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Latin America lures Indian IT firms

By Leslie D'Monte in Mumbai
June 01, 2007 05:50 IST
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While China is tipped to emerge as a major sourcing centre for IT and back-office skills in the next few years, Eastern Europe and Latin America are quickly gaining in popularity, primarily due to a concept called "near-shoring" (proximity to the client) and "time-zone" advantage. Mexico, Argentina, Brazil and Costa Rica are the most mature sourcing destinations in South or Central America, and it is Indian vendors that are leading the charge.

Mexico's benefits include its cultural ties and physical proximity to the US and Canada, including shared time zones and frequent flights with short travel times that make it the most accessible low-wage market for the North American companies.

TCS announced some time ago that it was expanding operations in Latin America by setting up its first Global Delivery Centre at Guadalajara in Mexico.

"Apart from a strong domestic IT market, Mexico shares a similar time zone with the US and is within 5-6 hours flying distance from anywhere in the US, allowing us the ability to provide nearshore services for our large US client community," said N Chandrasekaran, executive vice- president and head of global sales and operations,TCS.

Over the last five years, TCS has set up operations in 14 countries including major centres in Argentina, Brazil, Chile and Uruguay, employing over 5,000 professionals and catering to more than 150 clients. The revenues of TCS Latin America touched $159 million (around Rs 650 crore) in 2006-07. The Indian IT behemoth also acquired 100 per cent control of its Brazilian joint venture, TCS do Brasil, which has over 1,700 employees and recorded revenues of $66.5 million (around Rs 273 crore) for FY07.

Cognizant too set up operations in Buenos Aires last year. Infosys announced its plans in April to set up a software development subsidiary in Mexico at an initial investment of $2 million (a little over Rs 80 crore) to serve its US customers.

Of the Latin American countries, Brazil is well placed to supply labour to the global offshoring market with its strong telecom infrastructure, attractive market for IT vendors and relatively low costs, according to a recent McKinsey Global Institute study titled, Shaping A New Agenda for Latin America.

The report, however, cautions that weak English-speaking skills and lack of international experience among Brazilian workers make many of them unsuitable for employment.

Chile's risk profile is better than that of India and China and the most attractive among all Latin American countries, states the report. Moreover, the electricity costs are among the lowest in the world. But the IT workforce and market for IT services and BPO are small in Chile. Mexico's advantages, on the other hand, starts with low labour costs.

Even accounting for the high power costs here, the report states, Mexico "holds the most attractive position among the Latin American countries we studied". Based on the most recent annual sales figures, the 50 largest information technology services providers had 4.3 lakh employees located in India, out of their total workforce of 1.7 million.

Between them, Tata Consultancy Services, Wipro, Infosys, Cognizant, Satyam, HCL and Patni alone have more than doubled their combined headcount over the last two years to 3.54 lakh, with a vast majority based in Indian delivery centres, according to recent research by Computer Business Review.

According to ComputerWire, the top 50 suppliers have a combined 5.37 lakh employees in low-cost global sourcing locations, with India accounting for 80 per cent.

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Leslie D'Monte in Mumbai
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