The past year was one of huge changes in the region, as Covid-19 forced a reshaping of the global outsourcing hierarchy and the push for digital transformation drove demand for outsourcing services while many other industries were mothballed.
Questions that posed doubts over the remote work situation were faced and overcome, and remote working looks set to be an essential – and even differentiating factor – in a company’s ability to recruit.
On recruitment, scarcity of talent continues and will only get worse. How companies will find, attract and retain that talent into the next year remains to be seen. Are massive wage hikes sustainable?
The pandemic is not going anywhere for now, at least. The explosive power of the Omicron variant will be key to the industry’s operations over the coming months.
Considering this, what are the trends we’re likely to see hitting the Nearshore in 2022?
Risk Tightens Up Across the Nearshore Supply Chain
This year and last, remote working posed security issues for Nearshore companies. In uncontrollable environments, hacks became more widespread, and corporate risk climbed. Linda Tuck Chapman, CEO of Third Party Risk Institute, and president of ONTALA Performance Solutions believes that fourth parties involved in service provision contracts will see the onus on their security procedures increase dramatically.
“Third party risk management was a very strong scene for regulated entities during the pre-pandemic period. Coming into the pandemic the need for strong risk management practices was raised even more,” said Tuck Chapman.
While sectors like finance and healthcare are already heavily regulated and provide strong risk environment practices, sectors, where regulation has not traditionally been so heavy, will now be expected to tighten their risk procedures.
“Awareness is now turning to action for Nearshore providers who aren’t directly contracted with the end client but are subcontracted. As a fourth party, they will now be expected to have a strong risk practice as a third party. Third parties will now be expected to control that fourth party risk in the way they control their own, and the end client will be looking carefully at third party relationships to find out how they manage their fourth parties relationships,” Tuck Chapman added.
“One reason for this is that the threat landscape is on fire. Another is that board members are more aware. The final reason is that almost all cyber issues at the moment are coming from weak fourth or fifth parties. Hacker groups have all figured out that the way in is not through these major companies with good control environments, but through the products and services, they buy from others. SolarWinds was the first eye-opening event that demonstrated that it wasn’t the company’s weaknesses that were the problem, but its practices around subcontracting. The Log4j Java hack is the newest example,” she added.
CX Outsourcing to Continue Growth Streak
When choosing a cloud vendor, one of the most important factors is migrating your applications to their cloud. An essential question to ask is what migration assistance the cloud vendor will provide. Things to look for are ease of migration, application performance in the new cloud environment, and potential security issues. – Steve Taplin, Sonatafy Technology
The adaption to digital channels that Covid-19 produced saw new entrants into the CX outsourcing world last year, which drove up demand among Latin American CX providers and helped deliver strong growth regionally. Sebastian Menutti, ICT Industry Principal with the management consulting firm Frost & Sullivan, sees this trend continuing into next year as companies look to escape their reliance on other single markets.
“Our research is forecasting double-digit growth for this year and for next year. This is being driven by global companies diversifying their operational risk, meaning growth in countries like India and Philippines is being looked over in favor of Latin America & Caribbean,” said Menutti.
Market Consolidation Keeps Going
The reshuffling of the industry in the wake of Covid-19 saw companies take the opportunity to make acquisitions and acquire new partners that brought in additional skills and experiences. M&A activity could get even hotter next year, Menutti believes.
“In 2021 we saw huge M&A activity in the shape of Sitel acquiring Sykes to become a Top 3 player in the Nearshore space. Webhelp also acquired OneLink, which brought a strong new player with proven European experience into the Nearshore region. This will intensify competitive pressure for the Nearshore’s mature players,” he said.
Residential Internet Becomes Make or Break
Real estate office prices have always been among the set of key considerations for companies looking to expand into new Latin American markets. But the new normal may well have seen this factor replaced for another: the strength of residential internet.
“The freedom to work from anywhere isn’t going anywhere. We’ve seen markets like Colombia struggle in terms of the residential internet infrastructure, whereas we had no problems in markets including Mexico and Argentina,” said Steven Taplin, CEO of software development company Sonatafy Technology.
“The strength of residential internet infrastructure will be a central consideration of companies moving into new markets, alongside the ability of that market to provide the concentration of skills that are needed by a talent pool,” he said.
Software Development Makes Wholesale Move to Cloud
Taplin also sees the snowballing of a trend that appeared recently.
“The industry has been moving towards a complete cloud development environment, and this is likely to take hold next year. Offshore firms have often been big on having local servers for development and testing before moving software onto the cloud. This is going to evolve,” he said.
Taplin believes this is a promising move both for service providers and clients. In the remote work situation, the cloud provides stronger control measures of a development environment meaning that client data is better protected and concerns over the work from the home issue can be alleviated.
Latin America’s Secondary Markets Swell
A consequence of the demand Nearshore is experiencing is the opening up of secondary markets that may have previously been overlooked, says Craig Dempsey, co-founder and managing director of Biz Latin Hub. Major companies are opening tech centers in the region’s main markets, and as a result, secondary markets are coming into consideration.
“Due to the prevalence of tech centers in the region, and with the intent to try and find a less competitive labor markets, we are seeing a trend for new clients to either look at secondary markets like El Salavdor and Panama, or markets further away from the US from a proximity point of view, such as Chile. Previously clients were very centered on the close proximity markets, like Costa Rica, Mexico and Colombia, but this has shifted in the past months,” said Dempsey.