Message from the Chair

Tony Mataya professional picture
Tony Mataya

Nearshore: A Viable Source for Sourcing


Outsourcing used to be a fairly simple decision.  Select an external supplier to provide all or selected services.  Soon providers from lower cost locations such as India began offering significantly lower prices, and offshoring those services became a common strategy.   

Now firms are questioning the decision.  Is it wise to put such a significant percentage of the portfolio of services in a distant country?  Recent events in Asia and the Middle East have people re-visiting their options. Are there alternatives for services in closer proximity than offshore providers? Firms have leveraged capabilities in Latin America for decades.  The term “Nearshoring” is now used to describe the trend of moving services to locations in another country but closer than offshoring. Offshore savings are still attainable, but are the gaps between India and nearshore options such as Latin America closing?  Inflation, high attrition rates in India, the cost of long-distance management and competition have closed the gap.

Just as in other outsourcing selection processes, each organization has unique objectives and there are multiple ways to address them.  Our objective is to assist you in finding the right mix of services and locations to balance risk and value while achieving your sourcing objectives. This site is designed to provide practical information to help guide you in navigating through the nearshoring choices available and optimizing your sourcing portfolio. We also have experience in implementing sourcing in nearshoring locations and can assist you.     

As the new Chairperson for Nearshoring at Outsourcing.com, I will focus our team keeping you up to date on the hot trends happening in the Latin American and Caribbean nearshoring market.  As a sourcing advisory firm, we at ThinkSolutions will also compile useful data from the leaders in the industry and facilitate communication within the marketplace between buyers and sellers of the services through country and services directories and country rankings. 

So stay tuned, and let us know how we can guide you on your nearshoring journey.

Best regards,

Tony Mataya
Managing Partner
ThinkSolutions
Tel 713-775-2461
Email tony.mataya@thinksolutions.net

Tony welcomes your suggestions and requests. He can be reached at tony.mataya@thinksolutions.net and you can access his firm's website at http://www.thinksolutions.net.



IBM Wins Cemex Deal and Acquires Large IT Provider

IBM and Cemex just signed a recording-breaking deal in the nearshoring space.  Under the terms of the agreement, IBM will acquire subsidiary IT consulting company Neoris and provide IT and BPO Services for Cemex for the next 7 years.  Based in Monterrey, Mexico, Cemex is the world's third largest cement maker and also owns Neoris, the second largest IT consulting company in Latin America.  Cemex has been struggling to financially recover from the global construction slowdown and sent out bid requests to IBM, Tata Consultancy, Dell, Wipro, and Infosys before choosing IBM.  

Nearshore Americas broke the story on July 5, and the details of the transaction can be found here at Nearshore Americas.



City Spotlight: Katowice, Poland


With a sizeable educated population, a growing economy, and a reliable transport and energy infrastructure, Poland is a popular nearshoring destination for companies in the EU.  The conveniently located city of Katowice has been determined to be an attractive location for foreign direct investment and various sectors outsourcing.

Katowice offers a pool of IT and business management talent and actual innovation possibilities.  With new government-supported development initiatives including infrastructure and green technology projects, the potential for information technology outsourcing (ITO) and business process outsourcing (BPO) services is promising.  Within Katowice there exists a broad pool of talent/intellectual capital with over 25 higher education institutions.

fp04.jpg

About Katowice:

  • Center of the largest urban cluster in Poland
  • Healthy economy & growing market
  • Skilled human resources with unique work ethics
  • Strong academic centre
  • Presence of foreign investors
  • Convenient and easy access by air, roads and rail
  • Well developed telecommunications network
  • Green place to live - 45% of green areas (forests and parks)
  • Helpful local and regional authorities
The 2012 Katowice Summit business conference took place on Wednesday, June 27, 2012 at the Polish Consulate in New York City, New York, USA. For those interested in learning about the Silesia region of Poland, visit the Katowice Summit 2012 website to view videos from the event and to read more about the information provided. Jolanta Jaworska and Mariusz Tomaka both spoke at the event on the advantages of outsourcing in Poland.

According to Jolanta Jaworska (IBM, ABSL), who is responsible for IBM cooperation with the local government and public administration in areas of business development support, investment policy, social policy and projects in Global Delivery Centers in Poland and CEE, the country has "many advantages, as Poland has a great number of highly-skilled people who are crucial for this kind of business.” Ms. Jaworksa is also a member of the Association of Business Service Leaders in Poland (ABSL), a partner of Katowice Summit 2012.

Mariusz Tomaka, Director of the U.S.-Polish Trade Council and CEO at DisplayLink, also commented on the region. “There’s a lot of advantages [in the Silesia region] like resources, well-organized office space, good infrastructure of the area, but what I would like to emphasize is– many popular outsourcing destinations today represent a low level of services. In Poland, we have very well-educated staff, able to manage these offices. Poland can be a hub to which the high-level outsourcing services can be directed, and then distributed evenly throughout the globe.”


Uruguay's Role in the Nearshoring Industry

Uruguay's early entrance to the Latin American nearshoring industry has allowed the country to develop a strong sourcing market.  While the high cost of labor and taxes keeps Uruguay out of the top of our Nearshoring Destinations Index, Uruguay offers an experienced and educated workforce to potential buyers. The Global Delivery Report interviewed Mario Tucci, formerly the head of operations for Tata Consultancy Services in Latin America, about Uruguay's role in the IT Outsourcing Sector.
Q: How did Uruguay gets its start in the IT industry?
A: We started very early (educating) IT engineers in Uruguay and Argentina. That ignited the IT software development (sector). Since we’re far away (from other major markets) we had to learn a lot. You couldn’t call an 800-number in the 1980s for help. You had to develop something locally. As a result, for example, Uruguay is now home to two vendors of core banking software, with customers in Mexico, Costa Rica, Peru, Ecuador, Chile and Argentina among others.
Q: Has this been supported by government investment in training?
A: (In the 1970s) there was a university across the river in Argentina, the La Plata University where some people from Uruguay, some from Argentina, created the first Latin American IT engineering institute. It was a very well known and prestigious institute. All this builds on a very high cultural appreciation for education, as in Uruguay all education is free and public, from K-12 through the university level.
Q: What are some of the key areas where Uruguayan software developers are active?
A: Beyond banking, there is logistics. A logistics software solution developed for PepsiCo in Uruguay was taken by PepsiCo and adopted throughout the entire Asia Pacific region. Another is Artech, developer of the GeneXus Technologies cross-platform development and maintenance framework.
Q: When did the shift to also offering BPO begin?
A: It began when TCS came and put a stake in the ground in 2002. When TCS came here, nobody ever thought this operation could reach 1,000 people. In 2008 TCS senior management came to us, based on our ITO experience, and said “We know you don’t have any BPO experience, but you do have the people and attitude we need.” This operation has now grown to 400 people, and is the largest BPO operation of a service provider in the country and employs half the TCS employee base here. It was a very nice demonstration that if you have the right team, which is willing to grow, and to (take on) an ambitious task you can do wonders.
Q: How about other BPO operations besides TCS?
A: After ten years, this country, via the free trade zone and other (efforts) we have seen growth in BPO and IT services, not only for Uruguayan companies, but also many international companies. For example, MercadoLibre, which is the eBay of Latin America, is doing all their back office work from Montevideo. You can also see, a lot of smaller Uruguayan firms providing agile development and technology services and consulting services to companies in the U.S. and around the world. There are several companies here working with Africa, and several working with as far as Japan.
Q: How would you compare Uruguay with other Latin American countries as a source of BPO and IT services?
A: We’re a country of foreigners. Everyone here is the grandson of either a Spaniard, an Italian, a German or a Frenchman. As a result, the country is very cosmopolitan. A lot of people here speak different languages, which is good for this industry. Also, since we’re far away (from other markets) we had to create our own environment.
Finally, historically it’s very rare that Uruguay has fought or had a problem with any other Latin American country. It’s seen as a friendly country by the rest of Latin America. That helps to compete also.

In 2011, Latin America and Eastern Europe surpassed India in the growth of outsourcing facilities.  According to Everest Group, India opened 49 new outsourcing facilities in 2011 while Latin America and eastern Europe opened 54 new facilities.  The trend of shifting functions away from India and toward nearshore destinations is continues to grow as American companies outsource skilled white-collar jobs in research, accounting, procurement, and financial analysis.  As many companies have capitalized fully on their savings potential in India, it is natural progression to seek savings in other functions and geographic locations.   With higher-level functions that don't require mass processing or large numbers of workers, countries like Argentina and Poland are viable options.  While you won't find critical mass in any one Argentinian outsourcing firm, the laborers are skilled and offer a valuable service at a lower hourly rate than companies can find in the U.S. 

Source: Bloomberg Businessweek
Outsourcing firms in India are catching on the the trend as well; Tata Consultancy has 8,500 employees operating in Peru and Paraguay.  Genpact, India's largest BPO firm, opened and F&A (Finance and Accounting) outsourcing firm in  Brazil.  Outsourcing is becoming increasingly popular in Eastern Europe.  Particularly in Wroclaw, Poland, 30 universities graduate a steady stream of skilled laborers each year.  Firms including IBM, Ernst and Young, and Microsoft have opened up outsourcing centers in Wroclaw.  Poland and other Eastern European countries offer a better environment for high-level outsourcing.  About 50% of Poland's 20-24 year olds are college-educated, compared with a mere 10% of 20-24 year-olds in India.  It's important to keep in mind that India's massive population means an incomparably larger number of college graduates; India has 109.4 million people between 20-24, compared with Poland's 2.9 million people in that age range.  Though the sheer numbers may always be in favor of India, nearshoring offers valuable benefits that India can't match, such as cultural alignment, language capabilities, and the ability to interact with clients.

Read more here at Businessweek.


2011 Fourth Quarter Nearshoring Destinations Report Released


ThinkSolutions, a management consulting firm with thought leadership in outsourcing, offshoring, and nearshoring, released its second quarterly report of “The Best Nearshoring Destinations.” Each quarter, the firm ranks 19 Latin American countries based on their appeal as outsourcing and shared services destinations, scoring the countries on 19 objective criteria in three categories: Financial Incentives, Business Environment, and Labor Force.

Firms continue to leverage nearshoring as an effective strategy for both Information Technology (ITO) and Business Process Outsourcing (BPO). Executives continue to look to nearshoring for benefits in cost reduction, ease of management, and portfolio diversification, so the model aimed to reflect these interests of potential buyers. Nearshoring requires careful consideration of the business objectives and an effective governance approach to manage the relationships.

ThinkSolutions has strategically selected and weighted criteria to emphasize the unique characteristics of Latin America such as cultural affinity, time zone alignment, and language capabilities. Last quarter, the nearshoring landscape changed when the U.S. signed Free Trade Agreements with Colombia and Panama, so ThinkSolutions adjusted the model to reflect these added trade incentives. Other changes in the financial environment of countries in the index led to the shifts in the rankings this quarter. Mexico ranked first again this quarter, followed closely by Chile, Costa Rica, and Colombia. Due to increased wages and higher inflation, Argentina experienced the most significant drop in ranking in the fourth quarter. 

 This outsourcing index is unique in its objectivity and flexibility in response to changing environments. While other global sourcing indices are updated annually, the ThinkSolutions Nearshore Destinations Model is updated quarterly or more often to reflect major events or changes in a country’s economic landscape. The evaluation model is designed to be proactive as well as reactive, penalizing politically unstable countries with higher levels of risk of future turmoil, while also emphasizing criteria that depict the current state of a country. Tony Mataya, Managing Partner of ThinkSolutions commented on the flexibility of the index, “We also work with clients to tailor the model to reflect their risk profile and business objectives to help determine the optimal location for sourcing services or locating operations in Latin America.”


Looking Forward: Top Nearshoring Trends for 2012


When Patrick Haller from Nearshore Americas asked ThinkSolutions for insight into how the nearshoring space will evolve in the next year, here's what we had to say:
Nearshoring Trends for 2012
1. India’s total cost of outsourcing (TCO) continues to increase and the advantage gap over Nearshoring continues to close especially due to inflation and attrition differences. 
2. Remote sourcing from LatAm, such as remote monitoring, will increase as technology continues to support it and India TCO rises.
3. There will be an added impact of the recent Free Trade Agreements (FTA) that improve upon the WTO’s General Agreement for Trade in Services, especially in Colombia.
4. Brazil will struggle to increase export of services due to internal demand from domestic growth as well as attention in preparation for the Olympics and other events.
5. Colombia will have an increased profile, a growing economy, free trade, improving security and stability.
6. Crime in Mexico will stabilize due to increased government pressure and US attention but will remain problematic in localized areas.
7. Small and mid-size US companies will exploit the advantages of Nearshoring.
8. There will be a trend towards consolidation of smaller LatAm IT firms into medium and larger firms to meet the needs of US based clients.
9. More firms will seek out LatAm for shared service centers as an alternative to offshore locations.
10. Indian firms will continue to expand into the LatAm region as global IT delivery strategies more frequently include Latin America.

Alternatives to India: The Philippines Surpasses India as Call Center Hub


The Philippines has officially surpassed India as the number one destination for U.S. call center business. The growing preference for demonstrates the maturity of the outsourcing market, as executives adjust priorities away from pure cost savings in favor of value. The cost of an agent's monthly wages is about 26,000 pesos (or $600), which is about 10,000 pesos more than the average Filipino family earns each month.  This number is higher than what companies could pay for labor in India, but executives are starting to see the value in spending a little more. 
"US companies are reluctant to discuss their outsourcing strategies, but privately some executives acknowledged that early on, they focused primarily on saving money. But as they gained experience in different countries, they realized that was not the best strategy." -The Economic Times
 Culturally, the Philippines is a much better fit to the U.S., with a better knowledge of American English idioms. Filipinos learn U.S. English beginning in the first grade, watch popular TV shows like Friends from a young age.  There's also the benefit of a stronger infrastructure in the Philippines, which leads to a lower frequency of blackouts and allows companies to spend much less on back up generators and diesel fuel.  The Indian outsourcing industry as a whole still earns about 10 times more annually, but the revenue is growing in the Philippines.  According to Salil Dani of the Everest Group, the call center business is growing at 25-30% annually in the Philippines compared with 10 to 15% growth in India.


"Random Hacks of Kindness" in Latin America

Random Hacks of Kindness,  a global community of computer experts that develop practial open technology for social good, is now partnering with Fundación Ciudadano Inteligente  (The Smart Citizen Foundation) to support their efforts in Latin America.  
Based in Santiago, Chile, Fundación Ciudadano Inteligente was founded with the goal to promote transparency.  FCI encourages citizens to utilize information and communication technologies to join the organization's cause and networks with organizations that work in themes of transparency, technology, and social good throughout Latin America.
Random Hacks of Kindness has been responsible for sharing open-source technologies mostly related to water management: flood warning systems,  supply-demand water planning, maximized utilization of non-potable water for crop irrigation systems, ect.  In one particular project, these technological tools are meeting the tangible needs of the citizens of Peru.

In Peru, water resources management is a major issue.  Over 98% of the country's annual renewable water resources is available east of the Andes Mountains, in the Amazon region.  This leaves the coastal area of Peru, home to most of the major Peruvian economic activity and half of the country's population, with less than 1.8% of the national freshwater renewable resources.  RHoK is working to create a crowdsourced bank of hydrology maps online that will enable more efficient water usage and planning, thus stopping the increasing toll that economic and population growth take on the inaccessible water resources.  
The Developing Latin America event will bring together developers, designers, and members of civil society from 6 Latin American countries to find innovative technological solutions for the social good of their country and region. All 6 event locations will participate in the upcoming RHoK Global December 2011 event where they will have an opportunity to collaborate with peers around the world.

Solutions in Latin America: 


The sharing of open source technologies like the ones being utilized by RHoK and FCI offer the promise of rapid development in these areas for the true benefit of society, allowing people's needs for water to be met more efficiently.


Another Reason to Nearshore? Indian IT Attrition Rates Reach 55%.

When Frank Casale, CEO of the Outsourcing Institute, asked an 
executive for an Indian service provider to name the biggest
challenge his company faces, his answer was attrition, at an
almost reflexive speed.  High turnover on a team reduces
productivity and cost effectiveness at an alarming rate. 
Companies don’t want to begin a project with a team knowing that
55% of that original team could be gone, and replacements will
need to be trained, every year.  This is the reality for some
providers in India, where the attrition rate is at 55% in the IT
and BPO sectors, according to a study by the Associated
Chambers of Commerce and Industry of India (ASSOCHAM).  
The numbers below are the 2010 attrition rates for the U.S. IT
industry, and outsourcing industries in Brazil, Chile, China,
and India.

Sources: AT Kearney (Chile, Brazil), Indian Associated Chambers of Commerce and Industry (India), Pragmatic Outsourcing (China), and Compensation Force (U.S.)
Below are self-reported numbers from top Indian firms.  As expected, the reported numbers are significantly lower than those reported by a third party source (ASSOCHAM).  It’s likely that a combination of the smaller Indian firms play a role in bring the rate up, and misreporting on the part of Indian firms are contribute to the large discrepancy.  However, even taking these numbers at face value, they are in many cases higher than those found in Latin America.

Source: The Times of India

What factors contribute to lower attrition in Latin America? In general, the family-oriented culture in Central and South America means less people are likely to relocate or leave their company for another.  Time zones are also a factor.  Business Process Outsourcing and customer service outsourcing professionals in India may have to adjust their working hours to accommodate the U.S. time zones.  With a well-developed market sourcing market where companies compete fiercely for skilled labor, employees in India will relocate for cents more per hour.  Even in Chile and Brazil, the comparatively low attrition rates can cause major problems.  Companies should ask their providers to name the measures being taken to reduce turnover among employees.  


by Kate Shearer

Brazil Admits to 'Race Against Time' for FIFA Infrastructure Improvements

President Dilam Rousseff admitted that several host cities are in a "race against time" to complete the infrastructure improvements needed to sustain the millions of World Cup tourists expected in 2014.  Consultancy Ernst & Young along with the Getulio Vargas Foundation reported that Brazil will need to pour $11 billion into road repairs, boosted hotel capacity, reinforcement security, and telecommunications network improvements.  Brazil has received several warnings from FIFA over delays in 
construction projects that must be ready by 2014. An estimated $3 billion will be spent increasing airport capacity at both Sao Paulo and Rio de Janiero International Airports.  Rousseff has signed off on the most costly infrastructure improvements, which entail the improvement of underground transit systems in all of Brazil's host cities (shown below).
File:Sedes 2014.PNG
Expect major upgrades in transit, accommodations, and mobile networks for these cities by 2014.

Read it here at Times of India.

Congress Approves Trade Agreements with Panama, Colombia, 
and South Korea

October 13, 2011 
 The U.S. Congress approved trade agreements with South Korea, Colombia, and Panama in what creates the largest opportunity for exporters in decades.  This ends any fears that actions of the US government leaned toward protectionism, and the bills passed in light of opposition that these agreements will lead to job losses. 

The Colombia bill faced the most Democratic opposition, on the grounds that Colombia did little to protect union leaders from assassination.  According to Senator Sherrod Brown of Ohio, Colombia is the most dangerous place in the world for trade unionists.  Indeed, the Nation Union School, a labor rights organization in Medellin, reported that 51 union members were killed last year, an increase from 47 in 2009.   Under the agreement, over 80 percent of U.S. exports will become duty free immediately, and remaining tariffs will be phased out over the next ten years.  Key U.S. exports will gain immediate duty-free access to Colombia, including information technology equipment.

Last year, the U.S. exported $6 billion worth of goods to Panama and imported minimally from the country, but the new trade agreement will make it easier for the U.S. to compete for contracts in Panama's $5.25 billion expansion of the canal.  The FTA guarantees access to Panama's $20.6 billion services market, including priority areas such as financial, telecommunications, computer, distribution, express delivery, energy, environmental, and professional services.  Phasing out tariffs on imports and exports will benefit farmers in numerous ways, but will also allow for the duty-free export of information technology equipment.


Read the facts of the FTAs: ColombiaPanama

Nearshoring Destinations Index Released by ThinkSolutions

HILLSBOROUGH, N.J., Sept. 27, 2011 -- /PRNewswire/ -- ThinkSolutions, a management consulting firm with thought leadership in outsourcingoffshoring, and nearshoring, released its 2011 third quarter report of "The Best Nearshoring Destinations."  The firm ranked 19 Latin American countries based on their appeal as outsourcing destinations, scoring the countries on 19 objective criteria in three categories: Financial Incentives, Business Environment, and Labor Force.  

Firms continue to leverage nearshoring as an effective strategy for both Information Technology (ITO) and Business Process Outsourcing (BPO).  Nearshoring requires careful consideration of the business objectives and an effective governance approach to manage the relationships.  Executives continue to look to nearshoring for benefits in cost reduction, ease of management, and portfolio diversification, so the model aimed to reflect these interests of potential buyers.

The criteria were strategically selected and weighted to emphasize the unique characteristics of Latin America such as cultural affinity, time zone alignment, and language capabilities.   With strong cultural alignment with the United States as well as a large, capable labor force, ThinkSolutions named Mexico the top outsourcing destination in Latin America for this quarter, followed closely by Chile, Costa Rica, and Argentina.

This outsourcing index is unique in its objectivity and flexibility in response to changing environments.  While other global sourcing indices are updated annually, the ThinkSolutions Nearshore Destinations Model will be updated quarterly or more often to reflect major events or changes in a country's economic landscape.  "After the political turmoil in Egypt last spring, the country maintained its high status in other global sourcing indices.  When such a crisis occurs, our model can quickly reflect the change in the country's score," said Tony Mataya, a managing partner at ThinkSolutions.  The evaluation model is designed to be proactive as well as reactive, scoring countries based on the level of political stability and corruption in an effort to penalize countries with a higher risk of turmoil. Mataya added, "We also work with clients to tailor the model to reflect their risk profile and business objectives to help determine the optimal location for sourcing services or locating operations in Latin America."  

Click here to request the full report.


Honduras Cuts Security Tax after Angering Businesses



In response to US Secretary of State Hillary Clinton's claim that wealthy elite and businesses of Central America aren't doing their part to combat drugs trafficking and violent street gangs, Honduran President Pepe Lobo endorsed a fiscal package aimed at increasing the state's anti-crime budget. However, opponents of the plan claimed that the tax hikes would discourage business.  Intended tax increases included a 5% base metal export tax and a 3% bank withdrawal tax, from which the private sector argued that tax revenues would far exceed the desired $79 million annually.  Two laws from the proposed plan stay in place: a 1% tax on mobile telephone companies and a 0.5% tax on fast-food restaurant profits. Lawmakers hope that the revised tax plan will provide sufficient revenue to make a dent in the drug and violent crime problems without making it impossible for private enterprise to survive.  The question remains as to which factor will be more detrimental the Honduran private sector: high taxes, or unsafe perceptions of the country that could discourage external investors? In 2010, Honduras had a homicide rate of 77 murders per 100,000 inhabitants, and Mexico, a country constantly painted by the US press as being violent and dangerous, had a homicide rate of only 14 per 100,000 inhabitants. 


As IT Outsourcing Services Decline, 
Agile Providers see Opportunity

Denis Barker from Sourcing Line found that the IT Outsourcing Services Sector declined at a rapid rate last quarter, according to Ovum's IT Services Contract Quarterly Analysis.  The number of deals worldwide fell to 384, and total contract values dropped 40% compared with the second quarter of last year.  The Q2 numbers haven't  been this low since 2003.   There is, however, a bright side: alternatives to India, primarily destinations in the Asia-Pacific region, haven't been hit as hard by this trend and dropped a mere 4% last quarter.   Who's to blame? The "lousy US economy" makes the list, as does IT buyers' demand for "hard benefits".  Buyers need to know that in addition to cost savings, outsourcing spending is bringing innovative approaches to the transformation process.  Nimble providers with the ability to present buyers with a unique value proposition that could not be achieved in-house.  

Read it here from Softtek Blogs.

Brazil Industry Losing Out to Lower-Cost Mercosur Members

Brazilian industry leaders are complaining that the strong growth of the Brazilian economy and the Super Real are acting as a disincentive to Brazilian investment. Brazilian companies are turning instead to less expensive options like Argentina, Paraguay, and Uruguay.
With the Super Real, manufacturing in Brazil has become very expensive and Mercosur partners offer comparative advantages: Paraguay, cheap energy; Argentina, natural gas at competitive prices and Uruguay qualified labor.  On top of this, the total cost of taxes is significantly higher in Brazil compared to other Mercosur members.

Brazil's Economic Growth Must Slow to be Sustainable


With an average economic growth rate of 5% since 2003, Brazil's economic strength has increased its appeal as a nearshore destination, contributing to job growth, advanced technological expertise, and safer investments for buyers. However, Tony Volpon, a managing director at the Nomara Group, predicts that for Brazil's economy to stabilize, annual growth must slow to 4% or less.

Is there a credit bubble in Brazil? Volpon says no, but rings some alarm bells anyway. “Excessive optimism on the part of creditors and inexperienced banks combined with inadequate prudential policies lead to excessive leverage,” he wrote. “The explosive growth of loans for cars, which already exceeds 4% of GDP, and the acceleration of housing prices are warning signs that we are on the way to creating an unsustainable structure of liabilities within the economy,” he wrote.

The decline in productivity shows that the irrational exuberance of the current job market is about to end, he wrote. “Entrepreneurs may individually believe for a time that the laws of supply and demand do not apply to them, and of course there will always be sectoral distinctions that have to be taken into account. But for the economy as a whole, lower economic growth lowers corporate revenue. If they continue to hire and award wages increases they will see their net profits decrease. A falling rate of profit must then bust the bubble in the labor market. The slowing credit growth should limit the strong growth of recent years,” he wrote.

Students Protest for Education Reform in Chile
On Friday, August 12, Chilean officials ordered an end to protests, stating that "Chile is not going to be governed from the streets".  Fed up with civil disorder in Santiago, authorities are urging student protest leaders to seek out official avenues for education reform.  Protests against Chile's privatized education system have been carrying on for months, with Chilean college and high school students demanding reform to an education system that leaves many in crippling debt upon graduation.  Students have, for the most part, refrained from violence in favor of more creative demonstrations, some of which involved superhero outfits and Lady Gaga costumes.  On June 6, with “pasión por la educación”, thousands participated in a kissing protest, and on June 24, three thousand students organized a flash mob to "Thriller", declaring that "the present [education] system is rotten and dead."  Last week, violence escalated as students demanded airtime on national television and the government ceased authorization of the organized marches.  Riot police have resorted to tear gas and water cannons in an attempt to maintain "business as usual", and 873 arrests were made after the first day of rioting.  

Back in January 2010, Nearshore Americas named Santiago the safest and least corrupt capital city in Latin America, and Chile is the most politically sound country in the region.  This serves as a reminder of the risk of doing business in Latin America, where unpredictable social and political environments can distract, or worse, endanger employees and operations.


Nearshore vs. Offshore

posted Sep 15, 2011, 7:12 AM by Kate Shearer   [ updated Sep 15, 2011, 8:13 AM ]


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