Nearshore Americas

Margins are Under Pressure, But Not Across the Board

Faced with rising costs and shrinking earnings, business process outsourcers (BPOs) have been engaging in some fancy footwork to keep profits within reach. With firms reluctant to pass on new costs to their clients, margins for some players have become razor-thin.

This week, a number of executives shared their experience of eking out profits under challenging circumstances.  In some cases, plans for expansion have been shelved because of challenges with work-from-home (WFH) arrangements. Others have been finding unique opportunities to grow organically during unusual times.

German Lopez, Chief Strategy Officer at Allied Global said the company had experienced a 30% reduction in revenues in its second quarter, when companies associated with its hospitality vertical suffered a major hit.

Allied Global, in ten Latin American markets, says it will end the year on par with 2019.

“Automatic downsizing occurred due to this,” he said, adding that the company was relocating staff to WFH at the same time.

This came with higher costs, and some staff had to be transported to and from home. The company also moved its network to the cloud, which created additional costs linked to payment for space and licensing.

“We have not been transitioning these costs to clients,” Lopez said. “Overall, we have been adapting. At the beginning it was challenging, moving from a controlled environment to managing agents remotely. We had to find ways to motivate them. It was very different… Now, we are getting back on track based on how the economy is changing.”

The company absorbed a 5% increase in total costs in the second quarter.

“Labor costs also impacted our balance sheet, because we tried to keep most of the agents. For some accounts, we put them on the phone, as we knew the bounce back was coming and staff are not easy to find,” he said.

Lopez said the company now aimed to return to the expenditure levels that were typical before the pandemic.

“We absorbed these costs, optimizing in other areas. For example, we were delaying some investments.” Lopez said. “We were also working with our technology teams to see what processes could be adjusted without hitting the business.”

Moving Payables Forward

Allied Global is also negotitating and delaying its outgoing payments.

Nevres Genc, Chief Commercial Officer for Allied Global BPO

“We were able to talk to our landlords who have given us discounts of between 40 and 50%, based on moving forward the start of the new contract year by two or three months,” Lopez said.

Nevres Genc, Chief Commercial Officer for Allied, said that from a new business and acquisition perspective, there was a slowdown due to the pandemic, especially in the area of hospitality.

“However, we saw other industries in need and were able to assist clients,” he said. “Some countries implemented martial law and our geographical diversity helped. As a result, we were creating organic growth three months after the pandemic [hit].”

Volumes were shifted to other locations owned by the company, Genc said.

Allied has ten centers located in Guatemala, Honduras, the Philippines and the United states. Martial law was declared in the Filipino capital Manila and volumes were transferred elsewhere.

“In the last two to three weeks, we have begun to see traction in new deals,” Genc said. “We are starting to see the appetite of companies searching for outsourcing needs which had started prior to the pandemic. Sole sourcing deals are starting to happen. Profit-wise, we will be closing 2020 close to 2019.”

“We are in good shape. We are ready to get back to the big leagues,” added Lopez. “This company also invests in new businesses. Based on what we are seeing, we have a good landscape in front of us.”

Clients Seeking Savings

David Fullwood, Chief Technology Officer for AtPoint, says clients are also trying to manage costs. AtPoint’s  founders are linked to BPO pioneer E-Services which was started in Jamaica. This newer company now operates  from two centers one in Kingston and the other in Montego Bay to offer merchant processing, healthcare, software-as-a-service (SaaS) and collections services.

“One has to recognize the global impact of Covid-19,” Fullwood said. “Many clients are being negatively impacted and are looking for savings, so charging more is not an option.  In our case, clients have asked for savings.”

David Fullwood, Chief Technology Officer at AtPoint BPO

Fullwood said that with the social distancing guidelines in place, most BPOs have to operate at reduced capacity. New clients have also had to put plans on pause because of the pandemic.

“We opened a new  center in February 2020, just before the lockdowns started, so we had to pause our business development activities…  We had a client who we were planning to onboard in April, [but this caused a] delay in their activities indefinitely.”

As in the case of Allied, increased costs were absorbed at AtPoint. “We absorbed the additional cost to operate during the pandemic,” Fullwood said. “These include but are not limited to increased electricity usage, transportation usage and expanded sanitation services.”

WFH models, he said, remain a security challenge. However, those complexities are being managed.

“Many BPO operators are now incorporating WFH to try and manage the adjustment in margins and maintain service levels,” Fullwood said. “This is going to be a game changer as we balance WFH with security concerns. There are those that feel mandating police records will mitigate that risk. However, you need to look at the demographic of your typical call center agent and you will quickly realize that because of the average age, they would not yet be in the system.”

OneLink BPO sees Growth under Covid

Eduardo Salazar, CEO of OneLink BPO. which has 12,000 agents (described by Salazar as the “Incredibles,” because “they are solving somebody’s problems,”) is planning to add another 1,000 by year end due to the level of growth in accounts.

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Eduardo Salazar, co-founder and managing partner of One-Link BPO

Operating across 14 sites in Mexico, Guatemala, El Salvador, Nicaragua, Colombia and Brazil, the CEO says increased costs under Covid-19 were incremental and mitigated by a high level of demand.

“With 80% of the workforce already working from home, the company experienced minimal disruption due to Covid-19.

“In fact we grew through the pandemic,” Salazar said. We have more than 45 clients out of whom only three or four were badly affected. We have actually seen 18% growth in revenue. Most of the growth is related to customers that have a digital online marketplace. Those are the lines of business in which we have seen a big spike. By the end of the year we will have an additional 800 to 1,000 ‘Incredibles.’”

Salazar said the company had avoided pain due to restricted margins.

“Frankly we are thriving. We are gaining good contracts at competitive rates,” he said. “We have not seen a difference in our margins… We were very fortunate to have had this experience.”

Salazar said the company remained focused on the Nearshore “because those are the markets we really understand.”

Success lies in the way you train and develop your staff, the CEO added.

“In Nearshore Latin America we have discovered tremendous value. A lot of people who were not interested in Nearshore are interested now. We have been able to capture a lot of opportunities coming our way.”

Avia Ustanny-Collinder

Avia Ustanny-Collinder is a senior editor at Nearshore Americas and an award-winning business journalist residing in St. Catherine, Jamaica.

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