Factors Affecting CRM Software Growth in Latin America
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By Denise Holland
Latin America CRM Adoption Influenced By U.S. Call Centers and Free Trade Agreements
Business factors such as call center growth, IT outsourcing and U.S free trade agreements as well as software technology advancements such as on-demand CRM, social CRM and open source CRM software solutions are influencing the adoption and growth of CRM software solutions by Latin American companies.
Despite a volatile global economy, the Latin American CRM market is coming on strong. The central and South American regions are growing as call center destinations and performing well overall despite a difficult global climate and a series of national disasters. Because nature tends to be brutal here, even CRM must be built with recovery in mind.
While nearshoring has already found favor over offshoring recently, Mexico stands to win big from a new U.S. Congressional border bill that effectively punishes IT workers from India entering the U.S. The bill hikes H-1B visa fees by an astounding $2000 per worker which will give India-based outsourcing providers pause and U.S. companies plenty of reason to shift focus even further to neighboring countries.
Latin America is unaffected by the bill since its workers fall under the NAFTA-born TN visa. Plenty of India-based outsourcing providers and call centers have taken notice, and many plan to shift their business models to operate from Latin America as a result.
Case in point: Tata (TCS), the largest provider of IT and business process outsourcing in Asia, is growing its delivery centers in Mexico, Uruguay, Argentina, Chile, Brazil, Ecuador and Colombia. It now reportedly has its sights on Peru too.
IT and CRM Vendors Focus on South America
While Latin America is an established outsourcing and call center market already, a boon is on its way making the region a prime sales target for CRM vendors. The boon is coming from the U.S. shift to nearshoring and the European shift from India and China to a culturally aligned Latin American market.
At the moment, Brazil is leading the region in CRM software adoption and call center outsourcing.
UK-based research group Companies and Markets says in its Brazil IT Q2 2010 Report that Indian companies such as TCS, Wipro and Infosys are increasing their presence in Brazil. In March 2010, Wipro opened its new global delivery centre in Curitiba to serve as its regional headquarters for its four-year-old regional operations. Meanwhile, Infosys plans to open a software development and back-office centre in Brazil, subject to final approval from the Brazilian government.
The award of the 2016 Olympic games to Rio de Janeiro is expected to drive substantial investment in IT, not only directly associated with the games, but also related to transport and other infrastructure projects. Such development will expedite automation efforts.
"In Brazil there is an appetite for automation, so early adoption is actually easier, but if the technology does not deliver it is quickly cast aside," says Andrew Graves, chief product officer at xRM Global.
"We have found that adopting a more agile approach to software deployment works better than a water fall approach in Brazil," he added. "The culture is much more relationship centric than the U.S. therefore small group deployments are much more effective. We have found it to be very effective to work with small groups, drive the win home and leverage our success in the next one."
Argentina is a close second to Brazil in terms of CRM investment and adoption. Most of the local CRM vendors hail from Argentina.
Companies and Markets research group says in its Argentina IT 2010 Report that SAP Argentina, the leader in Argentina's enterprise applications segment with around a 50% share, has said that its multi-country Latin American unit was on track to increase its market share in 2010. In the first quarter of 2010, the company recorded a number of significant wins in the Argentine market, including Anglo-Dutch consumer products giant Unilever.
Cloud Computing and SaaS Continue to Grow
The report predicts a major area of opportunity for IT services vendors will be public and private sector demand for help with cloud computing solutions. ERP software giant SAP has formed an alliance with IBM, Linux systems integrator Red Hat and Argentine telecommunications company Metrotel to offer hosted business software solutions in Argentina. Government and public sector are expected to be key verticals and, in June 2010, Japanese giant NEC announced the launch of a cloud computing base general education system for the Ministry of Education in Argentina's San Juan province.
According to that same report, the percentage of Argentine IT market revenues generated by services is fairly typical for a developing market at around 25 percent, although lower than some other countries in the region where the services share is already above 30 percent.
Chile, meanwhile, is making strong strides and can now lay claim to being the first country to achieve government protected net neutrality – a feat more so-called sophisticated countries have yet to accomplish. Net neutrality, in effect, protects SaaS CRM vendors, as it ensures the Internet remains unfettered and SaaS products and services are universally accessible by users.
Chile's IT services market is projected in Companies and Markets Chile Business Forecast Report Q4 2010 at around US$901M in 2010 and is expected to grow at a 14% CAGR over the 2010-2014 forecast period. The percentage of IT market revenues generated by professional services is currently around 37 percent, high by emerging market standards but similar to other countries in the region, such as Brazil. The majority of demand, around 75 percent, still comes from the large company sector, but smaller companies are now becoming more sophisticated in their demand and are adopting ERP and CRM business software systems at an increased pace.
According to the report, the first quarter of 2010 saw a number of significant IT projects launched in sectors ranging from local government to transport. Led by the financial services, telecommunications and retail sectors in particular, there is a trend towards bigger managed services and outsourcing deals in the local market. Health care IT is underdeveloped in Chile and therefore represents a significant opportunity.
Social CRM and Customer Analytics Poised For Growth
Mexico, Colombia and Argentina are all working towards integrating social media, social CRM and social media analytics. CRM vendors with social CRM components such as Salesforce.com, Oracle On Demand, SugarCRM and RightNow all report increased CRM software sales attributable to their social strategies.
"While the appetite is strong for things like social media and automation in general it is seen as an enabler to facilitate the in-person relationship building process, not to replace the human touch that is so key in any Latin business relationship," explains Graves. "People in most of these countries do business with people they know and trust, so CRM in these cultures needs to facilitate a 'high touch - I trust' environment."
Loyalty programs are just coming into demand and a desire for business intelligence and customer analytics is just beginning to overtake the traditional spreadsheet approach to business.
Frost & Sullivan reports that in Latin America overall, enterprise software companies have highly customized CRM, Enterprise Resource Planning (ERP), and Business Intelligence (BI) solutions and services. The main industry verticals that have packaged solutions are financial services, telecommunications, and government. An increasing interest in retail, education, and health care is expected in the short term. "The new 'core' for IT companies is to fully understand end-users businesses in the Latin American IT software and services markets," says Fernando Belfort, ICT research analyst.
Central and South America, however, still have some serious obstacles in their bids to be the new CRM adopters and outsourcing powerhouses: namely their reputation for widespread corruption, political instability and poor public security. However, many of the countries in Latin America have made substantial progress in establishing democratic freedom, unfortunately fewer outsiders realize it. Several countries are also working towards establishing transparency in the public and private sectors and increasing public security, although those efforts are often overlooked as well. Clearly, business reputations are changed over sustained periods of time.
While the appetite is strong for things like social media and automation in general it is seen as an enabler to facilitate the in-person relationship building process, not to replace the human touch that is so key in any Latin American business relationship. People in most of these countries do business with people they know and trust, so CRM in these cultures needs to facilitate a 'high touch - I trust' environment."
A Datamonitor research report predicts the number of call center agents in Brazil will rise from 3,900 in 2005 to 11,500 in the current 2010 year. Datamonitor expects demand for service based in Brazil by U.S. companies to grow at a compound annual growth rate (CAGR) of 27% compared to 21% from other South American regions.
Datamonitor also forecasts Caribbean and Latin American based call center agents servicing offshore customers to more than triple from 16,200 in 2005 to 44,900 in 2010.