Cost-saving IT solutions: a new wave of profit for Latin American business

Latin Trade, May, 2004

The current trend toward maximizing profit by outsourcing and refreshing information technology (IT) equipment is presenting new opportunities for many companies in Latin America, according to industry experts.

"Latin American companies--particularly those in Colombia and Venezuela--are gaining significantly from the trend to outsource IT functions," said Paul Gillin, a former executive editor of Computerworld and currently vice president and editor in chief of Tech Target, a media company with 19 websites that cover IT trends. "The region has an advantaged time zone for projects that require U.S. workforce coordination and it is competing quite effectively with the Indians and Eastern Europeans for outsourcing business."

Most of the U.S. technology giants such as Microsoft, General Electric, Texas Instruments, Intel, Oracle and Sun Microsystems have established software design and development facilities, plus research and development centers in India.

Latin America is able to compete on a smaller level with countries like India because it also offers inexpensive labor, according to Bradley J. Gross, a technology law and outsourcing expert with the law firm of Becker & Poliakoff.

"But unless countries in the region provide better tax and intellectual property laws, more political and social stability and a more comprehensive IT infrastructure, they may not be able to take full advantage of the trend," he added.

Functions being outsourced include call centers for technical support, systems management, software development and project management.

"Any commodity function that does not add to the bottom line is a candidate for the corporate cost-cutting solution of outsourcing. The Internet has made it possible to do most of these functions online and has also made long distance communication much cheaper," Gillin said. "The trend is affecting companies in a variety of sectors, including financial, manufacturing, technology, medical record keeping and utilities."

Demand for IT system conversions using outsourced staff is also increasing, according to Gabriel T. Rozman, president of Tata Consulting Services Iberoamerica, which specializes in providing information technology services, including the handling of systems development, maintenance and outsourcing, plus testing and certification of software produced by third parties, especially Microsoft.

TCS Iberoamerica is part of India-based TCS' network of more than 100 offices worldwide serving 1,000 clients in sectors within government, business and industry. The division, which represents the only truly global Indian company with a development center in Latin America, has a presence in eight countries: Spain, Brazil, Argentina, Uruguay, Mexico, Chile, Venezuela and Colombia.

TCS' Global Development Center in the Free Trade Zone in Montevideo, Uruguay, provides service to most Latin American countries via staff that speak Spanish and Portuguese as well as English. The Uruguay center has been assessed at the SEI CMM Level 5, the highest level of the Software Engineering Institute, Carnegie Mellon's Capability Maturity Model.

TCS is a division of Tata Sons, the holding company of the US$10.4 billion Tata Group, India's best-known business conglomerate. TCS is India's largest IT enterprise as well as Asia's largest independent software and services organization.

"We offer both near-shore capability and Indian offshore capability and have seen an increase in demand for both," said Rozman. "As businesses and government have required a greater number of systems that need maintenance and upgrades on an ongoing basis, they have found that outsourcing these functions has been easier for them and more cost effective. Our location in Latin America has been helpful to the process--particularly for U.S.-based companies. Staff are attuned culturally to the needs of such groups and are often within their same time zone."

He added that demand for outsourced IT services from TCS' Uruguay development center alone required a growth in staff numbers from 15 to 180 within the first 18 months of its operation. Because the center is located within a tax-free and duty-free zone, its costs are extremely competitive.

"We expect the current trend toward outsourcing to continue and expand as companies realize the benefits of outsourcing their business processes," Rozman said. "The processing of papers and data--particularly back office work for insurance companies--is well suited to being outsourced."

While outsourcing is a viable cost-cutting tool, organizations that use it must be careful to implement it only as part of an overall strategy for making the most of their IT capability, said Rodrigo Sandoval, chief executive officer of Intel Mexico.

"When organizations cut information technology costs, they must be certain they are not wasting opportunities to use technology to become more competitive," he said. "They should have a clear understanding of why they are outsourcing and reduce direct spend when necessary, but also realize the competitive advantages and cost benefits of up-to-date and efficient IT systems."