Peak Performance Blog

Subscribe to receive real-world perspectives on today’s
business operations and IT challenges

SUBSCRIBE

Covid-19 Exposes Issues with Outsourcing to India and Will Accelerate Nearshoring to Latin America, Part 2

6/29/20 5:01 PM / by Raul Vega

Raul Vega

facebook sharing button Share
twitter sharing button Tweet
linkedin sharing button Share
email sharing button Email
Title: Advantages of nearshoring to Costa Rica vs India over Costa Rica forest background

Even before COVID-19, nearshore back office models were gaining momentum as the go-to solution for many forward-thinking organizations in the U.S. But the impact of the pandemic has only heightened the advantages of nearshore operating platforms and exposed significant risks with offshoring mission-critical services to India, the Philippines, and other Asian locations.

And that is causing many major corporations to re-evaluate their back-office strategy in the post-coronavirus economy. In the first installment of our two-part series on effective back office operations after COVID-19, we discussed the various offshore challenges that have occurred during the pandemic. In part 2 of our series, we will show why nearshore models do not share the same concerns, providing a resilient, high-quality, and cost-effective platform for enterprise organizations.

COVID-19 spotlights disadvantages of offshoring to India and other Asian markets

Since the mid-1990s, outsourcing has been a growing strategy for reducing operating costs and improving scalability without sacrificing the quality of customer service in back office operations. Initially the outsourcing models for USA based multi-nationals meant contracting with a Third Party to provide the services while maintaining operations in the USA.

The move to Asia-based offshoring that we are now so familiar with did not really gain momentum until the late 90’s, as executives faced a hard deadline and a shortage of qualified and affordable resources to help them with the laborious task of re-coding their legacy systems to handle the “Y2k” challenge. This initial unexpected foray was a very positive experience for many, and started a rapid boom in India and Philippines offshoring in the early 2000’s. IT departments and call centers led the way, but then were followed by other activities such as accounting and human resources.

High local unemployment and cheap labor costs initially made these Asian locations  an attractive solution. But it wasn’t long before Western companies realized that focusing on the lowest cost came with a high price, including challenging language barriers, unforeseen cultural differences, high employee turnover, low innovation and the difficulty of doing business across far-away time zones.

During the past 10 years, many USA and Latin America based multi-nationals have looked to build a better mousetrap that addressed many of the shortfalls and challenges with having core business process activities performed halfway around the world. This led to the rise of the Latin America nearshore market as a direct alternative to the Asia based model. Countries such as Costa Rica, Colombia, Argentina and Mexico have all seen tremendous economic growth in the export of these services. This has led to development of a robust services industry ecosystem to meet the needs and demands of today’s modern economy, one that is reliant on the merging of business and information technology acumen.

As we discussed in Part 1 of this series, the COVID-19 lockdowns have now made companies painfully aware of even greater issues with outsourcing to India, the Philippines and other Asian locations: the infrastructure in many of these countries is woefully inadequate to handle millions of people working from home. From NPR to The Wall Street Journal, news reports detail offshore challenges experienced during COVID-19 for major Western corporations. The Straits Times reports some global banks are rethinking their model after offshoring support functions “exposed these banks to operational risks."

Costa Rica’s nearshore model has proven its resilience and strategic advantages in handling the pandemic business disruption

Companies that nearshore services to Costa Rica have enjoyed a vastly different experience in the wake of COVID-19. As organizations build a blueprint for what the post-coronavirus economy may look like, reports of those successes should accelerate the widespread adoption of the nearshore model.

Multiple research firms like Tholons and A.T. Kearney already rank Costa Rica as the #1 nearshore outsourcing destination in the Americas. From Amazon to DHL to Walmart, more than 170 multinational corporations are reaping the benefits of the country’s close proximity to the U.S., westernized culture, stable government, significant cost savings, and highly educated, bilingual workforce.

But it is Costa Rica’s modern infrastructure that has emerged as one of its greatest resources during the pandemic. Since Intel kickstarted the country’s reputation as the Silicon Valley of Latin America in 1997, investing in technology has been a government priority.

When the lockdowns began, the groundwork was already in place to make working from home a seamless transition for BPO providers and Shared Service operators. High-speed Internet and sufficient bandwidths are readily accessible in many parts of the nation, with Internet penetration at more than 74% as of 2018. Technology is also considered an integral part of Costa Rican education, leaving many workers well-prepared to handle the technological demands of working at home.Bar chart showing the percentage of population using the internet in Costa Rica from 2010 to 2018. It’s one of the nearshore outsourcing benefits

With an average annual income of $11,520, Costa Rican workers also generally enjoy better living conditions than their Indian and Filipino counterparts, making it more feasible to work from home. Many already own laptops as well that were leveraged to support a rapid transition to a high-scale, distributed workforce model.

Within days of Costa Rica’s lockdown, Auxis had easily transitioned 97% of our BPO and IT services at our Global Delivery Center in San Jose to a work from home model. 100% of services have remained as good as before - and some are even performing better.

"Within days of Costa Rica’s lockdown, Auxis had easily transitioned 97% of BPO services at our Global Delivery Center in San Jose to a work from home model. 100% of services have remained as good as before - and some are even performing better."

Case in point: Our Costa Rican finance and accounting teams went through a peak activity period - quarterly close - within a week of changing to a distributed workforce model. They pulled it off without a hitch.

Costa Rica wages one of the world’s most successful battles against COVID-19

Of course, operating a distributed workforce model in another country can pose complexities. Nearshoring makes it easier to manage BPO operations that are mission-critical to “keeping the lights on” at organizations.

Costa Rica’s exceptional coronavirus response should be a major consideration for companies weighing the risk of outsourcing locations. Despite reporting the first case in Latin America, the tiny nation has earned big praise from the United Nations (UN) and other international groups for waging one of the world’s most successful wars against the virus.

As of June 29, Costa Rica had reported 3,130 cases and only suffered 15 coronavirus deaths. Its record is on par with New Zealand, widely touted for setting the standard in effectively managing the virus. The UN attributes Costa Rica’s success to its swift government response, robust universal health care system, and responsible citizen behaviors.

Nearshore outsourcing benefits mitigate business risk in new COVID-19 reality

COVID-19 may forever change the way global business is conducted - and the outsourcing industry is one of the first to fall under the microscope. With inadequate infrastructure to support a long-term distributed workforce model, Asia based offshore solutions are filled with inherent risks in the post-coronavirus economy. And that should give many organizations pause as they design their path forward.

Nearshoring to Costa Rica mitigates risk and operational complexity by allowing companies to tap into a skilled talent pool with outstanding English fluency trained by one of the best education systems in Latin America. Costa Rica’s westernized culture also enables easy communication and familiarity with how American companies operate. Many issues with outsourcing to India and the Philippines stem from cultural and communication barriers.

A nearshore outsourcing model also enables agile, real-time communication between teams in different countries. American executives don’t need to schedule early morning or late-at-night meetings to accommodate time zones halfway around the world or meet with a “B” or “C” team working the late-night shift in India during U.S. work hours. Once travel restrictions ease, Costa Rica offers quick, direct flights to all major U.S. cities as well.

Costa Rica’s nearshore outsourcing model already provided an exceptional level of service before the pandemic. Since then, it has been a shining star that has proven its ability to quickly adapt and successfully support distributed operations at scale. From widespread broadband home coverage, a world-class healthcare system to a westernized culture and workers with strong English skills, Costa Rica and the broader nearshoring market provide a wealth of advantages that can be invaluable to organizations as the chart a new path forward in the “new normal”

Enjoying our content? Follow us on LinkedIn and stay updated!

Raul Vega

Written by

Raul Vega

Raul Vega is the CEO at Auxis and an executive consultant focused on helping executive teams modernize their operating models to meet the increasing demands of today’s business environment. Throughout his 30-year career, Raul has worked with over 200 clients across 30+ countries and successfully led business transformation initiatives in multiple industries, including consumer goods, industrial manufacturing, retail, transportation, telecommunications, among others. His clients have ranged from Fortune 100 multi-nationals to private equity backed middle market organizations.