ThinkSolutions, a management consulting firm with thought leadership in outsourcing, offshoring, and nearshoring, released its second quarterly report of “The Best Nearshoring Destinations.” Each quarter, the firm ranks 19 Latin American countries based on their appeal as outsourcing and shared services destinations, scoring the countries on 19 objective criteria in three categories: Financial Incentives, Business Environment, and Labor Force.
Firms continue to leverage nearshoring as an effective strategy for both Information Technology (ITO) and Business Process Outsourcing (BPO). Executives continue to look to nearshoring for benefits in cost reduction, ease of management, and portfolio diversification, so the model aimed to reflect these interests of potential buyers. Nearshoring requires careful consideration of the business objectives and an effective governance approach to manage the relationships.
ThinkSolutions has strategically selected and weighted criteria to emphasize the unique characteristics of Latin America such as cultural affinity, time zone alignment, and language capabilities. Last quarter, the nearshoring landscape changed when the U.S. signed Free Trade Agreements with Colombia and Panama, so ThinkSolutions adjusted the model to reflect these added trade incentives. Other changes in the financial environment of countries in the index led to the shifts in the rankings this quarter. Mexico ranked first again this quarter, followed closely by Chile, Costa Rica, and Colombia. Due to increased wages and higher inflation, Argentina experienced the most significant drop in ranking in the fourth quarter.
This outsourcing index is unique in its objectivity and flexibility in response to changing environments. While other global sourcing indices are updated annually, the ThinkSolutions Nearshore Destinations Model is updated quarterly or more often to reflect major events or changes in a country’s economic landscape. The evaluation model is designed to be proactive as well as reactive, penalizing politically unstable countries with higher levels of risk of future turmoil, while also emphasizing criteria that depict the current state of a country. Tony Mataya, Managing Partner of ThinkSolutions commented on the flexibility of the index, “We also work with clients to tailor the model to reflect their risk profile and business objectives to help determine the optimal location for sourcing services or locating operations in Latin America.”