Location, Location, Location: Is the Nearshore Option Right for You?

8/13/16 4:45 PM / by Eric Liebross

Eric Liebross

When companies begin to develop their Global Business Services (“GBS”) strategy, the first question that typically comes up is, “What locations will provide the most value?”

is-the-nearshore-option-right-for-you.jpg“Providing value” has different meanings to different organizations, ranging from which is the most cost-effective option, to which is the easiest to work with. There is no one correct answer to this question, and your best answer will depend on what you are looking to accomplish with your GBS strategy.

If the lowest cost is what you are after, it will more than likely be found with an Asia-based option, although the costs in those markets have been climbing in recent years. In contrast, currency devaluations in a number of Latin American countries have, from a U.S. dollar perspective, produced significantly greater cost savings than in previous years.

If you are looking for an easier-to-work-with option, that generally means you are concerned about factors such as timezone, geographic proximity, language and cultural challenges. In that case, and if you are located in the Americas, Latin America may represent an appealing option.

The Latin America Option

A 2016 study by Auxis, A Deeper Exploration of Shared Services in Latin America, provides some insights into the advantages (and challenges) of the nearshore market. The survey queried respondents from 30 Shared Service Centers located in a wide range of countries across Latin America, including Brazil, Costa Rica, Colombia, Mexico, Argentina, Panama, Uruguay, Peru and Venezuela. The company demographic ranged from regional, mid-sized companies with at least $250M in revenue to large, global enterprises with revenues of more than $25B. Survey respondents provided services to the Americas region, including Latin America, the United States, Canada and the Caribbean Basin.

The survey results pointed to the fact that Latin America continues to be seen as a regional solution, rather than as a global solution. Of the companies surveyed, 91% provided services to Latin America and North America, with the remaining 9% focused on Latin America and Europe, with a small (3%) global footprint.

Do English Language Skills Matter?

Many North American organizations continue to be skeptical about moving U.S. or Canada operations to LatAm. Some of the key reasons driving this behavior include the perceived challenge of finding adequate English skills in some countries and the well-known complexities of doing business in the region.

However, the survey data highlighted the fact that language skills are generally not a roadblock to providing Americas-based services out of Latin America. In fact, all of the main languages required in the Americas (English, Spanish, French and Portuguese) were available to varying degrees in the markets surveyed.

48% of the service centers surveyed provided direct support for English, however certain markets showed a much stronger foundation for English-speaking skills, led by Costa Rica and Mexico. Other markets expressed their concerns about the ability to find English skills in their existing location, most notably Colombia and Brazil.

Most centers supported more than one language, with one market, Costa Rica, supporting on average almost three languages within each of its service centers.

From this data, which mirrors the results of many other surveys we’ve seen, language skills should not be a challenge for Americas-based organizations looking to house services in Latin America, although the mix of languages required does require a more in-depth analysis of the various locations.

In addition, it’s important to note that that the availability of certain language skills may require somewhat of a premium in the provision of talent. Strong English skills (oral and written) generally cost more than Spanish-only requirements, and other, less prevalent languages such as French, German or even Mandarin, are generally available but at even higher costs. For example, strong English skills in Costa Rica are available at a premium of 10% over Spanish-only resources. In Colombia, the English premium can cost up to 30% more. However, market cost differentials will apply, so consider all of these factors when analyzing the various markets.

What About Experience?

Languages aside, the overall availability of experienced resources has been traditionally considered a challenge in Latin America. Again, the survey provides some interesting insights into the talent and experience that is available in the region.

90% of the centers surveyed provide multi-functional services, ranging from Order to Cash to Purchase to Pay, Record to Report and other Finance & Accounting functions, as well as Human Resources, Supply Chain, Customer Service and Sales and Marketing Operations. IT was another function highly represented in these service centers.

Within Order to Cash, the most common processes are Customer Master Data (68%), Cash Application (65%), Collections (52%) and Billing (45%). Other, more complex, processes such as sales order processing, returns and dispute management are also being performed by approximately 40% of the centers surveyed. This trend suggests that organizations are trusting the talent of the Latin American centers to handle high-value activities.

Within Procure to Pay, Accounts Payable has historically been the first function within finance to be considered for nearshoring, with Invoice Processing and Payment Processing being performed by 90% of the respondents. Other well-represented functions included vendor master data maintenance, purchase order processing and vendor inquiries and support.

In the area of Record to Report, the full accounting life cycle is well represented, including the more transactional journal entry processing, reconciliations and fixed asset management, as well as the higher value activities such as the closing process, internal and external reporting and FP&A.

Beyond general experience, in many Latin American markets, there is a strong base of resources that have experience working in U.S. companies. For example, 120 of the world’s leading companies have operations in Costa Rica, including Walmart, Amazon, DHL, Bridgestone, Intel, Citi, Bacardi, Cargill, Emerson and others (source, CINDE, 2015)

When seeking talent, many Latin American markets can provide a broad base of resources with the knowledge, experience and language skills needed to provide immediate value and productivity to Americas-based operations.

 

 

Eric Liebross

Written by

Eric Liebross

Eric Liebross leads Auxis’ Back Office Optimization practice, helping organizations design and implement innovative operating models, processes and technologies to achieve optimal performance within Finance, Customer Service and HR Operations. Eric’s areas of expertise include Shared Services Strategy, Nearshore Outsourcing and RPA.