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In recent years, we have witnessed a positive shift across Latin America in how U.S. companies approach team planning. The trend of nearshoring, which involves hiring workers closer to the market of origin, is gaining ground over offshoring, which consists of contracting suppliers in a different region of the world from where the client is located.
This trend has emerged due to the labor shortage in the U.S., leading companies to explore closer alternatives to meet their talent needs.
The scenario for the coming years is as follows: by 2030, there will be a deficit of 4.3 million professionals in the IT industry, with 1.2 million of those in the U.S., according to international consultancy Korn Ferry. This will significantly impact the economy, considering that 5.4% of the global GDP is generated by technologies and mobile services (GSMA, 2023).
Countries across the region like Argentina, Brazil, Chile, Guatemala, Mexico, Uruguay, and others are growing as attractive destinations for U.S. companies seeking to hire talent in various disciplines, mainly in technology.
Nearshoring and Offshoring: Different Outsourcing Models
The outsourcing model we are most familiar with is offshoring, which is the subcontracting of services in a country where production costs are significantly lower.
Offshoring's main advantage is cost savings, but it also presents some drawbacks:
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Collaborating with a company in a very different time zone makes communication difficult.
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Cultural and language differences can be a significant barrier.
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Compliance with European regulations can be more challenging to achieve.
Thus, this model implies greater cost savings but also considerable difficulties in coordinating work teams and a certain loss of control over production. Additionally, transportation costs have increased.
New forms of outsourcing tend to seek collaborating companies headquartered not too far from the company that hires them. This trend is known as nearshoring, which means subcontracting in relatively nearby countries.
Nearshoring benefits from lower production costs without the inconveniences of physical, political, and cultural distance.
Reasons for the Shift Toward Nearshoring
The globalization boom and the technology explosion we witnessed in the 1990s gave rise to a new economy based on producing at the lowest possible cost, both for electronic components and chips as well as other consumer goods.
Lower shipping costs, improved communications, and geopolitical circumstances led to Asia, especially China, becoming a major international production hub.
Production was outsourced, driven by the low labor costs of distant countries. This offshoring model also benefited Asian economies. Over time, the gap in labor costs between countries narrowed.
The pandemic was a major lesson: it is not profitable to outsource all production thousands of miles away because control can be lost. More recently, the energy crisis has added to the reasons for favoring closer supply chains.
Nearshoring presents itself as one of the most viable options for several reasons. International trade can save costs in nearby countries, where labor is more specialized and the production culture is more similar to ours. Additionally, delivery times for goods are shortened, which provides a competitive advantage in a world where immediacy is increasingly valued.
On this topic, the contract management platform Deel mentions that it has experienced a significant increase in the number of U.S. companies using its services to hire talent in the region, increasing by 100% from 2022 to 2023. Meanwhile, consulting firms in India report opening offices in Latin American countries to accelerate hiring due to the growing demand for nearshoring and IT services.
But What is Driving Latin American Growth?
Being in the same time zone, having competitive costs, and the quality of talent are the main points.
Undoubtedly, the cost-benefit ratio is one of the factors that make Latin America attractive as a destination for building remote teams.
Salaries in the region are considerably lower compared to the U.S., resulting in significant savings for companies. Additionally, the region has highly skilled professionals with experience in major technology companies, ensuring the quality of the work done. Moreover, in Latin America, it is possible to find talent in the same time zone as the U.S. The combination is perfect.
In this way, nearshoring Latin American talent to the U.S. represents a great opportunity for the region in terms of generating income and economic growth supported by the Knowledge Economy. By establishing close relationships with companies there and with support from countries in the region, Latin America has the opportunity to position itself as a talent hub for the world.
