Critical Factors to Consider Before Selecting a Nearshore Location, Part 3: Talent Pool

Critical Factors to Consider Before Selecting a Nearshore Location, Part 3: Talent Pool

A nearshore location’s talent pool is second category analyzed in the TTIFC whitepaper “7 Critical Factors to Consider Before Selecting a Location in the Booming Nearshore Market.” In the weeks to come, we will publish more sections in an ongoing series that will further break down the aspects that go into the nearshore decision-making process. You can also read the introduction and other sections here:

Factor #2. Talent Pool

Ultimately, it is becoming a prerequisite to be business-friendly and politically stable. Countries in Latin America and the Caribbean have advanced monumentally in both regards in recent years, so there are many options to choose from and it’s easy to discard the outliers from consideration. This has been reflected in the reticence companies have shown to enter Argentina and Venezuela during the last decade (not to mention the Philippines currently).

Talent, then, becomes the next differentiator. In some sense, size matters. Simply put, Brazil (with a population of almost 210 million) and Mexico (nearly 130 million) offer more people than everywhere else in the region. While Uruguay or Chile may have an advantage in terms of certain tech skills or overall education levels, when it comes to the ability to scale, there is no competing with the big two.

For those companies that aren’t looking to fill 1,000 seats on day one, however, there is an array of options throughout Latin America and the Caribbean. And among the lesser-populated countries, it is hard to make up ground. Those that already have higher education scores and university graduation rates are a step ahead.

“The talent considerations are very significant,” says Gott of AT Kearney. “Companies will always say to themselves, ‘I need talent of a certain quality, otherwise this is a non-starter — no matter what it costs.’”

Sebastian Menutti, an industry analyst at the San Antonio-based consulting and research firm, Frost & Sullivan, says there is a reason that companies outsource to Costa Rica instead of Guyana or go to Mexico instead of Ecuador. While larger organizations that have been offshoring for years might be willing to start a pilot project in an unproven location with known drawbacks, those newer to this world are looking for a sure thing.

“They might sacrifice some cost savings and go to a higher-priced location,” says Menutti. “Let’s think about Costa Rica or Panama or even Trinidad, which are highly skilled…They would sacrifice those cost savings in order to get the proficiency that they need.”

Those that know the region well, on the other hand, might be a bit more adventurous in a quest for lower costs. “There are these companies that have been working in Central America for some time, and after they’re comfortable with Costa Rica, maybe they can then try Honduras and save 20%, 30%, or whatever it is right off the top,” he said.

Salil Dani, a vice president in the global sourcing service line for the Dallas-based consulting and research company Everest Group, breaks it down into two elements: Potential for fast growth versus competition. Going to Mexico City or Buenos Aires means you can fill up seats fast. But you will also likely deal with high employee turnover rates since skilled workers are in high demand and have many options — not just from the services industry but in various other fields.

Alternatively, being something of an early entrant into a smaller city, or a less mature market for providing services, means you might have trouble finding qualified workers. But in time, you have the chance to build up a loyal workforce and become a marquee company to work for in a place like Manizales in Colombia, Valdivia in Chile, or San Pedro Sula in Honduras.

“It comes down to two factors, to be honest,” says Dani. “One is the whole point of scalability and how much you really want to grow. And the second part is how much an organization wants to invest in talent but at the same time be one of the early pioneers in that location versus someone who wants to work with already available talent but then is willing to live with high competitive intensity and consequently, higher attrition.”

On the provider side, talent development is not something a nation can kickstart instantly as an initiative. It takes years — decades, really — and even well-meaning investments don’t always lead to noticeable results.

“Even if you start today, by the time people come out of universities or high schools with the right skills, it takes a long time,” says Gott. “So, there, you need a lot of foresight to develop the right ones. But…that is probably the most impactful new thing that you can do: make sure your education system is producing the right talent that is in demand by the market.”

He says that it will not be easy and it won’t change overnight, but focusing on this area is the only real way for a country to set itself apart for long-term success as a service provider. “When you can nail that part, you have a huge advantage,” says Gott.

(Photo credit: ernestoeslava / Pixabay)

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