An article in the Wall Street Journal realistically describes the state of affairs in Latin America. It describes Latin America’s quiet revolution this way:

Most of Latin America is, however, undergoing a period of unprecedented political and economic transformation. In Chile, Brazil, Peru, Uruguay, Costa Rica, El Salvador, Panama, the Dominican Republic and, yes, Mexico … there has been a quiet but substantial movement toward the creation of societies that are characterized by increased economic opportunity, social mobility and political democracy.

Noticeably missing is a discussion of Columbia which is becoming another outsourcing destination for American companies in Latin America.

Clients are expressing continued interest in developing their software in Latin American countries because of the closeness in time zone and distance. This article gives a good sense of how close the various countries are to the U.S. politically and culturally too.

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I was interviewed for an article in Business Week about outsourcing to Latin America but the author didn’t use any quotes from me. I guess I need to speak in more sound bites!

A more likely reason is because the examples in the article are for big companies doing outsourcing of all kinds.  All my examples were for clients using smaller software development teams.

But I agreed with the author’s premise that there is an increasing trend of outsourcing to Latin America instead of India. A major reason for it is the decline of the dollar compared to the Indian rupee.

The article also includes a link to a slide show of information about outsourcing “hubs” in Latin America. There are just a few statistics on each slide.  The most interesting are the change in the dollar and local currency exchange rate and the annual salary range for “skilled programmers” in seven Latin American countries.  I’ve summarized these numbers in the table below.

Country	Dollar Value over past 5 years		Annual Salary Range	Hourly Rate 2000 hrs/yr
Argentina		Up 10%	$16K to $19K	$8 to $9.50
Brazil		Down 49%	$25K to $27K	$12.50 to $13.50
Chile		Down 41%	$25K to $27K	$12.50 to $13.50
Colombia		Down 39%	$18K to $20K	$9 to $10
Costa Rica		Down 25%	$19K to $21K	$9.50 to $10.50
Mexico		Up 0.4%	$25K to $27K	$12.50 to $13.50
Uruguay		Down 28%	$15K to $18K	$7.50 to $9

You can see that the dollar has really taken a hit over the last five years in all but two of the seven countries. The dollar has held steady or increased in value compared to the Argentine and Mexican peso.

I divided the annual salary numbers by 2,000 hours per year to come up with an approximate hourly rate in the last column.  These rates are about what you would pay if you set up your own captive operation in these countries. Hourly rates for contract programmers will be 2 to 2.5 times these rates. The higher amount covers office, equipment and profit for the Latin American partner.

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In general, I agree with most of the points in an article published in InformationWeek about How To Select An Indian Outsourcing Partner. The author takes a sober view about outsourcing that comes across a bit negative.

I wouldn’t write off Indian or global software development just yet. My experience with global outsourcing of software development shows two major pitfalls that people run into:

1. Selecting the wrong kind of vendor
2. Not providing the right kind of specifications

By wrong kind of vendor, I mean one that is happy to charge you for some junior programmers put in a room for you, and even give them computers and an Internet connection, but then fails to follow through with any kind of supervision, management or professional software development process.

This kind of vendor is what I call a “body-shop” and is only acceptable if you have the time and experience to manage these programmers remotely. It’s an easy mistake to make if you can’t hire programmers locally. You think you’ll just hire them over there.

A better approach is to select a vendor that can offer you a combination of junior and senior programmers and experience with a software development process

Other vendors may be great at executing fixed-price projects but only if they are given very detailed specifications. And the author says you should have detailed specifications, but this is where I disagree a little. Anyone that develops software, especially new applications, knows detailed specifications are just not completely practical.

New Agile software development methods have become more popular lately for the development of new software. But this highly collaborative approach is difficult (but not impossible with the right vendor) to do at a long distance. That’s why many U.S. companies are now looking at outsourcing to Latin America where there is more workday and cultural overlap.

In summary, I think a key mistake people make is treating software development only as a financial transaction rather than recognizing it as a collaborative and creative process. If all you hire is cheap programmers without experience, no matter what country they are in, then you will get what you pay for.

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The Mexican government is offering tax incentives to Indian IT companies that set up shop in their country according to a brief Emerging Markets NOW report. Indeed, I have already read of Indian IT creating software development centers in Latin America to better serve customers in the U.S.

Of course, you can work directly with software development vendors in Latin America and there is a recent increase in the number of Latin American vendors including new partners in the Accelerance Global Partner Network.

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Professional programmers from Latin America that have emigrated to the U.S. are looking back to their home countries as a source of software development talent. 

Why? 

Because their experience with other outsourcing destinations suffered from a lack of English skills, cultural and time zone differences. Besides that, travel to places like India takes too long and is too expensive. 

You can read about some of these Latin entrepreneurs in the Outsourcing in Local Time article in a recent issue of Red Herring. 

An advantage of outsourcing to Latin America is the ability to implement a collaborative Agile software development process with your nearshore team because of the significant overlap of workday with the U.S. 

Meanwhile, the governments of Central and South American countries are encouraging these increased business ties with the U.S. Recently the government of Chile visited Silicon Valley to promote outsourcing to Chile.

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