Politec: Southern Charm - Alexander Schmitz-Kohlitz

As IT providers improve the breadth and quality of their services and corporates seek greater value and flexibility, Politec’s Alexander Schmitz-Kohlitz tells CEO that South America is emerging as a viable alternative to more familiar markets like India.

The market for IT outsourcing is certainly mature, but it continues to evolve as the technological capability of service providers improves and buyers have more choice in terms of the elements they hand over to external partners. A lot has been said about the advantages of offshoring IT to India, where buyers from English-speaking countries can access language capability and a large supply of skilled, low-cost talent.

Challengers, however, are emerging from other parts of the world. As the economics of IT outsourcing change, as they inevitably do in a dynamic and globalised market, South America is proving attractive to a growing number of companies seeking higher value-added services and professional expertise, and the region has many capable service providers.

‘US companies have offshored to India, but many early adopters are getting tired of doing business there. It is not as easy as you might think. India’s growth as a market has led to an issue with the availability of resources. There is wage inflation, high turnover of staff, and you must remember that when it is day in the US, it is night in India,’ says Alexander Schmitz-Kohlitz, international vice-president of global IT services provider Politec. Schmitz-Kohlitz believes that US companies in particular will show more interest in nearshoring IT services to South America.

Politec, a full-service IT services provider in the US, Japan and South America, was founded in Brazil in 1970. Like many providers in the region, it sees an opportunity to target high-value, specialist work, especially when resources in India do not want to take on the job. ‘US companies see South America as a serious business partner. For highly commoditised services like coding and testing India is more cost-efficient, but for value-added operations that need industry know-how, Brazil is the one to choose and Politec is well positioned to deliver as a regional partner,’ believes Schmitz-Kohlitz.

A continental shift

Many countries in Latin America are poised to make an impact on the global IT outsourcing market. ‘Mexico, a classic US nearshore destination, has attracted lot of US business,’ Schmitz- Kohlitz observes. ‘But nowadays, the best positioned nearshore destinations in Latin America for the US IT sector are Argentina and Brazil. Argentina by far currently offers the lowest cost structure and can directly compete with India on price, even on commodity services.’

Schmitz-Kohlitz observes how Brazil, on the other hand, combines low costs with industry competency, especially in financial services, telecommunications, oil and gas, and the automotive industry. ‘It also has the largest installed base of mainframe resources, a commodity India lacks,’ Schmitz-Kohlitz says. The outsourcing market in Brazil is estimated to be worth around $8 billion annually, though the vast majority of this is domestic business, with offshored business worth less than $1 billion.

Schmitz-Kohlitz believes this illustrates just how much room there is for growth. He points out, however, that labour in Brazil is still inexpensive compared to the US, and that the combination of lower costs, widely available English language capability, cultural proximity and a shared time zone makes the country a compelling proposition to put before potential US clients.

‘Economically, Latin America is growing fast and attracting lots of foreign investment,’ says Schmitz- Kohlitz. 'US and European companies are looking for a one-stop shop provider in key markets that combines regional know-how, low cost and quality services; areas where Politec excels.’

The Brazilian connection

Mitsubishi is one of the world’s largest conglomerates, and its recent investment in Politec, which has annual revenues of $310 million, gives Brazil’s leading IT services provider a much wider global perspective. Mitsubishi's choice of Politec as its strategic partner gives the company more clout in the market to support its Global Reach strategy. It can also target Brazil's Japanese population, the largest outside of Japan.

The core of Politec’s strategy is to broaden its presence. With offices in Argentina, there are plans for new facilities in Brazil, Colombia, Mexico and Chile by the end of the year as well as expansion in Japan and the US. Politec already has offices in Atlanta, Miami and New York and, in the US alone, its organic growth is expected to reach approximately $100 million in revenues by the end of 2011.

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Alexander Schmitz-Kohlitz, international vice-president of global IT services provider Politec.