The region can provide myriad opportunities, but understand the market before expanding.
Research by Staffing Industry Analysts indicates of the large firms that use staffing services, 12% plan to expand their contingent workforces in South America in the next several years. That compares to 10% in Western Europe and 13% in Asia Pacific.
When buyers are moving to the region, can staffing firms be far behind? “The clear message, it is worth investing in Latin America,” said Martín Padulla, managing director of staffingamericalatina, during a conference panel for staffing firms at the Staffing Industry Executive Forum this year in Orlando.
But it’s not all just about soccer, beautiful beaches, natural wonders and sights in the region. There are challenges employers in Latin America face. They report difficulty finding workers with in-demand skills. Regulations and customs differ among Latin America countries. Labor laws can be complex, and some countries are easier to do business in than others. The region also has a large “informal economy” where employees work in arrangements outside official regulations.
Still, at the end of the day, Latin America can be a lucrative market.
When it comes to US-based staffing buyers, they typically expand their contingent workforce program to Latin America for one of two reasons, says Allie Ben-Shlomo, executive VP and COO at PRO Unlimited, a provider of VMS and MSP. One reason: The company is exploring the possibility of setting up operations in the region and needs a local presence, such as hiring salespeople and other professional-level posts. The other reason is the company already has operations in Latin America and seeks to bring in the VMS/MSP value proposition.
However, the cost of labor can be high and regulations complex. US clients sometimes have sticker shock when engaging talent in Mexico and Brazil, as the bill rate can be that of a comparable US worker because of myriad statutory and pension requirements that are the employer’s burden.
“There are so many complexities ranging from employment rights to banking and currency restrictions,” Ben-Shlomo says. “In Brazil, for example, companies must set up a Brazilian entity in order to do business in that country. There can also be discrepancies between the letter of the law and how it’s practiced on the ground.”
Companies need to find out what the market opportunities are for them and what they want to focus on. Another feature of the Latin American staffing market: staffing providers typically provide outsourcing services as well as staffing.
Whether a staffing buyer or staffing firm, companies going into Latin America must also remember that each country is different despite most nations in the region sharing Spanish as a common language.
Venezuela is a particularly interesting case. A new law requires employers to make all outsourced workers their own employees, except under certain circumstances. The deadline for implementation was May 7.
Padulla says the law came about because of political ideology rather than its practical effects on productivity and unemployment.
“Well-done staffing is definitely not outsourcing,” Padulla says. “Of course, when you have this kind of environment, you have clients who are afraid and they directly employ their staffing employees.”
As a result, staffing industry activity in Venezuela is lower than three years ago. But he cautions the country is not the best example.
Several other Latin American countries have implemented labor reforms or are implementing such reforms. But industry proponents argue regulations that make it difficult for employers might also spur companies to seek staffing firms’ assistance in dealing with the rules.
In Mexico, labor reforms took place in 2012 that increased flexibility in employment among other things. A major change is employers can calculate a worker’s salary on an hourly basis instead of on a monthly basis.
Chile is looking at labor reforms as well.
The reforms could give greater authority to unions, but the exact impact at this time is unclear, says Andrés Cardemil, CEO & founder of Chile-based staffing firm HumanNet in Chile. The reforms could give a leg up to staffing firms that can help clients navigate more complex laws.
“As we are the experts, we are ready to give them support, flexibility and more efficiency into their processes that are not part of their core business,” according to Cardemil.
Regulations have also been changing in Argentina, says Damian Wachowicz, director at Argentina-based Bayton Grupo Empresario, a group of specialized staffing, technology and marketing services. Temporary workers get the same pay as standard workers and they are represented by the same union. A new rule also requires client companies to pay for labor insurance to cover worker injuries, both for their own workers and temporary agency workers.
“I don’t see that it’s affected staffing FTE numbers,” Wachowicz says. “But it’s an important change within the staffing industry, which requires clarity for clients regarding how this works and how you will implement it.”
A concern for the region is the underground, or informal economy, where work takes place without government regulation or taxation. The International Labour Organization reported the informal economy often means poor employment conditions.
“There still exists a big black market in the country,” says Edmundo Escobar, VP of Rolling Personnel LLC with operations in Mexico. “But when I talk about a black market, it means that there are market players working informally.”
In some situations, a worker may receive a wage but the employer pays fees to a union that then sends the money to the worker in cash. However, government benefits and taxes will be based on the lower wage not handled through a union.
AMECH, the Mexican staffing association, established a quality control certification for its members to follow so customers can ensure their suppliers are operating in the formal market, says Escobar, who is a member of the organization.
He and other industry leaders say staffing firms in Latin America can be an onramp for young workers to get into the formal economy.
Informal work also varies by country with some, such as Argentina and Chile, seeing lower levels.
The skills gap impacts Latin America as it does other areas. Peruvian employers were among those reporting the most difficulty finding workers with the right skills, according to the 2015 annual Talent Shortage Survey by ManpowerGroup. The survey found 68% of employers in Peru had difficulty filling jobs. Brazil also ranked in the top five with 61% of employer finding it difficult to fill jobs.
Staffing client employers also want more.
“Clients are requiring more sophisticated candidates with not only traditional skills, but some other competences that make it more difficult to find the right people for the job,” says Mónica Flores Barragán, managing regional director, Latin America, for ManpowerGroup. “The big challenge for the staffing industry, and in general for all companies, is to find the people with the right skills and right competencies that can adapt to the changing world of work.”
Workers in demand include specialized technicians, managers, IT experts, engineers and others whose positions require skills such as leadership, problem-solving and ability to adapt.
“In general, the IT segment is growing, commercial and services is growing,” Flores Barragán says. “Pharmaceutical services in some countries, we are having a huge demand.”
HumanNet’s Cardemil says Chile is also seeing demand for workers with technical skills as the country sees increased development of its mining and IT industries.
Transitioning to Outsourcing
Another characteristic of many Latin America markets is outsourcing. In one example, Staffing Industry Analysts estimated the size of the Chilean staffing and outsourcing market at US$2.8 billion, but the staffing market alone was only worth approximately US$300 million.
Outsourcing is the use of an outside vendor to run a function or department at a client company, either on-site or at the vendor’s location. However, outsourcing in Latin America is often defined by who supervises the workers, Bayton’s Wachowicz says. If a staffing firm also supervises the workers, that can be an outsourcing arrangement.
For example, Bayton’s outsourcing services include work in the merchandising sector. Bayton employees work on behalf of consumer goods firms, visiting retail stores such as supermarkets to restock product on shelves, report on shelf space allotted to the product and whether there are stock-outs.
Staffing employment reached a peak around the end of 2007 in Argentina, Wachowicz says. That number has not yet reached a pre-recession high, but Wachowicz says that a big component of the fall in staffing employment is because of a wider transition towards outsourcing arrangements.
Spreading the Word
Looking to the future, staffingamericalatina’s Padulla says staffing firms can help young workers in the region find formal employment. The industry also bring other benefits.
“The perception in America is the work has to be stable, has to be not in a triangular relationship,” Padulla says. “But I think the great opportunity is to modernize the perception, to show this industry is the main entrance for young people to the formal market.”
One challenge is getting the word out about the benefits of the industry, and Padulla says that’s one reason he started staffingamericalatina, which is a Staffing Industry Analysts’ partner in the region.
HumanNet’s Cardemil also says the industry must continue working to bolster its image. “We must fight directly the misconception that exists regarding the outsourced jobs are low quality and enhancing informality,” he says. “On the contrary, they contribute to give greater flexibility and dependability and security to the work of many people who are looking for an opportunity with a quality (decent) job, and with more freedom to move.”
Economic growth has been a challenge for Latin America.
The International Monetary Fund World Economic Outlook Update in July estimates real gross domestic product will grow at 1.7% next year in Latin America and the Caribbean, up from growth of 0.5% this year.
“The downturn in global commodity markets remains the main drag on activity in South America, even though lower oil prices and a solid US recovery provide a boost to other parts of the region,” according to the IMF’s earlier World Economic Outlook report released in April. “Low business and consumer confidence in Brazil and the intensifying economic crisis in Venezuela weigh further on the near-term outlook.”
Brazil, the region’s largest economy, is projected to see GDP contract 1.5% this year but return to 0.7% growth next year, according to the July report.
Argentina’s GDP is estimated to contract 0.3% this year according to the April report, but it is expected to grow 0.1% in 2016. However, the country has a presidential election in October, and it’s expected whoever wins will help move the country along as far as its economy.
“Argentina is a little bit of a roller coaster country” says Damian Wachowicz, director at Argentina-based staffing provider Bayton Grupo Empresario. “But when Argentina comes back, it comes back hard. … When we do rebound, the rebound is great.”