Cost Reduction and Greater Flexibility Drive 2015 Renegotiation of LatAm Outsourcing Deals

Undesirable market conditions in Latin America and diminishing IT budgets are leading many companies to renegotiate their contracts with service providers in an attempt to reduce costs and gain greater flexibility. The trend toward renegotiation was particularly pronounced last year and it is expected to continue throughout 2015 as competition among vendors intensifies. Buyers have the upper hand in such negotiations, but analysts warn they should still exercise caution given that there are certain drawbacks of having to switch service providers.
Globally, more than US$100 billion worth of outsourcing contracts will be renegotiated this year, according to ISG estimates. This trend is already having a significant impact in Latin America, Nearshore Americas learned from Guilherme Campos, Technology Industry Analyst for the Americas region at Frost & Sullivan.
“In Latin America, and especially Brazil, 2014 was a very weak year for many companies, including in IT,” Campos explained. “So the companies that are buying IT services started to try to renegotiate their contracts in order to reduce costs. They all opened RFPs (requests for proposals from other service providers) – even when they were satisfied with their providers – just to see if they could get other providers with the same quality but reduced prices, or to get the existing provider to reduce their prices.”
Renegotiation is most common in “older sectors where the heavy hitters are,” said IDC Research Director Xiao-Fei Zhang, citing banking, healthcare and government as some of the sectors where organizations are seeking to replace outdated service agreements with newer, leaner models. Campos added that “Renegotiations are more common in the large enterprise market, not so much in the small and medium-size enterprise market.”

Read more at: Nearshore Americas-Cost Reduction and Greater Flexibility Drive 2015 Renegotiation of LatAm Outsourcing Deals By Duncan Tucker

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