We’re all familiar with outsourcing or bringing in contractors from aboard when struggling to find technical talent. But do you know what Nearshoring is? More and more companies in North America are looking south towards technical talent in Central America, the Caribbean, and South America. Nearshoring simplifies communications in distributed teams by keeping them in the same approximate timezones. Our hosts David Alfaro and Arin Sime have been leading nearshore agile teams at AgilityFeat since 2010. In this episode of the Scaling Tech Podcast, they bring in Kirk Laughlin, an expert on Nearshoring in the Americas.
Kirk Laughlin is the Founder and Chief Analyst at NearshoreAmericas.com, which he founded in 2009 to stimulate engagement between customers, investors, service providers, regional and country-based investment agencies in the “Nearshore” technology-services industry. Nearshore Americas is the foremost publisher of independent news and analysis about the Nearshore industry in the Americas, and Kirk has organized events with leaders from around Latin America and the Caribbean.
If you’ve ever considered looking for talent in Latin America and the Caribbean, you won’t want to miss this episode!
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Show notes with links to jump ahead are below
Show Notes from Episode 15 – Kirk Laughlin on Nearshoring
Timestamp links will open that part of the show in YouTube in a new window
- 00:00 Opening quote from Kirk about how important it is to check ourselves about assumptions we make about different countries in Latin America, and that our assumptions are not always fair.
- 01:05 Arin and David introduce the conversation. Nearshoring is a topic that David and Arin know very well, and that we have based our careers around this. Arin notes that David was running a website on agile nearshoring when they first met. David notes the interesting context that Kirk brings to the conversation from his experience across a broad range of industries.
- 03:15 Arin introduces Kirk Laughlin as the Founder and Chief Analyst at NearshoreAmericas.com, which he founded in 2009 to stimulate engagement between customers, investors, service providers, regional and country-based investment agencies in the “Nearshore” technology-services industry. Nearshore Americas is the foremost publisher of independent news and analysis about the Nearshore industry in the Americas, and Kirk has organized events with leaders from around Latin America and the Caribbean.
- 04:25 Arin asks Kirk to start with a definition of nearshoring and the types of work you might nearshore. Kirk notes that nearshoring has broad application horizontally. It goes across many professional business functions, as well as other areas like manufacturing nearshoring. Places like Chile and Argentina are not really close physically, but still relatively close and the timezones help. The three legged stool of nearshoring is Culture, Proximity, and Timezones. The timezone compatibility is a big benefit, and that really covers the entire South American continent. Buenos Aires is much further east than San Francisco, but you can still coordinate across the Americas in a single workday and find overlapping hours. Arin notes how important that timezone proximity is to collaboration, working across a 12 hour time difference is just too much for strong collaborative communication.
- 07:48 Kirk notes that the arc of IT favors those who can be nimble. Accuracy and Speed all make nearshoring very competitive against further time zones. David points out how the motivation behind early outsourcing was all about savings. While nearshoring does offer some cost benefits in software development, David sees that the motivation has shifted from pricing to the talent scarcity problem. David predicts that over the coming years, the economic factor will continue to decline in importance. Kirk agrees with David’s point, but does feel it varies a bit by location. Talent scarcity will always be a driver, but Kirk still sees price as important to many enterprises. Price is still an influence, but some places like Costa Rica are more expensive than other countries, and companies still like working there because it’s a great place in general.
- 11:40 At some point, Kirk does see parity in costs over the coming generations. Kirk has seen how external companies are entering small markets without any sense of the local market pricing, and so they end up paying higher rates in order to scoop up local talent. This trend will lead to higher wages in general, which is good but can be a challenge for local operators who don’t adapt. David agrees and talks about how he’s talked to developers who know their worth up front and are very clear – “you know that I’m from Bolivia, but I’m not interested in being paid like a Bolivian.” Talented developers correctly know their worth, and so over time, there will be some global parity, and Arin noted that means for most developers their pay will continue to rise. The only exceptions may be areas like San Francisco which have paid such high levels in the past, those rates may go down as global parity arrives.
- 15:00 David brings up a CNBC article he found that talks about how many apps will be built in the coming years, and it quotes Microsoft as saying that 500 million apps will be built over the next five years, and this shows how critical low-code and no-code platforms will become since there are not that many new developers, or even enough new humans to build that many. Some 450 million of those apps probably have to be built on low-code platforms since there are not enough developers to build them all by hand. That means professional developers should focus on more challenging use cases that a low-code platform cannot handle. Kirk notes that digital transformation trends show no signs of slowing, and yet at the same time, in BPO and customer service markets which he also studies, you still see layoffs. For instance, Amazon is laying off many people and Kirk expects that to filter down to local delivery centers in Latin America. Can those BPO staff move from customer service into low-code/no-code development models in order to reorient their careers? Kirk sees this coming down to how savvy the nearshore providers will be at making those workforces more productive in other ways.
- 19:20 David has shifted to a mindset of talent acquisition strategy, instead of being reactive to individual client hiring needs. Instead of waiting for a client to ask for a developer, David is constantly trying to fill that pipe of developers for the next client. He notes that when we started AgilityFeat 12 years ago, we did not have to make a sales pitch to a developer, we just had to talk about the money offered. But now, we have to make a sales pitch about how cool we are and how you will grow by working with us. In the past, we only competed with local tech markets, but now we compete with companies from North America or Europe who are trying to hire directly in Latin America. David points out about the visa sponsorships that a European company may offer in order to hire a developer. For those reasons, David thinks we are closer than we think to global wage normalization in software development. For now you can still save money, but don’t count on that for the next ten years. The most significant problem to solve is not costs, but talent scarcity.
- 23:00 Kirk builds off that by discussing how diversity of thought should also be considered in nearshoring. Being able to communicate is important, but in areas like design, Latin America can offer advantages over a US designer simply because of their different perspective and different design sense from a different culture.
- 24:15 David noted a legal case where a Netherlands court ruled against a California based company in favor of a remote worker based in the Netherlands. This resulted from a case where a tech worker was fined by the company for not being willing to turn on their webcam. This is not something that happens currently in Latin America, because that’s not the relationship of the US and Latin America and in most cases, the Latin American countries are happy just to see that person employed and paying their local taxes. Kirk could see this happening in Latin America eventually, because Latin American countries are very worker friendly in their local laws but don’t extend that to remote or digital work currently. Kirk and his team are watching to see how this develops.
- 25:30 Kirk notes how Nearshoring is very valuable for Latin America and local governments should remain friendly to it because it allows Latin American tech workers to make a great wage without moving abroad, which means less “brain drain” on the local economy. He hopes that governments do not try to over regulate it and become a bull in a china shop. On the other hand, it’s also important that nearshore companies live up to their local responsibilities as taxpayers. Kirk found it perplexing how a number of years ago he tried to engage the Cuban government in nearshoring and ran against a wall because they just didn’t understand the value that this could bring to the local economy and stop brain drain. This is a positive aspect of nearshoring that Kirk gets very excited about but not every country gets unfortunately.
- 27:30 Arin notes how the opposite is true too, and that one of the things he’s enjoyed the most about his career is the opportunity to travel to many countries and experience different cultures. This is also a benefit to our US clients, who sometimes will travel to in-person events with our team in Latin America. He notes that a US client will be meeting up at our office in Panama City soon and it’s the second time we’ve done that with that particular company. This sort of culture exchange is very beneficial to us as individuals, but on a more macro scale is also beneficial to the local economies and workers in Latin America.
- 29:00 Kirk talks about the responsibilities that Nearshore companies have, and this is an important part of the advice and understanding that Nearshore Americas provide to their clients. They find it interesting when vendors are active in a certain market but don’t want to talk with media like Nearshore Americas. Companies need to focus on things beyond their own P&L, and contribute to the overall community of nearshore providers. Mentoring and sharing across the industry is important since the Nearshore industry is really only 25 years old. Kirk knows right away how an employer perceives the community they work in, and how they engage with that community. Some companies are still too secretive in their work. These companies may benefit from tax holidays, and so they should consider how they give back to those communities.
- 32:57 Arin asks Kirk what he thinks Latin American and Caribbean governments should be doing to encourage Nearshore providers to invest in their economies. Kirk brings up the Costa Rica model, which he thinks is very good, where they have a dedicated agency CINDE that looks at foreign direct investment. It’s worked out very well for such a small country. There are also groups to support exporters. Not that many governments know their exporters in the same deep way, but they have come a long way. Too often governments only think about the 5000 job labor-intensive opportunities, but more commonly countries like Colombia will see the importance of BPO companies.
- 36:05 Arin notes how Chile had put together a startup visa as a way to encourage entrepreneurs to establish companies there. Arin asks what areas Kirk is most optimistic about? Kirk admires the entrepreneurial spirit of Uruguay, and the growth and increased confidence of small companies from Montevideo. There are other areas like that, including Medellin Colombia, which has a great university there. Kirk sees Medellin as the next Guadalajara, and Guadalajara is a very good story. Kirk notes that there are smart people everywhere in this market, and some locations get dismissed unfairly. There are impressive software development companies in the Dominican Republic for example. We all have to check our ourselves – even a country like Haiti. Despite the challenges there, it’s a country of 11 million people, so of course you can find some talented developers there.
- 38:50 David talks more about Uruguay, where he lived for a couple of years. The culture there is very ambitious by nature, and the government there has made very friendly tax policies for companies who do software development outside of the country. This is a change that David saw while he was there and has attracted people from Argentina to move to Uruguay to be in that more business friendly environment. Arin also notes how he had a good experience in Panama, and their Friendly Nations Visa is an example of good policy which helped attract him to setting up a business and office there and getting permanent residency there with his family. It was a relatively simple process that helps facilitate a very business friendly environment. It was a simpler experience than Arin had seen in other countries, and as a result he now hires there and has contributed to the local economy.
- 42:10 Arin notes how different economies have natural technology fits based on the local economy. For instance, Panama has many Java, .NET and C# developers due to the banking emphasis of the Panamanian economy. That is a challenge for his company who needs to hire developers with experience in other languages like Ruby on Rails and React.
- 43:40 What the biggest challenges and opportunities you see to the future of nearshoring? Kirk ponders this a lot and wonders if this industry will aspire to it’s heights, or if it will settle for a smaller share of the market? This question applies to the local governments and the companies involved. It’s an “us” question that must be answered by the community as a whole.
- 45:00 Kirk talks more about the services that they provide at Nearshore Americas, beyond just the content they write. Kirk notes they are involved in questions about if a company should start a greenfield operation or just acquire another company. Given the challenges with war in Eastern Europe, this has increased those conversations as well in their advisory group, as well as their M&A group. Despite the economic headwinds, he doesn’t see mergers and acquisitions slowing down. Beyond that, they just try to set a high bar on their reporting and content.
- 47:40 David talks about the ability to find good talent in tougher markets like Haiti. It’s definitely possible, but difficult. This pressure to find talent will force companies like AgilityFeat to come up with strategies to find those gems in any market. One idea is to recruit young software developers just out of college, who are craving the opportunity to work for a US company. In situations like this, additional training is probably needed for them before they are truly ready.
- 49:15 Kirk asks David about this challenge of gaining experience when you are young but talented. If you are inexperienced, can you work remotely in that case? David agrees there is a risk there, but talks about the importance of a mentor in that case. In his experience, if you screen the younger recruits for their technical potential, then you can do a boot camp where you are checking in a couple of times a week. Once they pass that boot camp, they can be paired with an internal contact at the client company who has been there for more than five years. That internal employee of the client company can become the mentor to the remote young contractor. After a three month trial, the company can make the final selection on those younger engineers. After selection, they are officially part of the team but still continue to receive mentoring. In this positions, these younger recruits start out with a very low pay rate but will have the chance to quickly rise to the same or higher level of their peers as they gain experience. Mentorship from someone who cares about you is very important. Developers who go through this process have a strong sense of loyalty to the company because we opened the door to them and they want to stay – everybody wins. That is a good example of talent acquisition strategy and if you don’t do that now, you’re dead.
- 53:52 Arin closes up by asking Kirk for his favorite place to travel in Latin America or the Caribbean. Kirk talks about his love for St. Lucia, but could have named 25 other places easily. He’s also a big fan of the Caribbean coasts of Costa Rica and Panama, and hopes someday to see more BPO development in that corridor. Arin mentions how much likes the San Blas Islands on the Panamanian coast, especially because there’s no cell phone signal. David struggles to narrow down to his favorites, and with some prompting from Arin talks about the ski resorts in Bariloche in Argentina.
Links from Episode 15 – Kirk Laughlin on Nearshoring
- NearshoreAmericas.com – Nearshore Industry News, Analysis and Guidance
- Next Coast Media’s M&A brokerage – Mergers & Acquisitions arm of Nearshore Americas, who specialize in the Nearshore market.
- Next frontier in Microsoft, Google, Amazon cloud battle is over a world without code – CNBC article mentioned by David about low-code / no-code platforms (Apr 2020)
- Demanding employees turn on their webcams is a human rights violation, Dutch Court rules – TechCrunch article from October 9 2022
- Florida firm’s webcam surveillance violates human rights, Dutch court says – ArsTechnica article on the same court ruling, from October 10 2022
- CINDE – The Costa Rican public investment agency mentioned by Kirk
- Panama vs Costa Rica: The Facts on Applying for Residency – A written Nearshore Americas interview with Arin that Kirk mentioned which includes his experience with applying for Panama’s Friendly Nations Visa. (March 1 2021)
- Nearshore Forum: Panama is Overlooked Far Too Often – A video interview with Arin on Nearshore Americas, also about his experiences in Panama. (Feb 23 2022)
- The Competition Grows: How to Get Ahead in Talent Acquisition – Column by Arin in Nearshore Americas about talent pipelines and Latin America. (June 8 2021)