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Why cloud services firms should include Latin America in their expansion strategies

The topic of professional services delivery operations isn’t exactly a hot topic on Twitter or BuzzFeed (I’m not sure why?!), but if it was, then #latam would definitely be trending.

As a partner at Tercera, and someone who talks to a lot of founders and service leaders about how to scale and mature their delivery operations, expansion into Latin America seems to be a part of nearly every conversation I have these days. It feels eerily similar to the conversations from the early days of cloud computing, when tech founders, CEOs and boards were all trying to figure out how to break into the India tech scene.

In fact, there are a number of similarities between what drove the tech build out in India and what’s been happening in Latin America (or LATAM). Access to a growing community of highly skilled talent at a lower comparative cost, geographic proximity to the North American businesses, increasing infrastructure investment and stability in the region, and economic incentives are all bringing tech businesses to the LATAM region.

Access to a growing community of highly skilled talent at a lower comparative cost, geographic proximity to the North American businesses, increasing infrastructure investment and stability in the region, and economic incentives are all bringing tech businesses to the LATAM region.

Let’s start with the basics so we’re all on the same page. Most people define LATAM as including the continent of South America, Mexico, Central America and the Caribbean, so when I use the term LATAM, this is the region that I’m referring to. Like Europe and Asia Pacific, it’s easy to lump these countries into one nice clean acronym, but it’s an incredibly diverse region. Some countries are more developed and ready to support a thriving tech scene than others, and some countries have weathered the pandemic better than others. But the region as a whole is poised well for growth.

A lot has been written recently about the tech opportunities in LATAM, both as a region to expand a development center or with a thriving startup scene. This blog isn’t to regurgitate those, but to explain why cloud consultancies who are looking for scale, diversification and, most importantly talent, should be looking at this region to expand delivery operations. This can be done either in conjunction with other locations, or as a first step for those earlier in their lifecycle.

¿Why is LATAM suddenly muy caliente?

The biggest reason LATAM is seeing such interest from tech companies is access to talent in a tight labor market. A talent shortage is threatening nearly all sectors around the world, but as the world moves digital, the job roles that are most increasing in demand are those rooted in technology. The World Economic Forum lists out the roles most in demand in its annual Future of Jobs Survey, and data scientists, AI specialists, digital strategy and security specialists are all near the top of that list.

Unfortunately, supply is not keeping pace with demand. The need is especially acute in some regions like the US. According to research by Korn Ferry, “the US could lose out on $162 billion worth of revenues annually unless it finds more high-tech workers.” Broadening into other global markets is a critical piece to closing the talent shortage gap and meeting customer demand, and LATAM governments and universities are eager to fill that gap through investments in innovation, educational institutions and other programs.

The number of trained IT workers in LATAM has increased significantly in recent years. Evans Data research has found that Latin America now has the second fastest growing IT specialist population, second only to Asia Pacific. According to BizLatin Hub, Brazil alone has 1.7 million IT professionals.

Latin American countries have also focused on improving their overall infrastructure, investing in telecommunications and digital infrastructure — the backbone of a tech industry. LATAM governments eager for tech revenue have also been making it much easier to do business in the region, opening up opportunities to foreign business by lowering corporate tax rates, and offering investment incentives and grants.

The region is also known for less stringent regulations compared to Europe, and better legal protection for intellectual capital compared to countries in Asia. All of this has significantly reduced the barrier to entry, and a growing number of partners like BizLatinHub and Velocity Global are popping up to help walk you through complicated entity setup processes.

The ease of doing business in the region has also had a positive impact on the startup ecosystem. Since 2009, $16B has been invested in the region and tech companies alone raised $4.2B in 2020 (across more than 370 deals). That’s a record, and it was set in the same year a pandemic circled the globe.

The ease of doing business in the region has also had a positive impact on the startup ecosystem. Since 2009, $16B has been invested in the region and tech companies alone raised $4.2B in 2020 (across more than 370 deals). That’s a record, and it was set in the same year a pandemic circled the globe. With multinational companies continuing to show interest in and allocating resources in LATAM, there’s no reason to think the climate will change anytime soon for startups.

A huge opportunity for cloud services firms

For cloud consulting firms hungry for talent, diversity and access to new markets, LATAM is becoming more and more interesting, especially for firms headquartered in North America, With many LATAM countries geographically close to North America, travel times and costs are significantly lower than they are when working with Eastern Europe and Asia, where firms have tended to set up international delivery centers in recent years.

The time difference alone between Southeast Asia and North America is an 11-13 hour time difference. For LATAM, there is only a 0-5 hour difference. While being in the same time zone does not need to be a requirement for picking a location to expand, having similar working hours can reduce the need for teams to work outside of normal business hours. While the 24/7 development cycle and coverage has been billed as a benefit for customers and companies, it’s pretty crappy for life balance.

It also makes collaboration and communication easier. If you’re a development team based in Dallas and need to have a regular standup meeting with teams in Bangalore, finding a time that works well for both teams can be incredibly difficult. Imagine that same Dallas team working with a team in Guadalajara and the increased ease of scheduling. Further imagine the travel time saved if you are traveling to meet your team in person.

Another big argument for moving into LATAM is access to highly skilled talent at a lower cost. While the total cost of a developer in LATAM is generally more expensive than in India, it is still lower than in the United States and most western European countries. It should be noted however that comparing costs can become very complicated as there can be wide variation between bill rates and salaries within a country and region, and this doesn’t take into account indirect costs.

Last but not least, LATAM is particularly interesting for cloud consultancies because some of the biggest cloud vendors — their partners — are already staking out a large and growing presence in the region. Major companies like Amazon are already major investors in the region, and several other cloud companies like Google, Salesforce, Twilio and Okta have already expanded into Latin American countries and see it as a big part of their growth story.

Major companies like Amazon are already major investors in the region, and several other cloud companies like Google, Salesforce, Twilio and Okta have already expanded into Latin American countries and see it as a big part of their growth story.

As with expansion into any new geography, it’s important to fully understand the regional nuances that will affect how you do business, run the business and work across teams. These include language barriers, cultural differences and regionally-specific work styles and communication methods.

Having leadership in these countries that speak the language and understand the cultural nuances is a must-have when it comes to recruiting, engaging employees, and building long-term success. However, it’s not just the leaders in these countries who have to be culturally aware, it’s also the leadership and teams working with these international delivery centers.

Understanding and being sensitive to local etiquette, work preferences, local customs, and holidays can help you make deeper connections with your LATAM team, and save teams from committing faux pas that might be embarrassing at the least, or at the worst, damaging to your reputation. However, learning those nuances takes time, too, and more than you might expect.

Local expertise can also help you understand the local talent market, know where the protected free market zones are, and navigate government regulations and labor laws, which vary by country. But staying abreast of all those rules is another piece that can require a greater time investment than you’d expect, even in a region that’s geographically close.

Why wait?

The steady flow of international investments into LATAM has never been greater, and LATAM economies have shown steady economic growth over the last 15 years. Despite the pandemic, the six largest LATAM economies actually performed better than expected in Q4 of 2020 and growth is expected this year. The earlier you can take advantage of what the region is offering, the more you have to gain.

If you have questions about what it takes to expand your business internationally, I’d highly recommend the series from Tercera advisor Jean Manaud around building a strategy for international expansion. If you are considering expansion into LATAM and think Tercera can help when it comes to capital or counsel, send our team a message here.

Finally, I’d like to take a moment to thank the talented professionals who shared valuable insights and experience that went into the writing of this article, including Darshan Deshmukh, Amit Dhadwal, Neale Wooten, Josh Smith, Victor Tapia and several others. Also a special thank you to Lizzie Foley, one of our Tercera summer interns who helped with research. It takes a village.

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