According to a recent report, more than 66% of US companies now outsource at least part of their business operations. And this trend is gaining momentum because of the benefits of outsourcing. According to a recent Deloitte survey, 63% of companies see outsourcing as a way to reduce costs, and 65% as also a way to free up time to focus more on their company’s core functions.
Thanks to the optimal location and similar time zones to the US, among other benefits, countries in Latin America are taking center stage as top nearshore outsourcing destinations for US-based companies.
In this article, we cover everything you need to know about nearshore outsourcing to Latin America, the benefits of doing so, and which particular locations in the region have the best potential for nearshoring.
Why Is Latin America a Top Nearshoring Destination for US Businesses?
Latin America has emerged as a popular nearshoring destination for US companies. The region demonstrates some irrefutable advantages, making it an attractive alternative to traditional outsourcing destinations like China, India, or Eastern Europe. Below, we explore why US businesses should consider nearshore outsourcing to Latin America (LatAm):
Similar time zones
Unlike the popular far-off outsourcing destinations like India, China, or Eastern Europe, the time zone differences between LatAm and the US are almost negligible. LatAm countries have a two-hour or less difference ahead or behind EST.
This time compatibility means that you’ll benefit from almost an entire working day of overlap with your nearshore outsourcing team and, therefore, from more real-time interaction and more efficient communication that ultimately leads to better results.
A high percentage of the population of Latin America has advanced English levels, especially workers in the tech industry. Countries such as Argentina, Costa Rica, Chile, Brazil, and Mexico have some of the highest English proficiency levels in the region, according to the English Proficiency Index (EPI), with many others showing an upward trend in improving their English skills.
English Proficiency Index for selected cities in Latin America in 2021
This trend shows that US-based companies can be confident in their nearshoring partner’s ability to communicate effectively in English and easily understand technical jargon and industry-specific language used in the US. Eliminating these language barriers can facilitate better collaboration and reduce misunderstandings or delays—both of which can significantly increase the cost of projects, especially when they are vital components of a larger project.
LatAm workers are described as hardworking. They are willing to put in long hours to meet deadlines and achieve goals—a characteristic that aligns well with the work culture of US companies, which is typically focused on high productivity and results-driven performance.
In LatAm, workers also have a strong work ethic and have adopted a preventive mindset. They are comfortable speaking up and addressing issues early on and are willing to offer suggestions and make adjustments as needed, which can lead to more efficient and effective collaboration.
According to the IMF, many Latin American countries are struggling with high inflation. This has resulted in weaker currency values compared to the US dollar and difficulty in workers finding stable employment. Understandably this makes LatAm talent very grateful to find a job that pays in USD and work harder to keep it.
This situation creates an opportunity for US companies. They can increase their profitability by accessing a highly skilled and efficient workforce dedicated and committed to delivering quality work with lower labor costs. It creates a win-win situation: the US company saves on their wage bill, while the LatAm workers receive a wage that is fair (and perhaps even quite generous) for their cost of living.
Which Particular Locations in Latin America Have the Best Potential for Nearshoring?
Latin America has been proving to be an ideal investment, with many governments investing billions in innovation, education, and social growth, making the region an attractive financial and business environment.
In a 2021 report, Mexico, Brazil, and Argentina ranked high in the top 50 countries in the world with friendly financial and business environments and great availability of skilled professionals.
We examine below why these countries are the best for nearshoring your business operations and finding the right candidates.
Mexico is becoming an increasingly popular outsourcing destination for US businesses due to a combination of factors.
The country is very close to the US in terms of time zones (EST–MST) and physical location, which means there is minimal disruption to communication and collaboration between the two countries. Visiting on-site is relatively easy and cost-effective.
Mexico also has a large pool of talented candidates with an advanced level of education and English proficiency. Many Mexicans have been exposed to English since a young age, and some even studied in the US. This eliminates the language barriers that US businesses might have struggled with when outsourcing from countries with a lower level of English proficiency, making collaboration smoother and bridging communication differences.
The government has also implemented initiatives like CONACYT and MexicoFIRST to boost the IT sector, which has led to Mexico ranking number 13 on the Top 50 Digital Nations List in 2021 and up-leveled the country to a rich resource for hiring nearshore developers.
In terms of labor costs, despite Mexico’s minimum wage increase in 2021 to USD 7.03 per workday, the outsourcing cost is still significantly less than the US local market.
Argentina is best known for being a reliable source of talented software developers. In recent years, its software industry has seen significant growth. As of 2018, the number of software engineers has passed 114,000, and over 30 blockchain start-ups and tech companies have been registered, transforming Argentina into a thriving technology hub.
In 2019, Coursera’s 2019 Global Skills Index ranked Argentina as the number one country in the world with emerging software engineering skills, making it one of the top destinations for nearshore software development.
The software development sector from the region has grown in revenue too. According to Statista, the total revenue generated was almost USD 1.9 billion in 2021 and is expected to double by 2026.
Revenue of the software industry in Argentina from 2016 to 2026, by segment
Besides being an attractive option to outsource top talent and augment your tech department, you can also leverage a low-cost labor market from Argentina. The inflation is so high (it hit 102.5% in February 2023) that many professionals are willing to work as a contractor (being paid in USD), even if it means giving up legal benefits such as local holidays, healthcare, and aguinaldo (the 13th salary).
Brazil is best known for its prestigious universities and for introducing a significant number of highly-educated young professionals to the business market each year. A total of 11 Brazilian universities rank in the top 50 BRICS universities.
Similar to Mexico and Argentina, Brazil also boasts a massive pool of talented candidates and a highly developed technology sector. Currently, US businesses can tap into a talent pool of over 500,000 Brazilian software developers and other qualified tech specialists without paying astronomical rates.
This reliable pool of IT talent translates into low attrition rates, making it easier for US businesses that are outsourcing to find and retain experienced and qualified professionals. High retention is advantageous in terms of project continuity and quality, and, of course, cost reduction—companies don't have to spend as much time and resources on recruiting, hiring, and training new employees.
In the same context, Brazil offers tax reductions to encourage innovation and attract more international investors. One of the most well-known tax reductions is "Lei do Bem" (Good Law), which provides tax deductions for research and development (R&D) activities. Companies that invest in R&D in Brazil can reduce their taxes by up to 34%.
Companies outsourcing from Latin America, particularly small and medium businesses, can benefit from a large pool of talent, low-cost labor (30–70% below the US market), time zone and location proximity, and a consumer market growing by the day.
LatAm workers have a strong work ethic. They are willing to put in long hours to meet deadlines and achieve goals, which aligns particularly well with the productivity-focused work culture of US companies.
As mentioned, if you're considering nearshoring your business operations, Mexico, Brazil, and Argentina are the top destinations to look at due to their skilled talent pool, English proficiency, and business-friendly environments.
Want to learn more about what workers from LatAm can do for your business? Read this case study to learn how Dry Line Partners, an equity firm from San Antonio, Texas, grew their start-up exponentially with the help of a private equity analyst from Argentina.
Are you convinced nearshoring to LatAm is the right solution for you? Check out our list of the 14 best nearshore outsourcing companies for US businesses or the best executive search and recruiting firms in LatAm to find out how to find the best talent.
Or fill out this form, and we'll present you with a list of pre-vetted candidates you can interview for free.