The Hindu Business Line : IT cos expanding in Latin America

Bangalore, June 28 Driven by customer demand, Indian IT firms such as TCS, Infosys, and Patni are enhancing their ‘near-shore’ delivery capabilities in Latin America.

This would also help them explore the emerging markets in the region.

Last week, TCS opened its seventh Latam delivery centre at Queretaro, Mexico, where Patni Computers also chose to locate its first centre that was launched on Monday.

“We are seeing increased demand from our client base for near-shore resources. Our investment in Mexico allows us to deliver on these demands,” said Mr Jeya Kumar, CEO, Patni Computers. The company initially plans to have a 100-seat facility.

TCS plans to hire some 500 people this fiscal at its Queretaro facility that would provide advanced IT services, consultancy, testing factory, BPO and IT infrastructure solutions. Besides serving its US customers from near-shore locations in Brazil, Argentina, Uruguay and Mexico, TCS also caters to some 30 local clients in sectors such as telecom, banking, finance, manufacturing and retail.

Infosys, which employs some 250 people at its Mexican subsidiary in Monterrey, plans to expand to Brazil and expects to set up a centre in Belo Horizonte over the next three-four months.

Wipro runs a BPO facility in Curitiba, Brazil, from where it serves customers such as AmBev, and also has a facility in Mexico.

Local business too

“The main objective of locating delivery capabilities in the Latam would be to act as near-shore centres for North American customers. However, the smaller focus would be to get local business,” said Mr Vinu Kartha, Principal at Tholons Inc, which helps customers with their outsourcing strategies.

While stating that the delivery cost-structure in the Latam is similar to India or marginally higher, Mr Kartha said some US customers are keen on outsourcing to near-shore locations where they can visit and review the progress often.

“If some thing goes wrong, they can always switch the work back to US because of the near same time-zones,” Mr Kartha added.

While the average cost per employee for IT services in the US is $150,000-175,000 a year, varying with the skillsets, there is a clear 50-60 per cent cost arbitrage when a customer near-shores , said Mr Praveen Bhadada, engagement manager at Zinnov Consulting.

One of the key disadvantages for offshore locations such as India and China is the management and communications overhead.

“So customers are looking to reduce their overheads by having a presence in near-shore locations, which can be reached in four to six hours,” Bhadada said.

According to Gartner, IT spending in the Latam is expected to grow at 4.4 per cent in 2009, spurred by continued IT expansion in key countries such as Brazil, Mexico, Peru and Chile among others, while the worldwide spending is expected to remain flat.

“We are looking for targeted acquisition with specific criteria in Mexico,” said Mr Dheeshjith V.G., Head, New Markets and Services, Infosys, stating that the company was interested in firms that own intellectual property relevant to these markets, or in firms that have large clients headquartered in either Brazil or Mexico. Capabilities in Spanish, which is spoken in Mexico, and Portuguese, which is spoken in Brazil, are one of the key considerations as well.

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