Latin America on the Outsourcing Competitiveness Map. Mario Tucci Founder & Partner

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1 Latin America on the Outsourcing Competitiveness Map Mario Tucci Founder & Partner

2 What you will get out of this Is Latin America growing in Global Business Services? What are those services that are more popular? Which locations are best for service lines? What are the future trends to watch?

3 Latin America has witnessed fastest growth in global services headcount over the last 3 years CAGR of global services headcount (includes both shared services and service providers) by regions: LATAM 24% LATAM - Market heatmap 2 Mexico Belize Honduras Guatemala Nicaragua El Salvador Costa Rica Panama Colombia 2014 Nearshore Europe 15% Nascent locations Peru Brazil APAC Others 1 <5% 7% Emerging locations Mature locations Chile Argentina Uruguay 1 Others include Africa and Middle East region 2 Analysis based on headcount for global services exports in 2014 Note 1: Includes global services exports for 31 leading locations. Excludes domestic market Note 2: APAC: Asia Pacific; LATAM: Latin America Source: Everest Group Global Locations Annual Report (2015): Everest Group (2016)

4 Latin America has 13-16% share in new shared service center set-ups during recent years Breakup of new center set-ups(gics) by region 2010-Q % = Others 2 8% 3% 8% 7% Nearshore Europe LATAM 26% 8% 25% 14% 26% 13% 44% 16% APAC 58% 58% 53% 33% Q1 1 Includes data for Q (January-March 2016) 2 Others include Africa and Middle East region Note 1: APAC: Asia Pacific; LATAM: Latin America Source: Everest Group Global Locations Annual Report (2015): Everest Group (2016)

5 Increasing share of BPS in new shared service center setups in Latin America Breakup of new centers in LATAM by functions supported % 46% 31% 10% 31% 20% BPS IT Engineering Services/R&D Includes both voice and non-voice Note 1: Includes GICs; centers may be supporting multiple functions Note 2: Excludes centers where function is not specified Source: Everest Group (2016)

6 While BPS services are more mature for Latin America delivery, only certain locations support other functions Functions Voice BPS Non-Voice BPS Maturity of serv. delivery Comments Significant evidence of delivery from multiple locations in Latin America Key regions served from Latin America locations include Latin America, North America, and Europe IT services Knowledge processes R&D and engineering Source: Everest Group (2016) Only some locations within Latin America support offshore IT services delivery due to requirement of specific skill sets Evidence of support largely for Latin America and North America region Select list of locations support these functions from Latin America Evidence of support for Latin America only, with limited offshore service delivery High Medium Low

7 Operating cost Everest Group s MAP Matrix provides a comparative assessment of cities specific to a market function Everest Group s Maturity Arbitrage Potential (MAP) Matrix provides a comparative assessment of cities specific to a market function (e.g., IT-ADM, knowledge services, European language BPS) Maturity Relative maturity of locations in terms of the breadth and depth of services offered Arbitrage Cost savings or arbitrage over typical source markets Potential Aspirants Emerging opportunities or potential of these locations from a talent and risk standpoint Major Contenders Leaders Leaders FRAMEWORK MAP Matrix TM assessment covers 60+ cities for the following seven functions: Information Technology Application Development and Maintenance (IT-ADM) Contact center (English language) Transactional Business Process Services (BPS) Complex / judgment-intensive BPS Bilingual (Spanish and English language) BPS Multi-lingual (European languages) BPS Knowledge services Relatively the most attractive locations - significant talent availability and low costs Characterized by presence of large GICs or service provider centers Often exhibit high competitive intensity owing to presence of many large players Major Contenders Offer an attractive mix of talent availability and cost savings Sufficient talent pool to support mid- to large-sized centers Lower competitive intensity compared to Leaders, however, lower maturity Availability of talent Aspirants Suitable for small- to medium-sized centers Offer early-mover advantage and low costs, however, require investments in talent development Typically, less mature locations as compared to other clusters Star Performer

8 MAP Matrix IT-ADM Risk profile Highly favorable Favorable, but some concerns Star Performer Significant challenge Operating cost 1 Low Low High ASPIRANTS Colombo Ho Chi Minh City Johannesburg Port Louis Bogota Montevideo Vilnius Poland tier-2 Tel Aviv Casablanca Tallinn San Jose Glasgow San Juan Buenos Aires Kuala Lumpur Sofia Lisbon Bucharest Kiev City Poland tier-1 Guadalajara Budapest (Krakow) Mexico City Prague Bratislava Santiago Belfast MAJOR CONTENDERS India tier-2 (Kochi) Cairo Singapore Dublin Availability of talent 2 Sao Paulo India tier-1 (Bangalore) Philippines tier-1 (Metro Manila) China tier-1 (Shanghai) LEADERS High Mexico City is a star performer owing to strong nearshore value proposition and abundant talent pool Buenos Aires is a major contender owing to attractive cost savings and access to talent San José (Costa Rica) is an aspiring location and offers opportunity for players to set-up smallscale center or a spoke for nearshore locations 1 Fully-loaded, ongoing operating cost, including compensation, facilities, and technology expenses 2 Considers relevant entry-level and experienced talent Source: Everest Group (2016)

9 MAP Matrix Bilingual BPS (English and Spanish) Risk profile Highly favorable Favorable, but some concerns Star Performer Significant challenge Operating cost 1 Low ASPIRANTS Kingston Santo Domingo San Salvador Managua Lima Guatemala city High Montevideo Bogota Panama City MAJOR CONTENDERS Guadalajara Monterrey Santiago LEADERS Buenos Aires San Jose Buenos Aires and San Jose are the leaders for bilingual BPS work; Buenos Aires presents challenges in terms of high macroeconomic and fiscal risks Guadalajara and Monterrey have emerged as strong alternatives in the last three to four years Low Availability of talent 2 High 1 Fully-loaded, ongoing operating cost, including compensation, facilities, and technology expenses 2 Considers relevant entry-level and experienced talent Source: Everest Group (2016)

10 Operating cost 1 MAP Matrix Transaction-intensive BPS Low High ASPIRANTS India tier-2 (Kochi) Colombo Ho Chi Minh City Cairo Bogota Guatemala City Dalian Buenos Aires Kuala Lumpur Montevideo Cape Town Bucharest Vilnius Casablanca Lodz Santiago Guadalajara Budapest Prague Belfast Glasgow Dublin Risk profile San Jose Highly favorable MAJOR CONTENDERS Bratislava Poland tier-1 Favorable, but some concerns LEADERS India tier-1 (Delhi NCR) Philippines tier-1 (Manila) Star Performer Significant challenge Buenos Aires, San Jose, and Guadalajara are the major contenders for transaction-intensive BPS Availability of sizeable talent pool, bi-lingual skills, and significant time-zone overlap are the key drivers for leverage of these locations Low Availability of talent 2 High 1 Fully-loaded, ongoing operating cost, including compensation, facilities, and technology expenses 2 Considers relevant entry-level and experienced talent Source: Everest Group (2016)

11 US Dollar appreciation is creating opportunities in Latin America 60% 50% 40% 30% 20% 10% 0% -10% Inflation & Devaluation 53% 42% 32% 24% 22% 19% 19% 13% 14% 12% 13% 11% 8% 9% 7% 8% 5% 5% 5% 4% 4% 3% 1% -1% Chile Chile Costa Rica Costa Rica Colombia Colombia Argentina Argentina Mexico Mexico Brazil Brazil Inflation Devaluation Latin America economic performance contracted in 2015, currencies have depreciated and inflation has raised Currency depreciation improves location attractiveness for global services delivery from locations like Chile, Argentina, Mexico, Colombia and Brazil Significant depreciation of the currencies has helped countries and companies in relation to the export of services, which still manifests itself as a bright spot

12 Latin American incentives for shared service centers Country Incentive Detail Costa Rica Free Trade Zone Regime Income Tax 100% exemption 8-10 years Income Tax 50% exemption following 6 years Exemption from custom duties, VAT and general sales tax Uruguay Free Trade Zone Regime SSC, Distant Attention Center and Free Zones Regime Income Tax 90% exemption 5 years Free Zone 100% exemption import-export taxes Distant Attention Center 100% Tax exemption Panamá Free Trade Zone Regime Argentina Export services regime Multinational Headquarters regime Income Tax full exemption Exemption on VAT and withholding tax on dividend remittances SSC executives income tax exemption Export services not subject to VAT Recovering VAT incurred on costs Software Industry: BsAs Indirect Tax exemption New regime for entry-exit of foreign currency Perú CCO & BPO incentive 1 HQ - headquartered Source: Deloitte BPO & CCO not subject to VAT ZOFRATACNA regime exempt from income Tax, VAT, excise Tax

13 Latin American incentives for shared service centers Country Incentive Detail Chile Export services regime Brazil Certain cities regime Back office Services not subject to VAT Other services rendered to other countries may be exempted Special incentives in certain cities Reduced service Tax, reduced property taxes Colombia Tax Free zone regime VAT and customs duty benefits Income tax at 15% rate Strong double tax treaty network México No special regime Reduced indirect taxes, strong double tax treaty network

14 Future trends to watch Global services view 1 Look for changing functional proposition of locations, e.g., Costa Rica emerging as a new location for IT services 2 Watch for legislative changes (e.g., labor, tax related laws) in the region, which can impact services industry 3 Be mindful of trade-offs between opportunities and risks (in particular security and political), especially as risks continue to evolve 4 Seek opportunities for penetration into domestic/regional demand markets Source: Everest Group (2016)

15 Gracias! Espacio para preguntas y comentarios mtucci@mvdconsulting.com