Thought Leadership

Mexico is the Number One Outsourcing Destination in Latin America

Once again, Mexico is ranked as the top outsourcing destination in Latin America, according to the 2014 Global Services Location Index (GLSI), published this week by the A.T. Kearney analyst firm. Following Mexico were Brazil, Chile, and Costa Rica. And, for the first time ever, Colombia appears in the Latin America Outsourcing index.

Mexico ranked fourth overall–earning its highest position since the creation of the GLSI–behind Asia Pacific outsourcing powerhouses India, China, and Malaysia.

To compile the rankings, A.T. Kearney surveyed executives from multinational companies and incorporated the knowledge gained from A.T. Kearney’s client engagements over the last five years. The index is available in a newly published report, “A Wealth of Choices: From Anywhere on Earth to No Location at All.”

Why would a company consider outsourcing to Mexico?

Because of its geographic proximity to the United States, Mexico is a popular nearshore destination for American companies seeking outsourcing arrangements that benefit from similar time zones and cultural understanding.

“Mexico benefits from reasonable costs and large, well-educated labor force that are feeding the growing industry,” the A.T. Kearney researchers write. “Guadalajara in particular offers low labor costs and an extremely strong talent pool capable of supporting large captive centers for multinationals such as Dell, IBM, and Oracle.

Rankings of the 51 countries included in the index were based on three broad metric categories: financial attractiveness, people skills, availability, and business environment.

The A.T. Kearney report also highlights a number of trends changing the face of back-office outsourcing.

The authors say a “course correction” has occurred since the mid-2000s: companies are taking back some business functions from outsourcing vendors and bringing them in-house. Report co-author Erik Peterson, managing director of A.T. Kearney’s Global Business Policy Council (GBPC) think tank says, “What was once a decision based primarily on cost reduction has now started to incorporate other considerations, for example, whether the function is core to the business and therefore needs to be brought back in-house, as well as external regulatory factors impacting business relationships, accountability, and the ability to protect intellectual property and customer privacy.”

Software Development & Business Process Outsourcing

The title of the report alludes to the burgeoning trend of business process automation, particularly powerful software tools that fall under the category of robotic process automation (RPA), which can perform rote tasks for less than low-cost labor. Routine business processes may be “outsourced” to software robots, eliminating the need to move the process to a low-cost location.

“Over the past several decades, we’ve gone from a world where organizations that once had just one location now have dozens. In the future, however, as quick and easy deployment makes automation feasible for whole new categories of jobs, we may move to a world of ‘no location,’ ” Peterson says.

Report co-author Johan Gott, a GBPC senior manager, observes: “With the rise of ‘no location,’ countries in the low-value-add niche may see their opportunities erode, so they’ll need a strategy to aggressively move up the value chain to stay relevant.”

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