Staying ahead of the inflation curve

Friday, February 18, 2011

As regional economies continue to sizzle, the ghost of inflation is undoubtedly rearing its ugly head in Latin America. Although far less severe than the hyperinflation recorded in the 1980s and early 1990s, price increases have executives squirming in such segments as IT outsourcing.

Argentina has reigned as one of Latin America's top global IT hubs. But, have the government's blind eye toward inflation and the rise of other regional countries set the stage for a changing of the guard? How attractive is Argentina for nearshore services even as prices continue to rise?

BNamericas caught up with US IT services firm Cognizant's Argentina country manager, Cristián Argüello, who broke down inflation jitters, as well as the company's plans for regional service and delivery center expansion.

BNamericas: How much did Cognizant grow its Latin American revenues last year, and what were the main growth drivers?

Argüello:  Cognizant has put significant focus on Latin America in terms of a place where services can be delivered and regional business opportunities can be sought. We posted a year-over-year growth rate that was similar to global figures at about 40%. Nearshore services - basically exporting services from Latin America to our clients in North America - continued to drive growth.

But we started new business areas that will receive more focus in 2011. These are infrastructure services, network management, the administration of servers and databases, and also BPO. These services will have a significant impact on our growth in 2011.

We continue to strengthen our relationship with clients that receive Cognizant services in other global regions. Many of our clients have presence in Latin America, and we're trying to accompany some of them in this region. Additionally in 2010, we rolled out specialized services for the banking and financial services sectors.

BNamericas: How many Cognizant clients receive services from Latin America today?

Argüello: Due to confidentiality agreements, we cannot name clients. But today we're serving more than 20 clients throughout Latin America in at least six different industries. We have grown significantly in the pharmaceutical industry, where we have six of the 10 largest laboratories in the world. We're providing them services from Argentina. I already mentioned BPO, and some of them will be tailored to this very industry.

BNamericas: How did 2010 stand out in comparison to previous years?

Argüello: In Argentina, we were able to strengthen our relationship with global clients in their regional operations. We also strengthened the local management team, allowing us to better offer our services to global clients.

BNamericas: Will Cognizant open new delivery centers in Latin America this year?

Argüello: Argentina will continue to grow as the main delivery center, but we're also eyeing Brazil and Mexico as places from which we can deliver services. Our operations in Brazil will probably have a bit more of a focus on the domestic market, but these are issues that we are analyzing.

The countries where our global clients have business - Brazil, Mexico, Argentina and Chile - are where we have the biggest business opportunities.

BNamericas: But does Cognizant have any concrete plans in these regards?

Argüello:  In Brazil, yes. We already have a delivery operation; we are strengthening it and turning it into a proper delivery center. We have significant operations in Brazil through work that we do in the country with some of our global clients. We want to consolidate our delivery center there.

BNamericas: Where is it located?

Argüello: Today, we are basically providing services in São Paulo. Consequently, we're looking at different places in or close to that city.

BNamericas: What will the center's focus be?

Argüello:  Initially today, traditional IT services are what we're offering.

BNamericas: Last year, Cognizant representatives came to Chile and visited government officials as part of a Nasscom trade mission. What ended up resulting from that trade mission?

Argüello:  We established ties with possible partners with whom we are still trying to close agreements today. Regarding our conversations with the government, we got an idea of what benefits and incentives it was offering the IT industry. But we're focused on business opportunities that can be developed together with potential partners.

BNamericas: How close is Cognizant to formalizing such partnerships?

Argüello: We're in the initial stage of starting conversations. It's nothing advanced.

BNamericas: Overall, what are the most significant business opportunities that Cognizant is seeing from Latin America this year?

Argüello: In 2011, we will be seeing the most significant growth proportionally in nearshore services. There will be a significant surge in infrastructure and BPO business areas. They will be growing about 400% this year because they currently account for a small percentage of our service line.

Today, we have clients in the financial and pharmaceutical sectors with clear requirements for those types of services.

BNamericas: How is Cognizant dealing with inflation in Argentina?

Argüello: It's always challenging when costs rise. We're obviously keeping close track of this. Without a doubt, there has been a rise in prices, and we have to compensate for that with other increases in productivity and cost improvements.

We are taking measures accordingly. We're focusing on high value-added services that allow us to optimize our cost structures and processes. It's an area that we have to follow closely. We have to seek cost improvements in infrastructure, human resources and the services that we offer.

BNamericas: Is inflation threatening Argentina's reputation as an IT service hub?

Argüello: I wouldn't describe it as a threat, but rather as a future business risk. But I think Cognizant has to focus on the things that can allow the company to distinguish itself more so than cost. Cost is an element that all of our clients are always going to consider. But, if our services are of high quality and productivity, the costs improve. Without defining inflation as a threat, I admit that it's an area of concern.

BNamericas: Would inflation in Argentina have nearshore prospects from regions such as Europe or the US looking elsewhere when it comes time to outsource?

Argüello: I can respond to that question through the viewpoint of Cognizant's business model. We're accustomed to designing solutions for clients whereby we integrate our presence in high-cost locations such as the US with lower cost locations such as India. Argentina is included in this global model.

Although the inclusion of Argentina helps to reduce costs, the global model tends to be effective for clients. In this model, Argentina is not everything; it's only a portion.

If all services are delivered directly from Argentina, then in that case, it's possible that the client would be considering other countries in Latin America. Still, today in Latin America, there are not a lot of countries that can combine the availability of talent with competitive costs.

In the future, there are some other countries that can become players in this global market because they have good talent and reasonable costs. Such is the case with Colombia, for example, or Peru. Perhaps the talent pool in Peru is not as large as in Colombia, but it still has potential to participate in this market.

Cognizant seeks to attain a global presence to serve clients in different places, and also to have access to talent in those places. We can't rule out the possibility of seeking out talent in other countries that can be part of a solution for clients.

BNamericas: Can you confirm Cognizant's Latin American growth projections for this year?

Argüello: Our global growth is estimated at about 26%. Last year, we grew 40% at both the global and Latin American level. In 2011, we are going to grow at least as fast as the global rate, and our expectations are higher than that, perhaps approaching the growth that we saw last year.

About Cristián Argüello

Cristián Argüello has more than 20 years' experience in the IT industry. Before assuming his current post, he worked for EDS and Telecom Argentina.

The executive has a degree in computer science from Argentina's Universidad de Buenos Aires and a master’s degree in management of telecommunications and information technologies from the Universidad Católica de Argentina.

About the company

With global sales of US$4.59bn in 2010, Cognizant is a provider of information technology, consulting and business process outsourcing services. The firm has more than 50 delivery centers worldwide and some 104,000 employees. In Latin America, the company has a delivery center in Argentina's capital, Buenos Aires.