Industry Commentary

Political Tumult Hastens a Consolidated American Nearshore

By November 23, 2019January 10th, 2024No Comments

Ryan Strategic Advisory analyst Sean Goforth provides special guest commentary on the impact of political changes in the American nearshore on the region’s front-office outsourcing community.

Last week I sat in a filled Mexico City amphitheater as Alberto Fernández, president-elect of Argentina, outlined his vision for Latin American integration. “It is an axis to create a continent of equality,” Fernández said, “for the forgotten of this continent.”

Fernández called for a political pact that harkened back to the anti-American bloc forged a dozen years ago by the region’s socialist presidents.  He praised Lula da Silva of Brazil, at one point exclaiming “Lula libre!” He repeatedly talked up Rafael Correa of Ecuador. And he endorsed President Evo Morales of Bolivia.

Fernández got what he wanted, sort of. The 74-year old Lula is indeed free after serving 19-months in jail, Brazil’s Supreme Court having just ruled that he had not exhausted his appeals.

A few days later though, Evo Morales landed just a few miles from where Fernández spoke. Protests had pushed Morales to resign, bringing an end to his 14-year reign. In the blink of an eye Morales, the longest serving president in the Western hemisphere as of Saturday, was on a small plane en route to Mexico where he was granted asylum.

This summary only recounts the past week. Haiti’s periodic protests flared up anew a few weeks ago, with two people dying on the capital of Port-au-Prince on October 27. That capped a month in which the government of Ecuador was stunned by massive protests against its cuts in fuel subsidies. And recently, protests in Honduras threatened to bring down that country’s government.

The effects of this political instability are spreading beyond the region. The Asia-Pacific Summit was scheduled to be held in Chile, until that country’s government recently scuppered it amid ongoing street protests over metro fares.

The Wall Street Journal and other outlets have reported that the cancellation may actually be prolonging the ongoing trade dispute between the US and China. Apparently, the US trade team had counted on the event in Chile to serve as a hard deadline for getting a deal.

And while there is no single underlying cause for the protests across Latin Ameirca, it does carry clear implications for the outsourcing industry.

The American nearshore consolidates

A decade ago, the American nearshore was defined as Canada plus all of the Caribbean and continental Latin America. It was always more of a shorthand than a robust distinction. The most glaring problem was investment in the largest “nearshore” market, Brazil, focused on servicing the country’s domestic market—not for delivery of services to the US.

Even so, to the degree that the “American nearshore” worked as a marker, its geographic size has shrunk.

Venezuela’s economy fell apart and Argentina’s inflation spiked. Over time, average wages in Chile and Uruguay made delivery of basic contact center services unviable. So, for varying reasons, each of those geographies’ front-office offerings have partly or completely disappeared from the nearshore map.

(Don’t feel bad for Chile and Uruguay; they are doing brisk business in ITO and high-end forms of outsourcing. Feel very bad for what’s become of Venezuela.)

At the same time, outsourcers have begun to double down on Mexico, and more recently Colombia as well. This traces to US end-users becoming pickier, and the fact that competition for service delivery to the US has become cutthroat.

In the 2019 Ryan Strategic Advisory Omnibus Survey, Mexico and Colombia both rank in the top-10 in US offshore favorability. Both locations offer a large pool of potential Spanish-English bilingual agents. This is a key attribute given that the US Hispanic community comprises among the largest customer segments in America, and their buying power is given them more and more sway.

Also, Mexico (Guadalajara, Monterrey, Tijuana) and Colombia (Medellin, Barranquilla, Cali) both offer a number of secondary centers for the location of contact centers, taking pressure in the long-term off of agent wages in the capital.

And, accelerating the American nearshore’s shrinkage as a geography, the proximity of these destination makes them easier to access than ever before.

Tijuana has gained a reputation as the “hyper nearshore” locale of choice, a same-day car drive for any call center team in San Diego looking to visit their operations south of the border. A great example of this approach is Redial BPO, which has made Tijuana its base of service delivery operations for US consumers.

Colombia’s expansion, in this sense, owes to regional airline carriers. On November 16, for instance, I cannot fly to many places from my hometown airport of Myrtle Beach, SC. However, Spirit Airlines will get me from there directly to Medellin in 6h16m.

In addition to these well-known destinations, a new contender has emerged over the past 3-4 years in the American nearshore: Jamaica. Jamaica’s growth owes to the scalability of its native English delivery, not to mention the success of domestic players like itelbpo in not only growing across the island, but showcasing Jamaica’s suitability for contact center services.

Granted, all three of destinations have their problems.  Parts of each country face their share of crime. Sadly, this is hardly a secret.

But when it comes to the multifarious problem facing Latin America today, protests that threaten to topple the government, each nation has a popular government and independent institutions that keep things moving along on an even keel. As the American nearshore itself is redefined, each country appears a bastion of stability.