Emerging Markets Beware- Someone Is out to get your best technologist

U.S. industry has for decades cut the cost of software development by hiring H1B immigrants that come to this country to work or come to get an education and remained here to work.  Best known are the immigrants from India that are dominant on shore and off shore at providing software development services.   Today some emerging markets that are competing in the IT outsourcing market are following that model and opening their door to technical professionals outside their borders with invitations to come and work.

The U.S. has made it relatively easy for the top minds in technology to migrate here and work.  The current U.S. immigration law allows for 65,000 aliens to be issued a visa or otherwise provided H-1B status each fiscal year (FY). Laws exempt up to 20,000 foreign nationals holding a master’s or higher degree from U.S. universities from the cap on H-1B visas. In addition, excluded from the ceiling are all H-1B non-immigrants who work at (but not necessarily for) universities and non-profit research facilities.[1] This means that contractors working at, but not directly employed by the institutions may be exempt from the cap. Free Trade Agreements carve out 1,400 for Chilean nationals and 5,400 for Singapore nationals. Thus significantly more H-1B visas than the numerical cap are issued each year, with 117,409 in 2010.[2]

So what does this have to do with nearshore outsourcing in South and Central America?  The U.S. market is looking closer at nearshore outsourcing as a way to relieve time zone issues and to enable collaborative work using Agile and Scrum type methodologies for faster delivery and a few LATAM countries are stepping up to the challenge.  Chile, Peru, Costa Rica, and Brazil quickly come to mind.  However, in the case of the first three, these are small countries with limited technical resources.

Emerging markets are going to need technology professionals to support their development.  As industries develop and government entities expand their social roles, technology services become more and more in demand.  Most of these countries have a skewed distribution of wealth and as such many citizens have a limited access to a good education.  The future development of these countries is going to be governed by their access to technology and professionals that have the skills to implement it.  If multi-national corporations acquire most of the limited skilled work force, you can be sure that will cause problem for domestic companies and government projects.

Here is one version of the future that is not very hard to imagine.  As global corporations struggle to find skilled technical resources and increase their demand, skilled young professionals in places like Columbia, Guatemala, and Hondurans will start being identified as resources.  However due to historical negative images, these companies will choose to move the professionals that they find to more historically acceptable locations like Costa Rica, rather than opening a branch office in a riskier country.  Programmer salaries are about the same ever where throughout the region except Panama.  For the developer, an opportunity to live in a safer country with a similar wage is often an easy choice.  If you are not safe at home, money has little value.  Plus we are talking about a small area of the world that shares a Latin culture and it is easy to travel from country to country on visits back home.

Vision TRE is currently recruiting English speaking senior ASP.Net developers and Classic ASP developers to relocate from any place in Central or South America to Costa Rica to support our projects because of the growing outsourcing industry there.  If you have the skills and are interested in this opportunity send your resume to recruiter@visiontre.com.  English speaking technical professional with other types of software development of system support skills are encouraged to also send us your resume to be considered for future opportunities.

Posted in Near-Shore Government Policys, Nearshore in my Opinion! | Tagged , , , , , , , , | Comments Off

Brazil IT Outsourcing- What happened to the 2008 Gartner prediction

Sao Paulo can boast having the largest Java users group in the world.  Even beyond these two technology hubs there is Curitiba and Belo Horizonte, another two Brazilian IT hubs that are technology centers with Universities and large industrial complexes.   IT professionals are truly one of Brazil’s natural resources.

IT outsourcing countries usually provide a wage arbitrage that is attractive to corporations looking to cut cost.  These countries view IT services exports as a way to increase their GDP and to create higher wage employment opportunities for citizens.  In 2004 Vision TRE was contracting PL/SQL and Crystal Reports developers from Curitiba Brazil at less than $16.00 per hour.  Today the exchange rate difference alone would increase that to about $28 per hour ( 3 Reals to the Dollar vs. 1.7 Reals to the Dollar in 2011 ).

Today in Brazil, outsourcing buyers have to compete with the domestic Brazilian market for scarce resources.  The domestic market buyers do not share the same risk of exchange rate fluctuations that offshore buyers have.   Offshore buyers have little competitive advantage over the Brazilian domestic market for attracting skilled IT workers and usually have the added requirement of English.

According to the Brazilian Association of Information Technology and Communication Companies (BRASSCOM), Brazil’s outsourcing market reached USD $1.4 billion in 2008, a 75 percent increase that year alone. According to Gartner Research, “Brazil’s economic footprint, combined with the largest domestic IT consumption in Latin America, as well as international recognition as one of the most promising and rapidly emerging economies, makes it a natural destination to evaluate for IT services.”

But in 2007 the Brazilian Real started getting stronger against the dollar and in 2008 it was unpredictable.  Contracts valued in U.S. Dollars that were signed in January 2008 had invoices that rose in cost for the first three quarters of the year and then fell in cost the last quarter of the year just due to exchange rate dynamics alone.  At Vision TRE I felt more like an foreign exchange trader that an nearshore staff augmentation company.  My margin was eaten daily by exchange rate fluctuations and my clients were not eager to see rate increases to cover a weakening Dollar.

From my view the world has changed since the 2008 Gartner prediction.  In today’s world Brazil is a major consumer of IT.  At the end of the 1990’s the U.S. IT industry was booming, software developer salaries were raising, and demand was high.  IT professionals in the U.S. were at near full employment and offshore outsourcing started to grow in popularity as a way to cut IT cost.  Are there economic and industrial similarities in Brazil today?  Is Brazil really a destination for outsourcing or is she a future major market for IT outsourcers?

2008 Average Rates for USD to BRL
January 1.7697   July 1.59116
February 1.73372   August 1.60587
March 1.7056   September 1.77947
April 1.68632   October 2.15797
May 1.65839   November 2.24834
June 1.61728   December 2.38943

 

Brazil IT outsourcing offerings have got to now compete based on quality, creativity, ingenuity, and efficiency in a global market that is looking for cost savings.   It is hard to show cost savings when currency exchange rate dynamics make it impossible to predict what your cost will be.  It is equally as hard for suppliers in Brazil to price services aggressively in a risky exchange rate futures market.

The Dollar has gotten stronger against the Real since this summer’s lows, however in this type of market either the buyer or the seller is sure to lose their bet.

Posted in Nearshore in my Opinion! | Tagged , , , , , , | Comments Off

Brazilian Outsourcing Industy at Mercy of Exchange Rates

August – September 2011 has seen the Real weaken to a level not seen since July of 2009. This could be a turning point in the competitiveness of the Brazilian outsourcing market if this trend continues.

In the last month the Real has weakened against the dollar 15-20 percent and is still at a historically high level.  Brazil is an emotional market for exchange rates so only time will tell if this is a change in direction or just a glitch.  My interest is purely getting the most competitive pricing on nearshore IT outsourcing and for the past few years exchange rates alone have made Brazil much less competitive.  Should the weakening trend continue and the Real weaken to more than 2.00 Reals to the Dollar, contracts billed in Reals become much cheaper.   A 50% weakening of the Real could bring IT outsourcing bill rates down to the teens or low twenties in Dollars per hour rather than high twenties and into the thirty plus Dollars per hour seen today.

It is hard to predict, which adds a lot of risk to the buyer and seller of Brazilian nearshore IT outsourcing services.  One thing is for sure, Brazilian Real exchange rates above $R2.00 to the $1.00 would be a game changer in Brazil being price competitive with Asian and Eastern European outsourcing destinations. Brazil IT would once again be able to add price as a benefit along with time zone and great quality!

 

Brazilian Real Exchange Rate Chart

Brazilian Real Exchange Rate Chart by YCharts

Posted in Near-Shore Market Forecast, Nearshore in my Opinion! | Tagged , , , | Comments Off

High Risk of Lean Nearshore IT Teams

Problem: Foreign vacation labor laws and poaching by competitors create a risky environment for lean nearshore IT teams

Situation: A U.S. media company contracted with Vision TRE to setup a nearshore business intelligence team in Brazil. Thirty day vacation laws and corporate poaching crippled the team during a critical period of development.

“Subject: Out of the office on vacation

I will be on vacation traveling from July 1st, 2011 through July 29th, 2011. For urgent issues, please contact Elisangela Costa a.costa@anycompany.com.br, at 55-41-0000-0000.

Regards,
Alberto S.
Project Team Lead / DBA

P.S. – Good Luck !”

If you have a team of 4 developers in Brazil working on a project that has a critical delivery date, your project plan must consider the fact that each team member that is an employee has a legal requirement to take a 30 day paid vacation every year. This is not two 15 day vacations or 3 ten day vacations, it is 30 consecutive work days, over a month away from your project! Brazilian law will allow the employee to sell 10 days back to the employer but this still leaves you without that resource for at least 4 weeks which makes them almost like a new hire when they return.

For some types of projects this may not be as big an issue, however if you have a lean team composed of a senior team leader, DBA, senior developer, and front end developer for example, working on an initiative with an aggressive deadline, this can create a major constraint.

Corporate software development initiatives often require knowledge of the companies business processes, corporate data structures, and business rules. Vision TRE recruited a senior BI professional in Sao Paulo last year for one of our client’s teams. This person had the experience they were looking for in development of marketing campaign management solutions and hard to find Unica, Oracle, and MS/SQL skills. The client immediately brought this person to Washington D.C. for 3 weeks of orientation and meetings with their IT and Marketing staff. They then worked with him for 7 months remotely in the design and development of the application. The other 5 to 6 members of their offshore team with Vision TRE were located in Curitiba Brazil and were tasked with other development and support requirements.

Project initiation, requirements analysis, and application design phases do not tend to stress the corporate IT software development lifecycle process. The deadline driven construction, testing, and project production release phases are the ones that end careers or send your staff looking for other opportunities. This project was no different. Problems with the design and issues with the requirements that were discovered in the construction phase caused delays in construction which management blamed on IT. The cost went up with every month of delays and then the unexpected but inevitable happened, the lead solution designer from Sao Paulo was recruited by another company. They made him a career boosting offer he could not refuse.

This was a lean project with limited documentation required and very little was created. A lean group with no independent test group, no code reviews, and limited technical design documents. Like many organizations working on tight budgets, they were moving fast and depended on the knowledge in a few individuals heads. But loosing this resource meant more than loosing technical skills. The client under estimated the campaign management knowledge domain of how campaign management solutions operate and the ability this senior solution designer had in conceptually understanding business requirements, business logic, and data flows. He wrote code but his value even in the construction phase was not in coding. He could not be replaced with another coder no mater how experienced. His knowledge of their business gained over 7 months would certainly take months to gain by any replacement.

The lesson here is when you have a project that is dependent on one key person, understand your risk and help your stake holders that are funding your project understand their risk from the beginning. This project could have been a success if the lead person did not leave for a better job opportunity or more infuses were put on documentation as a safeguard.

When you hire talented IT professional for small project teams, it is never a question of if they will leave, it is always a question of when. If you staff a project in countries with labor laws like Brazil, the law states that they must take at least 20 consecutive days of vacation every year and there are no exceptions made to help you meet your project goals or objectives.

Posted in Nearshore in my Opinion! | Tagged , , , , | Comments Off

Will Brazil be a global buyer or seller of IT outsourcing services?

They were late coming to the game and it looks like they will be early leaving.  The Brazilian IT industry as a source for global outsourcing buyers appeared to me to be a good bet several years ago.   In 2004 I was contracting low cost senior developers and project managers in Curitiba Brazil at billing rates that were under $20 per hour.  Prospects in the U.S. were always amazed if not amused with disbelief when I offered them ITO services out of Brazil with benefits like low cost, similar time zones and culture.  That was then and this is now a different day.   Once Brazil got global visibility as an outsourcing destination we had the global financial collapse almost every place except Brazil.     Speculators and investors flooded Brazil with investment dollars driving the Brazilian Real exchange rate from a norm of 2.5 to 2.0 to the Dollar a few years ago, to today’s norm in the range of R$1.6 to the Dollar.  At the same time tremendous growth in Brazil is driving inflation up so pressure on salaries follow which further increases cost.  

Talking with partners at IT companies in Brazil they complain about problems finding skilled professionals and the way salary demands are going up.  I tell them that it sounds like the booming IT industry in the U.S. during the mid-1990’s.  The churn rate is also getting higher because large companies including Wipro, IBM, and CSC to name a few, are entering the market competing for IT talent, not for outsourcing but for projects supporting the Brazilian market.  If you are planning to outsource out of Brazil you are going to be competing for scarce English speaking professionals, something the large multi-nationals that are in or entering the Brazilian market, are also competing for.

The Brazilian government puts a 15% tax on all foreign payments which discourages Brazilian companies from buying services abroad, however with the Dollar decreased in value 20 percent to the Real over the last year alone, this more than compensates for the 15% tax.  A shortage of affordable IT resources fired the thirst for outsourcing by U.S. companies in the late 1990s.  I predict a similar pattern is coming to Brazil and it will not be long before you see Brazilian companies at IT outsourcing seminars as buyer instead of sellers of services.

Posted in Near-Shore Market Forecast, Nearshore in my Opinion! | Tagged , , | Comments Off

Brazil’s Real stole the nearshore opportunity

I wonder how many markets the strong Brazilian exchange rate has lost for Brazilian exporters of good and services this year?   As a buyer of nearshore software development services from Brazil I have seen my cost go up month after month, not due to my supplier raising prices, simply due to the exchange rate.  

Vision TRE started supplying nearshore software development services to U.S. client out of partner facilities in Brazil back in July 2004 when the exchange rate was about 3.04 Reals to the Dollar.  Although developer salaries in Brazil have gone up due to the high domestic demand in Brazil, this increase is nothing compared to the 89% increase in cost simply due to the difference in the exchange rate from 2004 to today.

If we could turn the exchange rate back to even the January 2005 level of 2.61 Reals to the Dollar, Brazil would be one of the most competitive offshore destination for software development with prices near  India levels.  If you say an average offshore Brazilian software developer bills at R$ 40 per hour at an exchange rate of R$2.61 to the $1.00 that would equate to billing at $15.33 per hour.  But at the current exchange rate of R$1.61 to the dollar the same developer is billing at $24.84 per hour for the same service.

Brazil is not price competitive in the nearshore market anymore.  When they were Brazil was not a player in outsourcing.  By the time they because a player the global rate of exchange for the Real has killed what could have been a huge market for Brazil and a great source of technical resources for the U.S.

Posted in Near-Shore Business Activity, Near-Shore Market Forecast | Comments Off

Peru’s central bank keeps interest rates unchanged at 3%

Lima (ANDINA). The Central Bank of Reserve (BCR) decided to keep its benchmark lending rate unchanged at 3% for a third month as falling prices allow policy makers to gauge the effect of US stimulus measures and surging inflows of dollars.

In May, the BCR increased its rate from 1.25 to 1.50 percent, in June from 1.50 to 1.75 percent, in July from 1.75 to two percent, in August from two to 2.50 percent, and in September from 2.50 to three percent and in October it kept it a three percent.

Peru’s central bank explained the move is based on the recent performance of local inflation and its determinants.

 Click here to read more.

Posted in Near-Shore Government Policys | Comments Off

China, Costa Rica Sign Trade Treaty

BEIJING – China and Costa Rica on Thursday signed a free trade treaty that will give the two countries greater access for their products in each other’s markets and is of strategic importance in that it brings the Asian giant closer economically to Central America, a region where many of the governments are aligned with Taiwan, which Beijing views as a rebel province.

The accord was signed here by the commerce ministers of both nations, Marco Vinicio Ruiz and Chen Deming, and it is the third such agreement that China has inked with Latin America, after those signed with Chile in 2006 and Peru earlier this year.

Click here to read more..

Posted in Near-Shore Government Policys | Comments Off

Shared Services Week 2011

The 15th Annual North American Shared Services & Outsourcing Week represents the next big wave of innovation in the shared services and outsourcing space. You will meet and network with the very best thought leaders, practitioners, providers and advisors in the shared services and outsourcing space, connecting with over 1,000 senior level attendees from various sectors all over the region.

Click here to read more.

Posted in Near-Shore IT & BPO Events | Comments Off

US offshore outsourcing of R&D: Accommodating firm and national competitiveness perspectives

In the United States (US), the policy debate surrounding offshore outsourcing of ‘white collar’ service jobs, many of them high-paying, professional and technical positions, has recently focused on an area having potentially serious consequences for America’s long-term national competitiveness: the business strategy of offshoring firm research and development (R&D) activities of critically important industries, such as information technology (IT) and pharmaceuticals

Click here to read more.

Posted in Near-Shore Government Policys | Comments Off