Latin America is quickly becoming a prime outsourcing destination for the US-based companies taking the spotlight from such countries as India and China. As the global tech market finds itself in shambles after the 2022 tech crash, Latin America is expected to become the number one nearshoring destination for the US and Canadian enterprises. So, what does 2023 bring for the custom software development nearshoring in Latin America, and why should you turn your eyes towards this destination?
Nearshoring is projected to generate $78B in export for South America in 2023, and this drastic growth will surely touch the IT sector too. What does that mean for the US-based businesses that have been outsourcing their operations to far-off destinations and what benefits does that trend bring? Let’s find out.
The 2022 tech crash and the search for solution
According to the data from S&P500 and Dow Jones Indices, the global 1-year return on the technology sector was -24.04%, which is the lowest it has been since the dot-com bubble of the early 2000s. The so-called tech crash of 2022 has not been a total disaster for the tech market, but it sure made executives rethink their approach to running a business. Subsequent layoffs across companies like Tesla, Microsoft, Apple, Meta, and more point at the industry’s giants scrambling to save costs.
Cost reduction is reasonable in times of recession, and thus it is only natural that businesses around the world look for new ways for cutting costs and saving money. Outsourcing has long been a natural solution to that problem, but as the tensions among the global powers rise, businesses look for alternative destinations to delegate their operations.
That is where nearshoring to Latin America comes into the picture. For US-based companies, the region offers a number of convincing benefits relative to traditional outsourcing destinations such as China and India. Let’s take a closer look at what makes nearshore outsourcing to Latin America an attractive option.
What are the benefits of nearshore outsourcing to Latin America?
The global events put a big question mark on the ways companies run their operations. The global economy, including the tech sector, is headed toward a recession. Whether it’s going to be a big one or not is yet to be seen, but it is always a good move to make the right decisions ahead of time.
Nearshoring to Latin America is not a new thing, but it has been largely overlooked by North American businesses due to the old ties to China and India as the global outsourcing hubs. Here’s what Latin America can offer in terms of tech nearshoring:
- Close time zones and close geographic proximity. Traditionally, outsourcing to far-off countries is associated with considerable communication delays due to time zone differences. Working with outsourced teams in Asia has been a popular solution to the cost-reduction problem for more than two decades now, but it has also been largely inconvenient for companies that rely on perfect and on-time communication. Nearshoring to Latin America eliminates that problem since the time zones across South America almost perfectly coincide with the time zones across North America. Also, geographic proximity makes on-site trips much more convenient.
- Vast talent pool. Latin America is home to roughly a million IT experts, mostly situated in Brazil, Mexico, Argentina, and Colombia. Having access to such a vast number of expert developers right at your doorstep allows you to expand and augment software teams fast and easily while maintaining the cost-efficiency of the whole process.
- Accelerated development time. By cutting the recruitment time and eliminating communication delays, you can accelerate the development speed for your software development project. Add a reliable nearshore development partner who has a good track record of successful project delivery to that, and you are guaranteed to accelerate the project development.
- Reduced dependence on established outsourcing hubs. As mentioned, India dominated the outsourcing market for decades, and now you have access to numerous more locations across the globe where you can hire expert developers for your software project. In the 2010s, the industry has seen the rise of numerous outsourcing hubs in Eastern Europe, and in the 2020s the trend continues with more US-based businesses turning their eyes toward Latin America.
- Cost-efficiency. Outsourcing in general has always been about cutting the cost of production and development. The same goes for nearshore outsourcing in Latin America. Lower average wages across the region allow US-based companies to hire proficient developers and equip their teams with world-class talent at a reasonable rate.
Read more: Nearshore software product development: how to make the most of it
What makes Latin America the perfect destination for nearshoring
Latin America is a region of growing economies – such countries as Brazil, Mexico, Colombia, and Argentina have been showing strong economic and social growth over the past years. Making an emphasis on the modernization and digitalization of industries, the national governments invest billions trying to turn their countries into the next Silicon Valley.
Strong and growing tech population
Latin America is a developing region where many countries show consistent growth in terms of wealth and social standards. This includes a rapid modernization of the industries and a growing number of tech experts across the region.
The four biggest technology hubs have naturally formed in the region’s most populous countries: Brazil, Mexico, Colombia, and Argentina. Of course, the number of IT experts in each country correlates with the size of the general population, and the rough distribution of talent across the region is as follows:
- Brazil – 500,000 developers;
- Mexico – 225,000 developers;
- Argentina – 115,000 developers;
- Colombia – 150,000 developers.
Rising industry giants and unicorns
Similar to the number of tech experts, the number of tech companies across countries correlates with their total population. The total number of tech companies across the four largest countries is the following:
- Brazil – 260+ companies;
- Mexico – 430+ companies;
- Argentina – 370+ companies;
- Colombia – 350+ companies.
The region attracts American tech giants such as Apple, Google, Amazon, Microsoft, and other big companies. European companies, including N-iX, have also gained a considerable foothold in Latin America. N-iX, a global software development company expanded its presence to Medellin, Colombia to provide its US partners with access to a new talent pool nearshore.
The region’s own tech startups such as Rappi and Habi in Colombia, CloudWalk and Cargo X in Brazil, Aleph and Bitfarms in Argentina, and Kavak and Bitso in Mexico have become unicorns. Overall, by 2022, Latin America had 50 companies valued at $1B and more.
Growing reputation and government initiatives
The tech industry is on the rise in Latin America, especially considering the growing role of manufacturing, financial, and energy sectors across the region. This growth is recognized by the international tech community as LATAM countries get ranked higher and higher with every passing year in different ratings.
For instance, Kearney Global Services Location Index put Brazil, Mexico, and Colombia at 5th, 11th, and 13th place respectively based on such metrics as the country’s financial attractiveness, business environment, people skills and availability, and the new digital resonance.
The national governments across the region also take initiatives to attract foreign capital and boost the digital sector. Thanks to these initiatives, digital export in such countries as Argentina, Brazil, Chile, Colombia, Mexico, and Uruguay is expected to generate over $140B a year by 2030 compared to $34B this year. The initiatives targeted at the digital export that come from within make nearshore Latin America a reliable destination for North American businesses.
Read more: A fresh take on agile nearshore software development
How to find a reliable software development partner in LATAM?
Now that we’ve established the overall situation in the regional tech market, it is time to look at the practical side of nearshoring to Latin America. How do you approach that process in the first place? Here are the essential steps you must take to select the best technology partner for nearshore in Latin America:
1. Research the available options
First and foremost, you need to see the available options. Go to global ranking websites such as Clutch to see what companies work in the region and what types of services they offer. Such websites allow you to search and filter potential partners by size, location, area of expertise, and other characteristics. Ranking websites will help you narrow down your search list and pre-select the vendors who correspond to your requirements. From there on, you can go deeper and start to research each of the shortlisted vendors providing nearshore outsourcing in Latin America.
2. Check their portfolio
After you have shortlisted the potential vendors for your technology project, the best idea would be to see what types of projects they’ve worked on in the past. What you are looking for is a partner who has already delivered many different projects to a good number of clients across different industries. You need a partner who has experience providing a wide range of services to the clients in your industry and delivering services to the clients in your country. Preferably, you want to research their portfolio to find out whether they have worked on projects similar to yours. That way you can be sure they have the right experience and expertise to address your needs.
3. See the client reviews
While checking a portfolio of your potential partner for nearshoring in Latin America, see what companies they have worked with before. See what those clients have to say about their partnership with the vendor. Usually, you can find many real comments on rating websites. These comments will give you a good impression of the vendor’s professionalism and skill. More so, you can contact the clients directly and ask them about the vendor’s pros and cons. That way, you will be able to cut your vendor list even shorter leaving you with just a couple of candidates to choose from.
4. Expand and diversify talent outreach
Nearshore outsourcing in Latin America opens access to a vast talent pool, but this talent pool is distributed among four major hubs like Argentina, Colombia, Mexico, and Brazil, as well as smaller countries like Chile, Uruguay, and more. Overall, you are looking at more than a million developers in the region, and you need to partner with a vendor who can hire developers across Latin America. For instance, N-iX operates a development center in Medellin, Colombia but works with technology experts across the region. This allows us to pull top talent up from different countries and guarantee access to the best developers for you.
5. Select the right partner
Upon finishing all of the steps above, you will be able to narrow your search list down to just a couple of candidates and make the final choice. Contact your potential partners, talk to them, ask them all you need to know. Do not hesitate to discuss engagement models. Do they offer team extension services, can they set up an entire development team nearshore in Latin America? You need to know whether they are capable of delivering the results you need, so go for it, and ask all you need to know.
Read more: Software team nearshoring: here's how to expand your development horizons
How N-iX expands your capabilities thanks to nearshoring in Latin America
N-iX is a global software development company that’s been on the market for more than 20 years, and we have worked with hundreds of clients across such industries as manufacturing, automotive, logistics & supply chain, healthcare, and more. Our presence in Medellin, one of the biggest IT hubs in Latin America, allows us to hire the region’s top talent. Armed with experience and tech expertise, our team can handle projects involving any level of complexity.
Our team works with all types of programming languages and offers expertise in technology consulting, Big Data, Embedded and IoT, AI, Machine Learning, Data Science, and more. Having a reliable technology partner by your side can mean the world of difference for your project, and N-iX is here to make that difference.