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Despite economic uncertainty, Latin American companies should resist the temptation to offshore services for immediate and short-term cost savings and instead look at nearshoring business processes, which can lead to productivity gains in the long run, according to Blanca Treviño (pictured), CEO of Mexican IT giant Softtek.
Speaking to journalists during a visit to Chile, Treviño said that China and India have emerged as strong offshoring destinations due to their competitive labor and production costs. However the flip side is that the very low salaries mean high workforce churn, often above 50% annually.
"This means you have to constantly replace and train your labor force and that makes it much harder to commit and provide a quality service to your clients," Treviño said in response to a question from BNamericas.
The concept of nearshoring refers to shifting outsourced business and IT processes to nearby countries that share similar geographic, time zone, cultural, social and linguistic characteristics.
On the other hand, offshoring involves shifting work to a foreign, distant location in order to reduce production costs. The downside includes time lag and differences in employment laws and practices.
According to Treviño, for Softtek, shifting to a nearshoring model meant trying to scale back costs since it had to pay higher salaries, but that the benefits paid off.
Increased face contact meant more control of projects, as well as reduced exposure to threats such as intellectual property theft and fraud.
"We didn't change to a nearshore model in order to be in the same time zone, but to be more productive," Treviño said.
Despite lower labor costs in the offshore model, companies often have to contract more staff in their home county to travel and oversee operations abroad and that ends up being more costly in the long run.
Following the enactment of the North American Free Trade Agreement (NAFTA) in 1994, in 1997 Softtek pioneered the nearshore model, opening the first global delivery center in Latin America in 1997. It now has 15 worldwide, in the US, Mexico, Brazil, Argentina, Costa Rica, Spain, China, Hungary and India.
Treviño underscored US President Obama's recent decision to bring automobile manufacturing back to the US from Mexico and how that has created 500,000 jobs in the last five years.
While recognizing the benefits of offshoring, Treviño also sang the praises of free trade and free trade agreements, saying that without NAFTA, Softtek could not have grown like it did.
Today the US accounts for more than 50% of Softtek's revenue for its services, which include: application software development, testing, security, business process outsourcing (BPO) and IT infrastructure management.
Treviño praised Latin American companies that have gone global, including Chilean systems integrator Sonda and Brazilian multibillion investment firm 3G Capital, which owns or has major stakes in companies including Burger King, Kraft Foods and Anheuser-Busch InBev.
Treviño has been named as one of the 10 most powerful women in Mexico by Forbes Magazine, and is a board member of various organizations and universities, including Wal-Mart Mexico. She is also a frequent speaker at forums held by the World Bank, The Inter American Development Bank, Kellogg School of Management and Harvard Business School.
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