in the country. These software developers participate in various conferences, forums, etc., to keep themselves updated.

Governments in these countries now focus on nurturing talent in the engineering, IT, and programming fields.

All this has resulted in a highly knowledgeable and expert workforce ready for the software outsourcing industry.

2. Infrastructure

Since 2005, governments and private businesses have invested heavily in Latin America.

It has led to a dramatic development in the region’s infrastructure. These developments include: 

  • Enhanced communication lines. 
  • Digital infrastructure.
  • Increased accessibility to the internet, etc.

These facilities have enabled the region to provide good quality technical services to companies looking to outsource their processes.

3. Language skills

Most Latin American developers are generally well-versed in English and Spanish, enabling them to cater to a larger population of clients.

Countries like Argentina, Costa Rica, and Chile have the highest English proficiency in the region. Many other Latin American countries included in EPI (English Proficiency Index) also show an upward trend in improving their English proficiency.

English-speaking companies looking to outsource their business processes can certainly benefit from this trend. 

4. Accommodating business environment 

A 2021 study has listed four Latin American countries (Brazil, Mexico, Colombia, and Chile) in its top 25 business-friendly countries.

These countries have an accommodating business environment which includes:

  • Financial incentives.
  • People availability and skills.
  • Potential to be a digital hub.

3 major challenges of outsourcing to Latin America

Though outsourcing to Latin America has significant advantages, it has a few challenges you need to be aware of:

1. Relatively costly services

Latin American outsourcing rates are quite high as compared to those of the Asian outsourcing regions. 

Let’s look at how different regions compare with regards to software development outsourcing rates:

  • Latin America: $21 – $93
  • South Asia: $19 – $75
  • South-East Asia: $14 – $61

Source: 2021-2022 Global Software Outsourcing Trends and Rates Guide

You need to consider how cost-effective this solution will be in the long run and decide whether that’s a good option for your needs.

2. Data security concerns

Transferring crucial data outside your organization always comes with a certain amount of risk. 

It’s especially high when outsourcing to a third-party company.

Outsourcing companies may cater to more than one client at a time, which may include your competitors. It increases the chances of data theft and leaks.

Latin American countries generally don’t follow international data protection policies, including the General Data Protection Regulation (GDPR).

However, many countries like Argentina, Brazil, Mexico, etc., have now formed their own data protection policies along the lines of the GDPR.

3. Uncertainty about work quality

Outsourced work may not always turn out as you expect. Certain quality issues may arise, requiring a back and forth conversation with the outsourcing company.

Service providers in Latin America may not be very rigid about maintaining consistency in their processes, which can, in turn, affect their quality.

Additionally, some developers may require constant follow-ups and reminders about the progress of the work and deadlines.

However, you can communicate your goal and timeline with the developers right from the beginning.

5 essential parameters to consider when outsourcing to Latin American 

Choosing the right outsourcing company can be challenging. 

But with the help of these five considerations, you can figure out whether the outsourcing company is a right fit for your company: 

1. Track record of the company

A company’s track record can tell you whether the company has delivered results in the past and whether it has the required competency to undertake your company’s project. 

Many websites provide customer reviews and other relevant information about a company, giving you crucial insights. You can even ask the company for references about their past work.

2. Efficiency in services

When you outsource a part of your business to a different company, the overall customer experience is partially dependent on them. 

Any delay from the outsourcing company can lead to inconsistent customer services, ultimately resulting in poor customer experience and a loss of revenue

That’s why it’s critical to ensure that the outsourcing company is efficient and delivers timely services. 

Some ways of ensuring that are:

  • Enquire how the company plans to account for unforeseen circumstances such as emergencies, infrastructure issues, etc.
  • Ask for turn-around times for a similar past project. It’ll give you a real-time estimate of how much time they’ll take to provide their services.
  • Establish a benchmark, especially regarding time limits, so that you both are on the same page when delivering services. 

3. Language used

You should ensure that the outsourcing company uses the same language as your company to prevent communication issues. 

For example, if your company uses English as the standard language, ensure that at least the senior management in the outsourcing company is well-versed in English.  

It’ll help you connect and collaborate with the outsourcing partner better and avoid miscommunication. 

4. Has similar business practices

Every company has its unique ethos, values, and way of working. 

If the outsourcing company and your company share similar values, it can help create a positive and long-term partnership. 

These long-term relationships ensure that you don’t have to change outsourcing partners constantly, which will take extra time and resources. 

5. Provides varied services

When outsourcing to a third-party company, you should ensure that they have a diverse team that provides different services.

For example, if you are outsourcing website development services, make sure that the team has other key members like graphic, user interface designers, quality assurance analysts, etc.

If the outsourcing company doesn’t provide different services, you’ll end up outsourcing small elements of your project to multiple companies. However, managing them all can become complicated.

2 crucial services you can outsource to Latin America

Out of all the services and operations outsourced to Latin America, these two types are most popular:

1. IT operations

The IT (Information Technology) industry has the most commonly outsourced services globally that may include:

  • Application development.
  • Website development.
  • IT staff augmentation (adding IT technicians on-demand on a contractual basis), etc.

Many Latin American countries have now built a solid IT infrastructure that provides reliable services. That’s why an increasing number of companies are outsourcing their IT and software operations to Latin America. 

2. Business process outsourcing (BPO)

Companies from all over the world are engaged in outsourcing their business process to Latin America, in part or whole.

These processes may include:

  • Customer support.
  • Data entry.
  • Human resource management, etc.

Factors that favor the development of the BPO sector in the region include government support, lower telecom rates, etc.

Read more about business process outsourcing.

10 best destinations for outsourcing in Latin America

Here are some of the prime destinations in Latin America that you can outsource your operations to:

1. Brazil

Brazil is the largest country in Latin America. It’s a rising economic power and a popular choice for outsourcing software development.

Let’s see why this country makes a good outsourcing destination:

  • More than 470,000 tech specialists.
  • Conducive infrastructure for IT, including 90 tech parks and 35 accelerators.
  • A lower attrition rate of developers.
  • Highly professional and reliable software development teams.
  • Tax incentives to companies that offer technological innovation, reducing your cost.

2. Argentina

Argentina is the second-largest country in South America. Its capital Buenos Aires is a sought-after outsourcing destination for software processes.

Here’s why you should outsource to this country:

  • High literacy rates.
  • Highest English proficiency in the region.
  • Cultural similarities between Argentina, the US, and many European countries.
  • A talent pool of around 134,000 programmers.
  • Satellite tech hubs in cities like Cordoba and Mendoza.

3. Puerto Rico

Puerto Rico is a Caribbean island and an unincorporated territory of the United States.

Let’s look at the major reasons for outsourcing to this island:

  • Highly qualified software developers.
  • Good fluency in English.
  • Better IP (Intellectual Property) protection due to compliance with the US Federal Copyright and Patent law.
  • Tax benefits and exemptions for software development companies, lowering your overall cost.
  • Has offices of international companies like HP, Microsoft, Tesla, etc.

4. Chile

Chile is a country in western Latin America. Over the past few decades, the country has been encouraging software development.

Here are the major reasons for choosing this country for outsourcing your processes:

  • Over 61,000 software engineers.
  • Significant development of the IT industry in terms of the Internet of Things, big data, sensor applications, etc.
  • High employee retention rate.
  • Multilingual developers.
  • Offers BPO as well as IT outsourcing.

5. Colombia

Colombia is a northwestern country in Latin America and an emerging market economy for outsourcing businesses.

Here’s why:

  • The IT and BPO industry’s combined workforce in the capital city (Bogota) is more than 50,000.
  • Offers a great currency exchange rate (as of July 2021, 1 USD = 3,794 Colombian Peso).
  • 5000+ tech companies.
  • Advanced infrastructure supported by Foreign Direct Investments.
  • Similar work culture to the US, ensuring good quality services.

6. Uruguay 

Uruguay is located on the southeastern coast of Latin America. The country’s IT sector is undergoing rapid growth, making it a sought-after destination for outsourcing.

Let’s look at some other reasons for outsourcing to Uruguay:

  • High adult literacy rate of 98.7% (2018).
  • 700+ tech companies.
  • A high retention rate of developers, resulting in reduced disruptions in workflow.
  • Good English proficiency among developers.
  • Superior telecommunications infrastructure.

7. Mexico

Mexico is situated in southern North America and has similar time zones as the US. It’s the third-largest country in Latin America.

Let’s look at the factors that make Mexico a popular outsourcing destination:

  • High standards of education.
  • Multiple government initiatives like CONACYT, MexicoFIRST, etc., to boost the IT sector.
  • 12 Free Trade Agreements (FTA) with 46+ countries all over the world.
  • Advanced infrastructure plans for energy, transportation, and IT.
  • Low employee turnover rate.

Read about the additional benefits of outsourcing to Mexico.

8. Costa Rica

Like Mexico, Costa Rica is also located in North America. This Latin American country is also fast gaining popularity as a software outsourcing destination.

The major reasons for this popularity include:

  • High literacy rate of 97.9% in people 15 years and older (2018).
  • Advanced technological parks like American Free Zone, the Global Park, etc.
  • 20+ Fortune 100 companies like IBM, HP, Intel, etc.
  • Multilingual developers with high English proficiency.
  • Stable business environment owing to economic and political stability.

9. Peru

Peru is a Latin American country with a stabilizing economy and a growing number of foreign direct investments.

Here are the top reasons why this country is popular for outsourcing:

  • Around 38,000+ software developers.
  • Good programmer skill rankings on the HackerRank leaderboard.
  • Specialized programming skills like Java, HTML, Python, etc.
  • Office of US companies like IBM, Oracle, GE (General Electric), etc.
  • IT and BPO service providers.

10. Bolivia

Bolivia is located in central Latin America. While initially slow in digitization, the country has dramatically improved its digital infrastructure in recent years.

Let’s look at some of the favorable improvements:

  • Multiple private and public universities offering IT degrees and master’s programs.
  • More than 12,000 miles of fiber optics and improved national connectivity.
  • Spaces like Bolivia Tech Hub for young people to develop their technical skills.
  • 11,000+ developers working with local companies or outsourcing their skills independently.

Final thoughts

Latin America has massive potential in the outsourcing market. 

Countries like Brazil, Chile, etc., are leading the charge in providing reliable outsourcing. 
In this article, we covered everything you need to know about outsourcing to Latin America. Use the information to decide whether Latin America is the right outsourcing destination for your company.

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