It might not yet have the same profile as South Asia or Eastern Europe, but Latin America is becoming an increasingly popular destination for organizations looking to establish shared service centers, either serving domestic markets or as part of regional or even global shared services strategies. Furthermore, along with this growth in the captive sector Latin America has become the focus of growing interest on the part of major outsourcing providers whose entry into the market has had knock-on consequences across the board. Throw into this already-volatile mix the current economic instability and it's easy to see why the region's activity is making waves across and beyond the shared services and outsourcing space in 2009.
We convened a panel representing practitioners, providers and advisors to take a look at the current level of maturity of the Latin American market and to examine how - and if - the economic malaise affecting much of the rest of the global economy is impacting upon operations in the region.
Attending were:
Laura Bao Castro
CR FSSC Controller
Intel Corporation
Esteban Carril
Director, Latin America Finance Operations
EMC Corporation
Mauro Mezzano
Partner
Vantaz Group Consulting
Ricardo Neves
PwC Global Sourcing Leader for South America
PricewaterhouseCoopers
Q: I think the first question we should look at is: is it right to talk of "Latin American shared services" at all? Latin America is a very big region geographically and in terms of population; it's got a smaller linguistic diversity than, for example, Europe, but there are still very big differences between, say, Brazil and Costa Rica. To what extent is it actually possible for organizations - captive or BPO - to take a truly regional approach in Latin America? Is it impossible to avoid having significant resources in individual countries?
Ricardo Neves: This is a region different from other regions in the world. If you talk about intra-region services, you're talking about two major languages which are, in some ways, close to each other; you have also a closeness of overall culture; and usually what you see with multinational or regional operations here is that the larger countries like Brazil, Argentina, Mexico, Chile correspond to a significant size of the operations. Usually if you look at most of the global or multinational companies in the region, they have 50% or even 75% of their operations carried out in two or three countries at most - and then 10, 12 other countries where they do have operations but which make up only 25% or less of their business.
This gives a challenge when setting up a regional center, because there is a scale for the larger countries which is not present in the smaller ones - and what I've seen here is a mix between totally centrally run shared services and a lesser local presence in smaller countries to make sure the right scale is achieved and the right support is done at the regional level. There are companies based in Brazil that I've seen who have regional shared services - like the brewer AmBev, now connected with InBev and AnhauserBusch, which has a very large regional shared services based in Sao Paulo serving not just operations in the region, but also the firm's operations in Canada for the Labatt operations. Unilever has also set up an HR shared services - and has just sold its finance shared services to Capgemini in the region.
In sum, from those large operations that I've seen, as I said I've seen a mix of some centralised services and some small countries with local services combined.
Esteban Carril: We're serving Argentina, Chile, Peru, Mexico, Colombia, Venezuela, and Brazil. My team is divided into three functional areas, in two countries. One team is working in Sao Paulo, Brazil; the other two functional teams are working here in Argentina. We run accounts payable, accounts receivable, credit and collections, billing, cash applications, payroll, commissions and bonuses. It's actually not divided linguistically: we found we already had some good skills in Brazil to develop the credit and collections department there, so we decided to leave the existing group providing services there in Brazil, to provide services for the rest of the Latin American countries. We wanted to have three functional groups, but we wanted to try to keep the same skilled people working and we didn't want to have to move them from one country to another.
Laura Bao Castro: We're part of a global strategy. We have currently two pretty large financial shared services centers in Intel. One is located in Malaysia and the other one is located here in Costa Rica; the markets that are supported from Costa Rica are Canada, the US, Costa Rica, and Mexico, Colombia, Venezuela, Chile, Argentina and Brazil.
Q: Laura and Esteban, you both come from big global organizations with significant worldwide presence. Do you think it's still the biggest companies who are setting up shared services in Latin America or are the smaller, or maybe mid-market, organizations also getting involved?
Laura Bao Castro: I think the mid-market is coming up. I was able to go to [a Latin AMerican shared services event in] Chile last year, and also participated in [a] conference in Mexico City, and I was very surprised by the number of Latin American multinationals that have already moved into this journey, or are in the process of doing so - especially in Mexico where I think a lot of companies are looking into it, even having shared services within Mexico itself. The concept is right there; they know they can reduce costs and produce more quality with shared services, and even within Mexico itself companies are developing shared service centers.
Mauro Mezzano: Actually we've been seeing this shift since two or three years ago. At the start of the decade many multinationals began establishing shared services in the region, but when I went to conferences in Miami and Orlando there weren't many Latin American-owned companies present. Then in 2004, 2005, bigger local companies and groups started with the concept. Now smaller and smaller companies are doing it; some of them don't really implement what we would call shared services but they do centralize and they do take a few concepts from shared service centers, and perhaps redesign a process. The influence of shared services is spreading out through many more companies than before.
Ricardo Neves: I've seen an increase in interest: among mid-market companies it's less regional. What I've seen is among large companies, they've done a lot of rationalization in each of their countries of operation, and a lot of discussion about regional shared services. What I've seen in the mid-market, specifically in Brazil, are still questions on "in-country" shared services if you know what I mean. It's more making sure that they leverage their local operations, and then as a second step - especially with some of the systems work done - it's something of a done deal to set up something regional: when you have a regional systems platform, for example.
Q: Let's shift focus slightly and take a look at the outsourcing market in Latin America. Over the past couple of years we've seen the entry into the region of some of the big global players - in particular some of the big Indian providers. What impact has that had on the market - and on firms that are running shared services?
Esteban Carril: In my experience in leading a shared service centre I have been trying to find different ways to do things, and finding vendors who can provide services in a more efficient and economical way than us doing it ourselves. When it comes to the outsourcing sector, I find that in Latin America things are still in development. When it comes to outsourcing it's important to see how well-organized companies are, and how well they provide services in multiple countries - and I see the challenge for many of the big firms is that they are still working as independent companies in each country, and not really regionally organized in order to provide services to multi-country shared service centers.
I think that's one of the key points that I've been finding. Another key point is that some companies are regionalized but unfortunately they might not have presence in all markets, so that becomes a problem in terms of finding a single regional outsourcing solution to meet our needs.
Laura Bao Castro: About five years ago companies providing outsource service arrived to Costa Rica. Since then, these companies have grown , for example HP has now close to 8,000 employees. While I can't be specific about their services or regions they serve, these companies look for people speaking Spanish, English, Portuguese, French, Italian - even Chinese. We do not work specifically with an outsource vendor at this moment - but periodically we reassess our current strategy.
Ricardo Neves: One of the features that I've noticed, one of the movements in the outsourcing space in Latin America, is that there's been a lot of currency fluctuation between the dollar and the real, and the dollar and other currencies, and I've seen some discussions on contract review - especially for service providers - from both sides: if the clients want to take advantage of that, or even discuss relocation of some work; or if the providers are saying that an increasing cost is related to currency fluctuation putting added pressure on their margins. Definitely currency fluctuations have been one of the biggest topics of discussion in the region.
Q: OK, let's move on and address the big issue of the moment and, perhaps, of many moments to come: the financial crisis and global economic downturn, and their impact upon shared services and the sourcing sector in the region. Ricardo, what do you see as having been the main changes in the space since the beginning of the main phase of the crisis in October?
Ricardo Neves: What I've seen is basically a larger interest in discussing measures to reduce costs. Some of the plans that were lined up to be rolled out in the future have now become more interesting for discussion now; specifically, if they can help reduce costs. The mood, the willingness to do something now has increased. Organizations today want to do something bolder than they were willing to do even six months ago. We used to hear things from the business like "don't disrupt my growth", "don't rock the boat"; now executives are coming and saying "hey, where can we make this boat more nimble? How can we rock the boat but at the same time make us leaner and more prepared?"
I've seen this happening in a couple of ways. One is, clients coming to us looking for an overall assessment of cost reduction - which usually includes the theme of shared services. Secondly, we're also having a lot of discussions on reviewing outsourcing contracts - or even making those contracts broader, in order to ensure they are capturing all the value they could based on the relationship. So overall what I'm seeing is an increased willingness to take bold measures to ensure cost reduction.
Q: Do firms still have money to spend on big implementations, or is it about making changes as cheap as possible?
Ricardo Neves: I think a lot of it is, as you say, to make things as cheap as possible, as fast as possible. But I've seen some room to say "if I need to spend that to get that back, then let me hear what you have to say". Again, I think firms are more willing to do things than they were before - but no-one's saying they've got a big pile of money to reduce their costs. What they need to do is support the investment through the cost reduction itself.
Q: Moving over to the practitioners: Laura and Esteban, how have you been responding to the crisis? Has it had a big impact on your business and are you looking at operations in a different way?
Laura Bao Castro: Intel Corporation has been, over the past 2.5 years, on a restructuring and efficiency program that has resulted in run-rate savings of greater than three billion dollars, CapEx avoidance in excess of one billion dollars, and a reduction of twenty thousand employees from our peak in 2006. We as part of the Corporation are taking actions to contribute in this process. We are doing a big effort to reduce discretionary spending and one example is travel. We are also increasing the number of meetings over the phone and are focusing on productivity and efficiencies so we can do more with the same.
Esteban Carril: Laura mentions the travel and entertainment reduction, and this is clearly an area where we have tried to pay close attention - but as a matter of fact I think that there is no doubt that the economic crisis will bring new opportunities for shared services here in Latin America. I think this might now be a great time to demonstrate that Latin America is a reliable region, especially for global shared services. As we speak my company is looking for new opportunities in emerging markets. Right now we are looking for a shared service center for sales operations here in Latin America; this might be a great opportunity for consolidation and cost efficiency.
Like Laura we have accelerated process improvements and efficiencies, and tightened our controls over expenses; we are also now implementing new tools to give us better visibility of customer usage patterns and people's performance, in order to drive customers to more efficient services. Those services that may be high-cost and are not being used by our customers are the ones that we would like to either outsource or discontinue. We have also identified other opportunities to expand our scope of services by leveraging our shared services to serve new internal customers, and redirecting our services to areas where they can add more value... [Regarding discretionary spending] As Laura mentioned, we have to do more with the same; in my case I'm trying to engage people from my shared services to lead some of these projects. On other cases we will prioritize those projects where we see there is a clear benefit in costs in the short term.
Mauro Mezzano: What I would say is, working in shared services implementations in 2000, 2001, everybody was looking towards cost reductions. Then moving through 2005, 2006, 2007 and last year - up to October, of course! - I had, as a consultant, many customers who were very focused on growing, so they were very interested in preparing for big growth rates. Now, after October last year, once again I'm getting many calls from people looking for cost reductions, and being very proactive in implementing projects with quick results. I think it's come back to that, and I think as Esteban was saying, in our region some countries become even more interesting for multinationals to do medium-to-long-term cost reductions because the labor costs are under what they can see in other regions.
Something which is different from the 2000 period, in 2008, 2009, 2010, I think the offshoring/BPO providers are really appearing here in Latin America, and this could be a very interesting moment to potentiate that outsourcing and offshoring business.
Q: Have you been seeing clients are coming to you with the need to do more with the same amount of money, or reduced budgets?
Mauro Mezzano: I've been seeing both. Some of the clients that were working here during 2008 in shared services have come to me and said "Sorry, I cannot come anymore with this budget because my company is in a crisis"; but at the same time I've been having new calls from customers who weren't working with us previously, but who really want to work with us because they've got a new approach to shared services. The market is still very open and diverse, but I think it's going to narrow down into cost reductions during March and onwards.
Q: Obviously globally over the last few years one very big question has been how to attract and retain talent. Recently however as the economy has worsened there has been the feeling in other parts of the world that talent acquisition and retention isn't going to be such an issue over the foreseeable future, because people aren't going to be willing to move out of secure jobs. Is this mirrored in what's happening in Latin America right now?
Laura Bao Castro: You know, Costa Rica is behaving very differently from other markets, specifically in the service industry. This year is no different; and the projection is 3,500 new jobs, so we actually have a pretty hot market. Talent retention is critical for our success.
In terms of our sourcing strategy, we work very closely with the technical schools - particularly the accounting technical schools - and the public university that provides accounting professionals. We provide internship programs for technical school graduates and a student program for university students: we bring those people while they're still studying to work part-time for us - some of them in an internship mode, some as what we call "student workers" - and by the time they graduate, and if we feel that they have delivered to our expectations - we offer them full-time jobs. That has been a very successful strategy that we implemented about six years ago, and we have a conversion rate of 95%.
In addition we provide English classes to those employees to ensure that by the time they get converted they have reached the level of English that we require to do our jobs, because we offer services to the North American market and a lot of our jobs will require a certain level of English capability. So that's a sourcing strategy that I think has proven to be very successful for us, and it gives a continuous pipeline of new employees coming in.
In the area of talent retention, Intel is a company that believes in flexibility and we do provide a lot of flexibility to our employees. I don't know if you're familiar with the term "Generation Y" for people born after 1980; 80% of the population that I manage are Generation Y, young people with very different mentalities - they have a different chip in their minds from mine, for example - and they value flexibility very much, so we have programs like what we call "telecommuting" where they're able to work from home up to two days a week. They have different start and ending times - some of these employee are going to school so they need flexibility to continue their studies - we have found through the surveys and questionnaires that flexibility is one of the main reasons why they choose to stay with us. We provide portable computers to all our employees which they can take home - and this generation are technology-growers, of course, so they love that.
These two things have really been proven to help us retain employees - in addition to the career development of course. One of the beauties of shared services is that you manage different functions, you manage different groups, and if someone wants to start a career they will have the opportunity to move into these different groups and become a rounded professional.
Q: Esteban, how are you finding the employment market - and has there been a shift in your acquisition and retention strategies as a result of the economic crisis?
Esteban Carril: In our case - and I would say that this applies for every other shared services in Latin America - turnover rate is one of the most challenging areas for shared services. We have been doing several things to retain our talent. We have been cross training - so, for example, when an employee comes to work in one department we offer them some exposure to other areas of operations, to other processes, so they can learn other activities and processes which as Laura pointed out adds more value to their own career.
This year we are also offering a new service inside shared services which is that we loan employees to other areas, so for example if a business area needs an extra person because someone goes on maternity leave, or even leaves the company, we provide them with people as a service. If our people are trained in other systems and other processes we can add value by moving those people to other areas where they can spend two or three months. We're offering that as another service from our shared service centre.
Another area is flexible time. The nature of our business is, 70% of our business takes place within the last three weeks of the quarter so we really need to be flexible with our people. We let them do some telecommuting, we offer flexible time, because - as Laura pointed out - you should give them some kind of freedom inside the company. We provide English and Portuguese classes as well.
The key here is that we've signed some agreements with universities through which we bring new people on board; we usually train them in those areas which are more transactional, so they gain experience - and then we move them around, not only inside shared services but also outside, offering them now career opportunities in the business, in different countries, in our local finance team. So we offer them several routes to success inside our company.
Q: Are you thinking that turnover is still going to be an issue for you in a worsening economy and a consequently tightening job market?
Esteban Carril: I think right now, there are several companies that are letting people go, and I think the labor market will be better for us. However, inflation is still a problem - particularly in Argentina - so when it comes to retention we would expect to be reactive in terms of salary adjustments, to ensure competitive salaries. So in general terms I think the market's going to be quieter; however, we should always keep an eye on the need for salary adjustments - especially with the inflation fluctuations we may see in coming years.
Q: Ricardo, what's your take on the job market and the pressures on talent management at the moment? Have things changed as a result of October's events?
Ricardo Neves: Some of the clients I support have said the pressure on them has increased to deliver a good service at a lower cost, and the best way to do that is with good people. So I think the search for good people, and the importance of retaining them, and working the talent market, is still a big challenge as we go into crisis mode. Even though when you think about it there might be a little more availability of resources on the market, when you look at the example we've heard of Costa Rica - or even Brazil, where companies are going more into the interior of the country and looking at other cities inside Brazil to be able to retain a good flow of people coming out of universities, and have been growing very fast throughout the country - shared services and new organizations coming in are going after talent very fast, wherever it is; so I don't believe it will be an easier time managing talent for shared services during the crisis we have now.
Q: And have you noticed - or are you forecasting - a drop in attrition rates over the next few months?
Ricardo Neves: Not at this point; considering what I've both from clients and from providers with whom I've been working closely I have not seen any significant change in those rates at this point, in Brazil particularly.
Q: And will the increased operation of big BPO providers have an impact here?
Ricardo Neves: I think so. I have not seen a slowdown in any way in the growth of the shared service centers either from providers or companies going after it. So even if there is any increase in supply I don't think demand will decrease; actually, I think demand will increase from both existing shared services and from new companies coming into the market. I don't foresee an easier time on turnover rates or talent retention.
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