IT outsourcing to Latin America: All you need to know

Outsourcing software development is a long-standing trend in the IT industry. While many US companies take the well-trodden path, moving their business operations to India or China, others are thinking about hiring talent a little closer to home and outsourcing to Latin America.

This article features insights into the region’s tech ecosystem and provides an overview of its top-trending tech destinations so that you can assess their potential for outsourcing partnerships. 

Latin America has been hailed as the best location to outsource software development by US and Canadian tech companies. Many firms from North America choose the region as their primary destination for specialized information technology services due to close travel proximity, highly qualified talent, favorable business conditions, and cultural similarities. Let’s take a closer look at the perks the region has to offer. 

Due to the growing tech talent shortage, many American companies are struggling to find seasoned professionals at home and often look beyond their borders to fill their IT needs. With roughly 1 million developers, Latin America definitely has talent to hand. 

The region’s talent pool comprises software engineering alumni, boot camp graduates, and coding academy participants. Thanks to a multifaceted tech education system, LatAm is overflowing with tech specialists who have a solid knowledge of multiple programming languages and are prepared to handle any engineering challenge. 

In addition, independent and government programs encourage tech organizations to employ interns. So by the time they receive their degree, local students may have up to five years of corporate work experience. Such diversified skills training allows Latin American developers to master all aspects of the software engineering process and to provide clients with a wide range of services. 

Latin America is gaining popularity as a robust technological hub that supports innovation and entrepreneurial endeavors. According to the Doing Business report, the region’s average score for economic performance and regulatory environment was 59.1, with Mexico leading the way at 72.4 points. 

Latin America’s supportive business climate coupled with competitive rates and digital agility are the top reasons why more and more companies are turning to the region for their outsourcing needs. Based on the Kearney Global Services Location Index (GLSI), which assesses countries’ capacity to deliver high-quality services, tracking their scores in financial attractiveness, people skills and availability, business environment, and the new digital resonance categories, the most promising Latin American nations are: 

• Brazil (#4) 
• Mexico (#10) 
• Colombia (#11) 
• Chile (#27) 
• Peru (#43) 

To develop a positive offshoring landscape, several LatAm countries have also enhanced their tax systems. These initiatives have not only granted tax breaks to international businesses but also enabled the free circulation of foreign money. 

An increasing number of global companies are becoming aware of the lucrative incentives the region offers and turning their glances to South America as their primary location for tech process outsourcing. Some of the tech giants that have already made the switch include Amazon, Microsoft, Intel, Netflix, and Github. 

The favorable business environment, combined with the abundance of a highly qualified workforce, has spurred a flurry of startup activity in LatAm. The region’s booming tech ecosystem went from 2 to nearly 50 unicorns in less than five years. In terms of unicorn breeding, Brazil is the indisputable leader (60% of companies), with Mexico (17%) and Argentina (11%) following next. 

Leaving aside the current unicorns, Latin America can boast around 100 startups that have reached a valuation of $100+ million. With more capital being pumped in each year, Latino countries comprise the fastest-growing region in the world for venture funding. The number of tech startups in the area has grown almost six times in value, increasing from $38 billion to over $216 billion over the past couple of years. 

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The region’s startup ecosystem spans several verticals, ranging from food tech to home deliveries, highlighting fintech as a leader. LatAm’s financial industry features 13 unicorn companies, including Brazil’s Nubank, which is considered to be the world’s largest digital bank outside of Asia, Argentinian personal financial management mobile app Uala, Mexican startup Bitso, which offers financial services through cryptocurrencies, and dLocal – Uruguay’s first addition to the ranks of LatAm unicorns. 

Time zone difference is commonly overlooked when it comes to software development outsourcing. However, it’s a vital factor for seamless and continuous communication, quick solutions to occurring problems, and enhanced speed throughout the development and testing phases. 

Latin American countries have a relatively small difference from US time zones, meaning you can check on a team or contact them to discuss project details during regular business hours. This allows your IT staff to establish a productive workflow and facilitates real-time collaboration between the in-house and remote development units. 

In recent years, Latin American countries have been pushing to be seen as serious IT hubs by creating and expanding their technological infrastructure, promoting computer education, offering incentives for business, and supporting startup activities. This has enabled the region to grow its reputation on the global tech scene and become a major outsourcing destination for Western companies.

Let’s take a closer look at the top 5 LatAm countries that have led the way in developing their tech sectors and skills.

Outsourcing software development to Mexico isn’t new. The country has a long history as a leading nearshoring destination for North American companies, notably those specializing in telecom, fintech, and consumer products and services. 

Mexico attracts international tech giants with its strong language skills, 770K-strong tech talent pool, shared time zones, lower labor costs, and technology skills proficiency. According to Coursera’s analysis of their learners, Mexicans show 97% performance in technology and 90% in data science. They are particularly well-versed in operating systems (97%), computer programming (91%), data management (97%), computer networking (96%), and mobile development (79%). 

The country is on track to keep up with the rising demand for a qualified IT workforce. Several programs have been launched to attract students to pursue higher education in the computer science field. This ensures a strong flow of qualified graduates, with almost 114K aspiring software engineering professionals joining the market every year. 

The country receives high praise from the global tech community for local developers’ impressive expertise. According to the latest SkillValue ranking, Mexico is #2 in the world in terms of technical skills. The country has also secured 33rd position on the HackerRank leaderboard, and it holds 51st place on TopCoder’s list of the most first-place finishes in coding challenges. 

In addition to its superb developer track record, Mexico also takes pride in its IT outsourcing hubs. The capital, Mexico City, boasts a massive talent pool of nearly 225K professionals and an innovative network of 385 tech startups, making it the largest technology center in the country. 

Guadalajara is another fast-growing metropolis known for its deep-tech infrastructure and growing population of professional software developers. The city is a landing portal for many international companies wishing to tap into the Latin American outsourcing industry. Such world-renowned tech giants as Oracle, Intel, HP, and IBM all have major R&D and programming facilities in Guadalajara, proving its tech credentials. 

Argentina is a nearshoring star whose popularity has been on the rise since the dot-com boom. The country’s deep-rooted engineering culture and rich experience of working with Western countries make it one of the world’s top destinations for software outsourcing services. With a talent pool of over 15K local professionals providing services for international clients, this LatAm tech powerhouse has successfully managed to draw the global community to its skilled domestic workforce.

Part of the picture that makes Argentina such an attractive option for IT outsourcing is state support. The government frequently passes laws to maintain a congenial economic climate and pique the interest of international companies. 

Those efforts have already begun to bear fruit. In 2023, the country’s ICT industry market size stood at $22.5 billion. The cumulative value generation opportunities for this sector are projected to grow at a compound annual growth rate of 16.57%, reaching $42.5 billion by 2027.

The government also devotes ample funding and resources to the creation and further development of computer education throughout all school programs. Thanks to these initiatives, Argentina can draw on a pool of 135K adept professionals specializing in software and mobile app development, cloud computing, Big Data, and DevOps. 

On top of that, Argentinians score the highest among Spanish-speaking countries for English language skills. This reduces language barriers, making communication and collaboration with Western partners much easier. This fluid interaction confers a tremendous strategic advantage for Argentinian talent, increasing their competitiveness on the regional tech scene. 

Despite its relatively small size, Uruguay consistently punches above its weight. With a population of about 3.5M, it is the leading software exporter per capita in South America and the third highest worldwide. The country’s IT outsourcing industry accounts for 2.7% of the national GDP and earned $718 million in 2023. 

One reason why so many international companies choose Uruguay as a place to develop their products is the 100% exemption from income tax on earnings from exporting software and related services. This government incentive has not only spurred the interest of US and Canadian businesses but also given rise to the emergence of local top-of-the-line tech companies. Over the past couple of years, 700 software development firms have flourished throughout the country. 

Tech infrastructure development is one of the key factors drawing newcomers. Due to the deployment of fixed broadband and the improvement of international connectivity with a submarine cable system, Uruguay boasts an Internet penetration rate of 83.4%. The country also leads in terms of 4G-LTE mobile communications and has recently launched its first 5G commercial mobile network. 

The dense concentration of innovative startups, technological advancements, favorable government policies, and an advanced education system is an ideal environment for incubating tech talent. Nearly 11% of all Uruguayan students are enrolled in engineering degrees. Many begin working while still in college, giving them a head start in the job market. As a result, even tech giants such as IBM, Microsoft, Oracle, and Cognizant often hire junior developers directly from universities, fostering their professional development within the organization. 

Brazil is no stranger to the global tech community. In 2023, Brazil exported about $5.4 billion worth of application outsourcing, web hosting, and information services. Over the next five years, this number is expected to reach $9.8 billion.

Although the country’s technology sector is relatively small, it has grown tremendously over the past few years. Foreign investment in Brazilian startups has more than doubled since 2016. The total volume of venture capital poured into the nation’s tech ecosystem now exceeds $3.5B. 

São Paolo alone has attracted more startup investment than Chile, Colombia, Argentina, and Mexico combined and is quickly gaining prominence as the biggest tech hotspot in the region. It is currently the only Latin American Science & Technology cluster featured in the Global Innovation Index.

Other significant IT centers include Rio de Janeiro, Salvator, and Florianópolis. The latter is often dubbed “Brazil’s Silicon Valley” because of the number of universities, research institutes, and incubators producing talent to supplement the country’s 500K digital community. 

On the downside, average developer rates are higher than in other countries in the region, ranging between $25 and $80 per hour. Even with slightly elevated prices within Latin America, working with Brazilian software engineers still represents significantly lower costs compared to hiring in-house developers in North America. Nearshoring product development operations to Brazil enables companies to realize substantial cost savings of up to 40-60% of their project budget.

Colombia has emerged as a promising location for IT outsourcing, powered by its youthful population and expanding economy. The country boasts political stability, a robust financial system, diversified exports, and a strong emphasis on higher education.

Colombia is the 5th largest supplier of IT services in Latin America. The national ITC market value has already reached $10.6 billion and is projected to grow to $11.3 billion by the end of this year. To ensure the industry’s further growth, the government is channeling over $6 billion of investments into bolstering science, technology, and innovation across the major IT hubs – Bogotá, Medellín, and Cali. 

This initiative should help the country boost its tech expert pool to 100K people in coming years, building on an existing base of over 65K tech specialists. Currently, over 13K new IT and engineering graduates enter the workforce each year, providing a strong talent pipeline.

Though the tech workforce is still developing, Colombian coders scored 66% on HackerRank assessments, putting the country on the map for software development. Thanks to that, the nation’s tech community now ranks among the top 50 global providers of IT services. Top talent hubs are emerging in cities like Bogotá, Medellín and Cali. 

Latin America is one of the fastest-growing technological powerhouses across the six largest geographies. It offers many elements Western companies are looking for when outsourcing, such as cost-effectiveness, an educated workforce, tax benefits, great English skills, effective teamwork, and innovative thinking. 

The region has everything it takes to deliver efficient, scalable, and fast results. For many foreign businesses, nearshoring to Latin America is the first step toward a successful project. 

Since software development outsourcing is a complex undertaking, naturally there are a lot of issues to resolve and decisions to make. However, many companies choose to streamline this process by teaming up with a reliable software development partner, such as Grid Dynamics. 

Grid Dynamics is a digital-native technology services provider. We focus on helping clients build custom digital platforms with our ready-to-use solutions.

Grid Dynamics has engineering centers located in the United States, Europe, Latin America, and South Asia. The global presence allows us to utilize a “follow-the-sun” model, where we hand off projects between teams across time zones to enable 24-hour productivity. 

Our company’s primary technology hub in Latin America is located in Guadalajara, Mexico. This engineering center has access to a vast talent pool of 78,000 IT professionals. The software engineers based in Guadalajara are well-versed in a wide range of tech capabilities – from research and development to programming and design. Additionally, being situated in the Central Standard Time (CST) zone enables convenient collaboration with clients all over the US – from Atlanta to Seattle. 

The combination of skilled talent, expertise across the product development lifecycle, and overlap with US business hours make Guadalajara an ideal location for a nearshore technology center. With a strong infrastructure and resources already in place, we are ready to help you scale your engineering team to support your software development activities. 

Reach out for a consultation on how Grid Dynamics can serve as your technology partner, providing talents and expertise to power your innovations.

FAQ

What types of IT services are typically outsourced to Latin America?

Typical IT services outsourced to Latin America include software development, QA testing, IT support, and data analytics.

How can you find the most suitable outsourcing partner in Latin America?

You can find the most suitable outsourcing provider in Latin America by leveraging your professional network connections, getting referrals from other companies with experience in the region, clearly defining your project needs and vetting potential partners’ capabilities, expertise, communication abilities, and cultural fit.

How can you ensure data security when outsourcing IT to Latin America?

You can ensure data security when outsourcing IT to Latin America by including stringent data security provisions in your service agreement, conducting security audits and risk assessments of your partner’s policies and infrastructure, and utilizing encryption technologies for data transfer and storage.