Everest Group Says Colombia Is A Rising BPO Destination, But Needs To Promote Itself Better: Exclusive Interview
The Global analyst firm Everest Group has released a comprehensive, 165 page report (available here) covering global service delivery locations, and the report cites Colombia as a nascent location in the global services market. While the country still has only a small share of the IT services market, for example, it is poised to eat a larger piece of the global services pie in the coming years.
Within Latin America, Colombia has some catching up to do in order to be on par with the service delivery volumes of Mexico or Argentina, but Everest Group says the pieces may be falling into place for Colombia to be seen as a serious contender—if it can effectively promote itself and get onto the short-list of global players. Between 2011 and the first half of 2015, according to the report, Colombia won 12% of new BPO and shared services centers in Latin America / Caribbean region.
Finance Colombia’s Executive Editor Loren Moss had the chance to speak with Everest Group’s Practice Director and report co-author Anurag Srivastava to discuss the report’s findings with regard to Colombia. Srivastava sheds light on what is driving Colombia’s recent business development success across the board from IT to contact centers, and what is holding the country back when it comes to winning more BPO and shared services investment.
Finance Colombia: Your report states that Colombia in an emerging, or a nascent location. What is it that prevents Colombia from becoming a bigger player? Even Costa Rica which is a very small country, 4 million people, is ahead (in your rankings) of Colombia, with almost 50 million people. What does the government need to do, or what are the missing pieces to help the global services delivery industry accelerate here in Colombia?
Anurag Srivastava: I think in my mind, a combination of factors. The biggest one is about awareness of Colombia as a location; a lack of success stories sorting out in the market about people doing things or companies doing a variety of things. I mean, why is there not as much evidence as in Mexico, or Costa Rica, or even Argentina, right? If you look at how proactive and aggressive some of the (promotion agencies) CINDE of Costa Rica, or lets say even Mexico, right? They do a lot of work, reaching out to the market, reaching more events across the world, they generally spread the word a little bit more about what is happening in the market. I think that sort of thing is missing, and just going back also what you said, someone moved to Medellín because they read a ‘Finance Colombia’ article —because it was an opportunity. Imagine if the government became more serious in talking about these opportunities and the advantages, from the costs to the demographic angle. If you look out at all the Latin American destinations, Colombia is a very obvious one. Its beyond Mexico and Argentina in “where next to go,” so I think, in our mind, that is one of the biggest challenges of all: lack of awareness about Colombia’s value proposition.
So what to do about that? Maybe have an organization that focuses entirely on this sector, and maybe let them travel more to some the other events across the world. We also see that there is a lack of data on the market, so maybe think about how to get funding for that, how to get more reliable, credible data on market sizing and that sort of thing. The second thing that is a critical element: it’s the government support of the financial incentives. If you look at local level incentives, state (department) level incentives, even federal (national) level incentives, we don’t see very competitive incentives compared to some of the competing locations: Costa Rica, Mexico, Argentina, Uruguay, Chile. So that I think that’s also the other big factor that is holding investments back. The negative perception of security is dying down slowly but probably the government can do more talking about this, looking at Mexico for example.
“That is one of the biggest challenges of all: lack of awareness about Colombia’s value proposition.”
I think Bogota is doing very well in the market, but they are not getting credit for it. They are not going to the right places and talking about: this is what we did and this is where we are. I think it was an article you wrote on Global Delivery Report where you said Guadalajara is as safe as some U.S. cities, and that is quite impactful. To some, of that kind of oblique messaging I think should happen more. Finally among the other delivery rating factors I think some of the language skills, if you look at this kind of angle where you may be looking at locating a shared services center of support, from the scalability perspective it may be somewhat limited. There is an opportunity around shared services for the Latam region which is quite promising, but some of the other things I mentioned earlier are probably still holding Colombia back.
Finance Colombia: Now the economy here, the peso has fallen precipitously, 35% based on oil being roughly half of Colombia’s exports, but the interesting thing here on the ground is that inflation has been kept in check. I would think that would make Colombia look like a more attractive target with labor being so much less expensive. How is that a factor?
Anurag Srivastava: That is a very important factor. In our sense when people come down to evaluating Colombia, that’s where they would realize that it offers a very good financial value proposition but the bottleneck is much before that: people don’t even know of the opportunities that Colombia offers. I think it comes down to what I mentioned earlier: just sort of the awareness of Colombia and getting it onto the short-listing exercise. Because some potential operators are not even aware of what is happening in these cities across Colombia. Second, I totally agree with you with the devaluation plus where inflation is. It is much below of what you see in Costa Rica, probably even Mexico and definitely below Uruguay. And Argentina with its macroeconomic troubles, I think this is the right time for a Colombia surge. In Mexico the big cities are saturated, Costa Rica is saturated. Guatemala is coming up but its lacks an IT offering. Argentina, with all its troubles, has slowed down probably the worst. Uruguay is promising, but again costly. So in our mind if you look at the cost benefits, Colombia presents a good opportunity if you have the right kind of functional mix, but the point is having it become part of the discussions.
Another opportunity we see is companies within Latin America may outsource to Colombia even more increasingly, because of the cost advantage as you mentioned. Costa Rica is getting quite costly now. Another thing Loren, maybe a note of caution: While investors understand that the currency is depreciated by 35% they also have in the back of their minds that currencies typically have a way of coming back up and compensating a little. So that is also a way for me to look at the currency but honestly, having said that, there is still an attractive value proposition.
Finance Colombia: Is the Colombian higher education system, are the universities here producing the necessary kind of IT talent? Is that a bottleneck or is the talent pool adequate?
Anurag Srivastava: Yes, our view on that is for the kind of activity that is happening now, we believe that the market has sufficient talent, especially looking at the cross-functional talent across IT, maybe let’s say FAO (Financial and Accounting Outsourcing), LPO (Legal Process Outsourcing), BPO (Business Process Outsourcing), finance and accounting. If you look at Colombia it has a strong, climbing domestic sector. There is oil and gas, exports, there is manufacturing, there is a lot of trade, there is agriculture. So while the domestic market is quite strong, that is why you have well established verticals with those functions like finance and accounting, IT, BPO, contact centers, so it is all happening in Colombia.
If you look out at all the Latin American destinations, Colombia is a very obvious one.
The only trick is that there is—two things: one, I already mentioned that as of now we believe that the market has enough but there may be a challenge if there is a huge spurt in growth in any one city. The reason being is that while there is enough right now, there is also a challenge in English language skills. So if a lot of the overseas crowd comes down here and they want to support North America, things will get pretty tight around the language factor. In general, if the language is not a concern, then a lot of those (deals) happen. Also the threshold for that, the time horizon we believe is longer. But we believe that there may be some challenges around the employability of these people in a more cross country, cross continent set up. And I think that has all to do with the awareness of people about the opportunities in this sector, so people working let’s say, in the domestic sector they may not be aware of opportunities in contact centers, or the career path the BPO sector can offer you.
So let me summarize. One, is the language angle. The second one is the capability angle, which is also awareness. So the government will have to spend some resources to create an awareness in the general public about opportunities in the offshore contact center and BPO sector. Because right now the graduates don’t relate to that sector as a promising career path.
Finance Colombia: Outside of Bogota and Medellin—the two biggest cities, do you see a depth in the talent pool such that you see companies having success; in the coastal cities like Cartagena and Barranquilla or in the second tier cities such as Manizales or Bucaramanga, places like that?
Anurag Srivastava: There are two kinds of activities. One is, if you look at Bogota, the recent activity is either in high end contact centers, English language, but also cross functional areas like IT, BPO. Some shared services activity, IT activity tends to take place in clusters so if you look at other cities like Barranquilla, Bucaramanga, Cartagena they are mostly leveraged for contact center English or contact center Spanish kind of work. And there are other cities like Manizales. There are other clusters towards the south including Cali, Manizales, some of these other cities. Cartagena, Bucaramanga, and Barranquilla have been there for some time. But these cities like Cali, Manizales, they also offer a work-ready profile of people. So for example you have Cali, the second or third largest city that historically was a big business hub, a domestic economy hub. So you have all of the IT, financial, economic kind of work also happening there, so that may be an opportunity area to support multifunction kinds of work.