Nearshoring to Latin America
The article discusses nearshoring to Latin America.
There are many reasons Latin America is a top destination for companies located in the U.S who want to nearshore.
Ease of access makes nearshoring an ideal alternative to countries in need of a practical staffing solution.
Aside from this, nearshore countries are most likely to use similar languages. There are approximately 5.4 million English speakers living in Latin America.
In fact, levels of English in Latin America improved during the pandemic, with more than 70% of countries from the region seeing proficiency grow during 2020, according to a new study (BizLatinHub)
Aside from the similar language, the U.S. has free trade agreements with several countries in Latin America, mainly Mexico, Colombia and Chile. Because of free trade agreements, nearshoring to nearby countries in Latin America also means supply chain resilience and a reduction in tariffs and taxes for associated imports and exports which can greatly contribute to economic recovery.
For companies in the U.S. thinking of considering nearshoring to Latin America, here are a few countries to consider:
Nearshoring in Mexico began in 1965 through the Border Industrialization Program (locally called “Programa de Industrializacion Fronteriza”).
The United States-Mexico-Canada Agreement (USMCA) was enacted on July 1, 2020. As of 2020, Mexico is the largest trade partner of the US, making it a top choice for nearshore countries.
There are several global companies that nearshore to Mexico such as IBM, General Motors, Ford, and recently, Mazda.
The country has the second largest estimated gross domestic product (GDP) of almost 1.3 trillion U.S. dollars in 2021, closely following Brazil (1.6 trillion U.S. dollars).
Argentina also has a high level of English proficiency as it placed #30 of 111 countries in the EF EPI index which measures the level of English proficiency in the area. It ranks 1st of the 20 countries in Latin America.
Argentina is among the top choices for nearshoring when it comes to IT services, particularly software development. Software development is in fact the main source of foreign investment in Argentina, with 33% of the local market. Argentina is the only country in Latin America where unicorn software development companies like Despegar.com, MercadoLibre, Naspers’ OLX, and 500 more.
Chile has set up free trade agreements with several countries including the United States.
It has become one of the top choices for nearshoring to Latin America because Chile has a targeted focus on the IT sector. In fact there are 8,000 Chilean IT companies to date.
Aside from Mexico and Brazil, Chile is known to have one of the highest digital talent in Latin America.
StartUp Chile is a tech-focused accelerator program at the heart of Santiago, the country’s capital, which is being dubbed as “Chilecon Valley”. Santiago is also where global conglomerates Oracle, Google, and Amazon Web Services (AWS) have set up bases.
There is a projected annual $78 billion in additional exports of goods and services in Latin America and the Caribbean in the near and medium term, according to the Inter-American Development Bank (IDB). Though all countries in Latin America would see gains from nearshoring, Brazil, along with Mexico, would see the biggest gains.
Brazil is home to Multinational business process outsourcing companies such as IBM, Unisys, Accenture, Capgemini, TCS and Teleperformance have set up contact centers Brazil.
Colombia has exceeded billions in investments from at least 60 companies have established operations in the country since the beginning of 2020, owing much to the government’s efforts in promoting nearshoring to the country.
During the last five years, the sector in Colombia achieved an average annual growth of 16%, standing out as the fastest growing in the region, owing for the most part the fact that its capital, Bogota, has for the provision of professional services as the main BPO and KPO cluster in Colombia which makes up 67% of the country’s income, 70% of operations and 69% of employment.
Colombia’s National Development Plan 2014-2018: All for a New Country (Plan Nacional de Desarrollo 2014-2018: Todos por un Nuevo País, PND) sets various objectives and strategies to overall educational development in the country. Among its main visions is for Colombia to become “the most educated” country in Latin America by 2025.
The above are just some of the countries in Latin America that is growing in popularity in terms of nearshoring.
These are great places to solve staffing and labor costs.
Nearshoring is an alternative to outsourcing offshore for U.S. businesses that wish to tap into accessible specialized talent such as product or customer support, software development, or manufacturing located nearshore.