Stepping from the shadows
Brazil’s productivity growth outstrips the US and Mexico is rivalling India for outsourcing. Rhymer Rigby says Latin America’s emergence is built on quality and creativity
The real Latin America exists below the sensational headlines about Hugo Chávez, shrinking rainforests and cocaine wars. But walk around Rio or Buenos Aires and you are struck not by a sense of crisis but by a mood – you might even, slightly pretentiously, call it a zeitgeist – that these cities are on the move.
Latin America is too diverse to be pigeonholed. Peru, Bolivia and Ecuador are developing and poor, but much of the continent is very different. Santiago’s skyscraper-filled city centre feels like Spain, albeit with the Andes as a backdrop. Different parts of the elegant Argentine capital have the vibe of Milan and Paris. Even the teeming cities of Brazil are nothing like Mumbai or Delhi.
At the controls: Embraer's Brazilian engineers assemble a jet (Getty)
A few days in almost any South American capital is enough to make it clear that renewal is in the air. It’s easy, when talking to business leaders and politicians, to see why the region is emerging, once again, as a player in the outsourcing market. As Latin America was the original destination for American firms looking to outsource in the 1980s, but lost out on cost to China and India, the business has almost come full circle.
But Latin America’s new approach to outsourcing is not the same as the ‘Chindia’ model, as it draws on very different specialist skills.
Brazil, for example, is already a world leader in biofuels, and its deserved reputation for innovation is the result of putting public money into research and coming up with incentives to create demand. The country’s central bank chief, Henrique Meirelles, predicts that the Brazilian economy will grow by 4.5% this year – regardless of the US slowdown – and last year its productivity grew faster than that of the US.
Elsewhere, Chile is applying biotechnologies to boost sectors such as fruit production. Uruguay exports architectural design services to Europe. Mexico – identified by Goldman Sachs as one of the ‘Next 11’ emerging economies – is number five in the Climate Change Performance Index.
For those of us in northern Europe, out of sight is out of mind. The small number of direct flights from the UK and Germany to Latin America tells you much of what you need to know. For the US, though, it’s a very different story.
Latin America is America’s backyard and Mexico its back doorstep. Mexico has the added bonus of being a member of NAFTA (the North American Free Trade Agreement). Latin America also shares time zones, handy for service providers who want discussions in real time. ‘The US originally had a lot of call centres in Canada,’ notes Mark Kobayashi-Hillary, offshoring director of the National Outsourcing Association. ‘Now, they’re in Mexico. It’s purely a cost play.’
Mexico cannot compete purely on cost with India and China. But Softek, a Mexican software company, shows how it can be done. For years it had worked with largely Mexican clients, but in the 1990s it started looking to its giant neighbour for business. And it came up with a concept it liked so much it trademarked the word – ‘nearshoring’.
As the name suggests, it’s like offshoring but closer. Softek says the business case for going to Mexico instead of India is simple. For US clients, the proximity and the time zones mean that more work can be performed there – more than 90%, as opposed to about 60% elsewhere.
Other countries are attracting outsourcers for different reasons. Kris Wadia, executive partner (global sourcing) for Accenture, says there are three of interest besides Mexico – Brazil, Argentina and Uruguay. ‘These three have the scale in terms of a relatively well-educated workforce, and Argentina and Uruguay have the benefits of Spanish. They get some work from continental Europe as well as North America.’
'You can hire an engineer educated to European standards for £6,000 a year'
Nearshoring points to one way Latin America could become an outsourcing success. Compared to the Indians and Chinese, Latin Americans are not especially cheap – GDP per head is comparable to some of the EU’s newest members. Some countries have a first-world infrastructure and education system. Until the economic crisis of 1999-2002, Argentina was a very expensive country. Now it is a good deal, with few of the hassles associated with developing countries. Where else can you hire an engineer educated to European standards for £6,000 a year?
Wadia says: ‘It’s certainly possible that countries like Argentina and Chile will get high-value knowledge process outsourcing (KPO) faster than places like Brazil. Their infrastructure, the quality of education of their talent pool and the relative weakness of their currencies are a powerful combination when it comes to attracting higher value-added work. So instead of scanning invoices, they’d be doing Sarbanes-Oxley compliance.’
In 2003, Intel put a software manufacturing operation in Cordoba, a city around 500 miles from Buenos Aires, in what is considered Argentina’s industrial and technological heartland. It’s in good company – Motorola, EDS and Siemens also have operations there. Online leisure operator lastminute.com has moved its core Unix and database operations to Buenos Aires, and a number of multinationals have put down roots across the River Plate in Uruguay. The reasons cited are familiar – a well-educated population that, due to the economic downturn, has excess capacity.
Seeing stars: Buenos Aires' planetarium, an architectural gem in a design-focused city (Shutterstock)
The Latin American revival isn’t just about outsourcing or setting up outposts. Otto Dreissen, director of design strategy and insights at Plano.Trio (a WPP-owned company in São Paulo), says Latin America in general and Brazil in particular have other advantages. ‘If you look at the BRIC (Brazil, Russia, India, China) countries,’ he says, ‘you see everyone has their obvious strength. Russia is raw materials, India is tech, China is manufacturing.’ Brazil’s role, he says, probably lies elsewhere – perhaps in the field of design or as an ‘infomediary’ for projects involving global collaboration. The US-based, point-of-sale marketing business Cormark – in many ways an exemplar of globalisation – is headquartered near Chicago, manufactures in China and has a design centre in Brazil.
Creativity could well be key to the region’s future. Brazil is prominent in this field and has won countless awards in such diverse areas as books, buildings and highly complex IP systems on chips. Creativity in design is actively encouraged.
The Brazilian Programme of Design (created in 1995) invites submissions annually from various sectors of Brazilian industry and helps to set up partnerships to make these projects feasible. In 2007, the first IDEA/Brasil programme opened. A partnership between the Industrial Designers Society of America and Objeto Brasil (an NGO dedicated to promoting Brazilian design), it’s the first ‘feeder’ competition for IDEA proper.
Brazil is not the only Latin American country working in this area. In 2005, UNESCO declared Buenos Aires its first City of Design. The Palermo district has become the flourishing home of a new breed of designers, particularly in fashion.
Balance of power: Peruvian miners protest about the distribution of wealth in their mineral-rich country (Getty)
Wadia believes that as globalisation gathers pace, each part of the world will end up with its own kind of expertise and outsourcing speciality. Latin America’s strong point, he says, will be a mix of its proximity to the US and higher-end knowledge processing services. In terms of design, he sees, initially at least, far more downstream services – such as turning drawing into technical specifications – rather than the creative work itself. There is plenty to indicate a future where Latin America’s major drivers are quality and creativity, not price – and that may shake up our traditional notions of what makes an emerging economy.
Its past is often associated with rainforest-felling, but Latin America is working towards a greener tomorrow:
- Curitiba, Brazil
Seventy per cent of rubbish is recycled, and public transport use runs at the same rate, in this model city.
- Peru
Casa Ecológica Cusco is pioneering sustainable package trips to the Andes.
- Mexico
The country plans to build 1m energy-efficient homes powered by solar panels and featuring green appliances.
- Montevideo, Uruguay
Ethanol is being promoted as a major export, and a new renewable energy laboratory has been set up.
- Paraguay
Isolated villagers are able to use the internet thanks to passing buses with solar-powered access points.
- Bogota, Colombia
Free buses and cycle paths are encouraging carbon-saving commuting.
- Buenos Aires, Argentina
The first wind-powered building in the city is 80% glass-walled to maximise natural light.
- Santiago, Chile
Modulab design studio collects old posters from billboards and turns them into bags and wallets.
See the vital facts and statistics on Latin America's most significant economies
Article first published in Design Council Magazine, Issue 4, Summer 2008