In recent years, Latin America data center operators have invested in outsourcing services mostly to meet increasing IT capacity requirements, reduce operational costs and risks and develop virtualization and cloud technologies. But the expansion of IT capacity and the need for cloud-based services and sustainability are expected to become increasingly important drivers for future investment. These are the findings of the DCD Intelligence (DCDi) Latin American Market Trends report for 2013 to 2014.

The research shows the services most commonly deployed between 2012 and 2013 were as follows: Infrastructure-as-a-Service (IaaS), accounting for 25% of all outsourcing investment, hosting services, 22%, and private cloud, 20%. The use of basic hosting services continues to decline gradually, mainly because hosting services are being replaced by cloud-based services.

Investment in retail and wholesale colocation and managed hosting services is also predicted to decline in 2014. This is partly because of an ongoing shortage of colocation facilities and managed service specialists in several regional markets.

When looking at the way outsourcing services are consumed there are few similarities between the different regional markets. This is despite the deployment of more advanced forms of hosting, such as those based on cloud architectures. This is even the case in larger regional economies such as Brazil and Mexico.

In 2014, Argentina and Colombia are expected to show high rates of investment growth in outsourcing and colocation services, especially in cloud-based services.


Regional Investment Drivers for Outsourcing & Colocation Services 2012-2014 (% of sample)

Mexico is also experiencing strong demand for colo. Meanwhile Brazil – the region’s largest market – shows some unexpected trends, including the decline of investment in private and public cloud.

An analysis of investment by sector at a regional level indicates that higher adoption levels occur among the IT services sector and, to a lesser extent, among telecommunications companies. This indicates the extent to which IT services are becoming mutually dependent as they are deployed across the region. LATAM markets are experiencing exploding data traffic volumes because of increased adoption of mobile technologies.

Investment in outsourcing services is driven by organizations with a global data center footprint. In many cases this approach helps the company to expand globally.

Outsourcing investment
DCDi’s latest Latin American Market Trends report also examines the amount being invested in outsourcing solutions. In the 12 months to mid-2013, approximately US$3.3bn was invested in outsourcing and colocation services across Latin America. This represents a 22% increase over 2012’s figure of US$2.7bn.

In 2014 investment in outsourcing is expected to grow by 15% to $3.8bn.


Investment in Colocation & Outsourcing Services by Market 2012-2013

Brazil accounts for about 40% of regional investment in outsourcing services. This is slightly less than its share of the total data center footprint. The relative size of the Brazilian market allows for economies of scale not available elsewhere in the region, with the possible exception of Mexico. However, Brazil’s high 34% rate of growth in 2013 is not expected to continue in 2014. Growth is predicted to fall to 3% this year.

Other markets show more consistent growth with the exception of Colombia where a decline in investment in 2013 is a prelude to new facilities and services coming to market.

The interlocking of outsourcing services and suppliers at various levels of IT supply buying means the IT services sector is the largest single source of investment. This is followed by finance, telecommunications and industry/production. Organizations with a national data center focus were the largest group of investors in 2013, and this trend is expected to increase in 2014. This investment profile is consistent with an outsourced footprint based on a small number of racks.

Inhouse investment
Latin American financial institutions can be seen as leaders when it comes to investment in cloud and virtualization technologies. Our report shows that 51% of respondents from the financial sector already invest in cloud and virtualization.

Important investment drivers for these firms include changing corporate requirements (a driver for 53% of respondents) and legislative demands (38%). These drivers are also prompting the sector to consider outsourcing.


Investment in Outsourcing & Colocation Services by Market 2011-2014 (US$m)


Latin American Investment Drivers 2010-2014

In contrast, government institutions are looking to replace ‘end of life’ facilities (49% of respondents) and to meet legislative/accreditation requirements (43%).

Colocation providers are mainly investing to improve sustainability (54%), reduce operating costs (62%) and improve their use of space (52%).

Combine all investment avenues and there are patterns of significant year-on-year growth across the industry, particularly with investment aimed at supporting new builds, refitting/refreshing an existing data center and other projects. Other projects include specific investment toward virtualization, utility computing and the Cloud.

Based on the sample of organizations surveyed, 54% of total inhouse investments from 2012 to 2013 were devoted to building new facilities. By contrast, just 13% was assigned to extending existing facilities, 11% to refitting or refreshing a facility and 11% to consolidation.

In Mexico, Central America and Peru the largest share of investment goes toward new builds.

In Argentina, Brazil and Chile, however, less than 50% of investment goes toward new builds. In these markets data center operators are focusing on the extension of existing facilities (close to 20% of investment). In the case of Argentina and Chile, large refit or refresh projects account for one-quarter of investment.

When analyzed by sector, it is the financial services players and government institutions that invest the bulk of their resources into new builds. Meanwhile, the high proportion of investment by IT services devoted to other avenues suggests that virtualization and cloud architecture deployments are more prevalent.

Among companies with a local facility footprint there is a tendency to invest in extending and refitting or refreshing existing data centers, rather than build new ones.

For more information on the Latin American arket and other reports by DCDIntelligence click here.

This article first appeared in FOCUS issue 35. To read the full digital edition, click here. Or download a copy for the iPad from DCDFocus.