In the rapidly advancing age of globalization, startups and SMEs constantly explore avenues to streamline operations while keeping expenses in check. One strategy that has gained traction in the recent past is nearshoring, with Latin America (LATAM) emerging as a hotspot. But does the hype match reality?
Let’s journey through the rich landscape of nearshoring in Latin America and examine key considerations around nearshoring in this vibrant region to inform innovative expansion strategies for high-growth companies.
The current investment trend
The COVID-19 pandemic might seem as old as the hills, but its effect still impacts supply chains, leading to significant disruptions and increased expenses. As a result, more companies have started considering options to shorten supply chain distances, lower costs, and mitigate geopolitical risks.
With this in context, China has suffered the most from these severe disruptions, dropping its rank from the 1st to 3rd goods supplier to the US, giving up the highlight for Mexico – one of the largest countries in the Latin America region.
In the first six months of 2023, the investors are also switching focus on Latam as this region is remarkably poised to take advantage of the growing nearshoring operations. Due to its favourable geographical location to the US, advanced trade infrastructure and compliance with regulations, Latam American has significant potential for growth and draws attractions from the US market.
The advantages of nearshoring in Latin America
Enter nearshoring in Latin America—a powerful solution transforming forward-thinking companies’ operations. If you’re eager to keep your business on the cutting edge, it’s time to tune in.
1. Strategic proximity powers productivity
While offshoring moves operations to distant shores, nearshoring, as the name implies, points to a closer geographical alignment. For North American businesses, Latin America offers proximity that transcends mere geography.
- Time zone alignment: Real-time collaboration becomes the norm, not the exception: no more early mornings or late-night meetings. Statistically, according to a Gartner report, companies experience a 30-40% increase in team productivity when working in similar time zones.
- Cultural synergy: The shared historical and socio-cultural parallels between North and South America can smooth out communication wrinkles, leading to more efficient collaborations and a better understanding of the target market.
2. A fountain of talents
Latin America is home to numerous tech hubs and startup unicorns with cities are considered “Silicon Valleys”:
- Latin America boasts a technological workforce of nearly 2M specialists.
- The region’s most significant countries in terms of population—Brazil, Mexico, Colombia, and Argentina—house the leading tech centers.
- Brazil is home to over 750,000 tech specialists, followed by Mexico with 700,000, Colombia with 150,000, and Argentina with around 115,000.
- When considering prominent IT enterprises in Latin America, Mexico leads with over 440 firms, followed by Argentina with around 380, Colombia with over 360, and Brazil with about 263.
- By the close of 2022, over 50 firms in Latin America were estimated to be worth $1B or higher.
- Predictions indicate that, by 2030, digital exports from countries like Argentina, Brazil, Chile, Colombia, Mexico, and Uruguay could soar past $140B annually, a significant leap from $34B in 2023.
Information source: N-IX – Software development market report in Latin America
The technology landscape in Latin American countries is bright and offers a highly skilled workforce for companies of any size that want to scale up or release their projects faster.
3. Financial edge without compromising quality
Nearshoring in Latin America often presents a sweet spot between quality and cost. With a competitive labor market, businesses can access top-tier talent without depleting resources.
Kearney’s Global Services Index highlighted that nearshoring in Latin America could result in up to 50% savings compared to sourcing talent from North America.
The challenges of nearshoring in Latin America
Like any strategic move, nearshoring presents both opportunities and challenges. Let’s delve into the potential hurdles you might face and, more importantly, how to navigate them effectively.
1. Language barriers
While Spanish dominates the LATAM region, dialectical differences and varying levels of English proficiency can be potential hurdles.
However, the British Council reports a steady rise in English learners in the region, signifying improving proficiency.
You can have bilingual managers or liaisons. Ensure that essential communications, primarily contractual or technical documents, are available in both languages and vetted by professionals to avoid ambiguities.
2. Regulatory ripple effects
Each country in Latin America has its unique legal and regulatory framework. These can range from employment laws to data protection mandates. Navigating these diverse landscapes can be daunting for businesses unfamiliar with the local intricacies.
Your company can hire or partner with local legal and business consultants who understand the nuances. They can guide your setup, ensuring you remain compliant and aware of any changes that might impact your operations.
3. Over-reliance on nearshoring
Startups and SMEs might become overly reliant on their nearshore teams, leading to an imbalance in work distribution or an over-extension of the nearshore team’s capacities.
Make sure to maintain a balanced distribution of tasks. Regularly review the project scopes and ensure that in-house and nearshore teams can handle their responsibilities without being overwhelmed.
A definitive guide to nearshoring in Latin America
The word is out: Nearshoring in Latin America transforms how startups and SMEs approach growth and scalability. But as any experienced business owner will tell you, it’s not just about diving in—about making informed decisions. Here’s your roadmap to choosing the best nearshoring service in Latin America tailored to your unique needs.
Now that we’ve understood the “why”, the ‘how’ becomes crucial.
1. Assess your needs
Everything starts by defining what you expect from nearshoring. Are you looking for IT services, customer support, or content creation?
Your specific needs will determine which countries and service providers are best suited for you.
2. Research potential countries
Each Latin American country offers a unique blend of services. For tech and IT, Mexico and Colombia are rapidly rising stars. For BPO, consider countries like the Dominican Republic. Dive into the nuances of each country, considering factors such as:
- Infrastructure reliability
- Language proficiency
- Economic and political stability
3. Due diligence on service providers
Once you’ve shortlisted potential countries, zero in on service providers. Consider:
- Track record and client testimonials
- Technical expertise and certifications
- Data protection and cybersecurity measures
- Communication processes and tools
4. Visit the nearshore location
If feasible, you can consider paying a visit to the nearshoring location. It might show different aspects that remote communication might need to catch up on.
It’s necessary to engage with potential teams, gauge the company culture, and assess the infrastructure firsthand.
5. Start small
Before a full-fledged commitment, pilot your nearshoring project since everything needs careful planning. This approach helps in ironing out potential communication hiccups and understanding the quality of deliverables.
6. Define communication channels
The key to successful nearshoring in Latin America is seamless communication. Adopt collaborative tools like Slack, Trello, or Zoom.
Make sure that you and your team have regular check-ins, updates, and feedback sessions.
7. Legal & contractual clarity
Ensure you have legal clarity, especially around:
- Intellectual property rights
- Data handling and confidentiality
- Contract termination clauses
Engaging with a local legal consultant can offer valuable insights.
8. Monitor & iterate
Adopt a hands-on approach, especially in the initial phases. It’s a must to monitor project progress, gather feedback from both in-house and nearshore teams.
You should always be ready for the change and iterate processes for enhanced efficiency.
Choosing the best: Tips for decision-makers
For every C-suite, the decision isn’t just about nearshoring; it’s about choosing the best nearshoring partner. Here are some golden tips:
- Look beyond cost: While cost-saving is a key driver, prioritize quality and reliability. Sometimes, the cheapest option might cost more regarding rework or miscommunication.
- Cultural compatibility: Engage with providers who understand your business culture and ethos. It ensures a smoother, more intuitive collaboration.
- Ask for case studies: Reputable service providers will have case studies showcasing their expertise. These real-world examples offer insights into their problem-solving capabilities and project management prowess.
- Network: Connect with other businesses that have opted for nearshoring in Latin America. Their experiences, recommendations, or even cautions can be invaluable.
Conclusion – A strategic move for visionaries
Nearshoring in Latin America isn’t just about filling a temporary gap. It’s about crafting a long-term strategy backed by a partnership that brings value on multiple fronts. It’s about recognizing the vast potential just south of the border—a reservoir of talent, innovation, and untapped market potential.
While nearshoring in Latin America offers many advantages—cost savings, access to talent, and time zone alignments—it’s also essential to approach this venture with a clear understanding of the potential challenges.
For startups and SMEs ready to catapult their growth, the question isn’t if you should consider nearshoring in Latin America. It’s when will you seize this game-changing opportunity.
As you ponder the various options available for nearshoring in Latin America, Sunbytes is the go-to choice for your business as we bring a wealth of experience to the table, ensuring that your projects are completed and perfected.
Are you looking for a partner to align with your business objectives and offer solutions that drive growth? Please leave your contact below, and a free consultation is on us.
Let’s get started with Sunbytes
Drop us a line and we’re just 1 click away to make your projects ready