Peru, Puerto Rico, Brazil, and Colombia drive forward with big projects

By Clayton Browne

Latin America has long been considered a laggard in terms of global infrastructure development, but that perception should be changing. Countries such as Brazil, Mexico, Chile, Peru, and Puerto Rico have all begun major long-term infrastructure projects ranging from roads to dams to telecommunications towers to airports. Infrastructure development in the areas of energy, transportation and telecommunications have seen the greatest recent growth, with estimates ranging as high as $450 billion, to be spent on infrastructure in the area between 2011 and 2015.

Up until 2009, Latin American infrastructure spending was on a rapid growth track and there were dozens of major projects planned in almost every country in the hemisphere. The global recession has put a little damper on the pace of the growth, and a number of projects have been delayed or revised, but overall the impact of the recession on infrastructure expenditures does not seem to have been as bad as feared. Several countries such as Brazil and Chile have just announced new projects and updated schedules for planned and ongoing projects in 2012 and beyond.

Public Sector vs Public-Private Initiatives

Large-scale private-public partnerships for infrastructure development have been rare in Latin America until relatively recently due to a combination of cultural and business factors. There is a deep suspicion of private involvement in large public infrastructure projects in many places in Central and South America due to the fact that graft and misappropriation of public funds has been endemic in many such projects in the past. And in some countries such as Venezuela, there is outright hostility toward private enterprises being involved at almost any level in government projects.

The other side of the coin is that historically many public sector infrastructure projects in Latin American countries have also been inefficient graft-plagued projects where a few politicians or their friends and family greatly enriched themselves at the public expense.

But all of this is changing as the 21st century gets under way, and many countries like Brazil, Chile, Puerto Rico, and Peru have crafted innovative new regulations to encourage public-private partnerships (PPPs) for infrastructural development. A few have even created quasi-governmental agencies to encourage PPPs, such as the Puerto Rico Public-Private Partnerships Authority.

That said, there are still a good number of ongoing and planned Latin American infrastructure projects such as airports that are deemed to be of sovereign interest, and are being developed solely with public funds.

Energy Infrastructure Supplanting Telecom

The development of telecommunications infrastructure has been a high priority throughout Latin America since the late 1990s, and there were more projects and more money spent on telecommunications infrastructure in Lain American countries than any other category for almost a decade. The trend continued until 2009, when investment in telecommunications declined by 37% compared to 2008, and no major new projects were undertaken.

The energy sector has seen rapid growth in the last few years in many Latin American nations, with energy infrastructure investment jumping by 127% with 43 new projects from 2008 to 2009. Brazil has been especially active in the energy sector since 2008 with two new hydroelectric plants and half a dozen major electrical transmission-related projects.

Major Projects in Selected Countries

Brazil

Brazil was one of the leading per capita infrastructure dollars to GDP spenders in the world in the 1970s and early 80s, but infrastructure expenditures dropped off significantly for the next decade or so after that. But Brazil has recently kicked off a massive campaign of new infrastructure projects of all types, dubbed the Growth Acceleration Plan. Many of these projects are being developed through the Brazilian National Development bank (BNDES), and BNDES estimates that Brazil will spend a minimum of $145 billion in the three-year period from 2010-2012. While the fact that Brazil is becoming the largest economic engine in Latin America is clearly behind most of the current surge in infrastructural development, a good bit of it is certainly related to the fact that Brazil is hosting the 2014 World Cup and the 2016 Summer Olympics.

Ongoing/Near-Future Infrastructure Projects

• Recently completed a three-year, $30 billion roads and highways improvement project.

• Almost 50 stadium, road, airport and train-related infrastructure projects slated to be finished on time for the 2014 World Cup.

• A high-speed train linking Rio de Janeiro and São Paolo due to be completed by the 2016 Olympics.

Colombia

Colombia has taken great strides in both sociopolitical and infrastructural development in the last decade or so, but it was very much needed and a great deal that remains to be done. Colombia’s current National Development Plan estimates spending $17 billion between 2010-2014 to develop the highway and railroad system, with up to half of the money coming from private funds.

Ongoing/Near-Future Infrastructure Projects

• Nearing completion of the multi-year, three-phase Ruta del Sol, a major highway project designed to connect the interior of Colombia with the Pacific Coast.

• The Central Railroad System, a project linking the two regional hub cities of Honda and Chiriguana, is under construction.

• Development of a new program to encourage the investment of private capital in infrastructure investment projects that helps link up the various parties involved, including the headquarters of the Superintendent Notary and Registrar.

Peru

Peru began a major infrastructural development push in the late 90s and continues to make steady improvements in infrastructure in the first decade of the 21st century. In Fact, the 2010 Infrascope, an index created the Economic Intelligence Unit (EIU) ranking countries by political, legal and economic policies encouraging infrastructural development, ranks Peru as the third best country in all of Latin America (behind Chile and Brazil).

Ongoing/Near-Future Infrastructure Projects

• Peru currently has over $8 billion in public infrastructure projects planned or in construction

• Several regional projects to develop areas selected in coordination with the petrochemical industry

• Long-term plan to develop the island of San Lorenzo, located 4 km off of the coast of Lima, into a “satellite city on the sea, with special areas for production or recreation with the latest technologies.”

Puerto Rico

The last couple of decades of the 20th century saw Puerto Rico make great strides to catching up to most of the rest of the U.S. in terms of public infrastructure in terms of electricity productions, roads, hospitals and so forth. However, the school system and low-income housing lagged behind and were the most pressing infrastructural needs of the island nation. Fortunately, the American Reinvestment and Recovery Act of 2009 provided a $7.2 billion stimulus funding to Puerto Rico.

According to José Basora, the Executive Director of the Puerto Rico Infrastructure Financing Authority, “The government decided to put most of the stimulus money to work in a variety of new infrastructure-related projects, and to date we have spent over 88% of the funds allotted.”

Ongoing/Near-Future Infrastructure Projects

• The Schools for the 21st Century Program has built or remodeled 103 schools throughout Puerto Rico for a total cost of $756 million. This program has improved the education facilities of over 45,000 students and 3500 teachers.

• Ongoing public and public-private weatherization and energy conservation programs that have resulted in major home or building energy-efficiency upgrades for over 15,000 homes of senior citizens and low-income families as well as 600 government and private buildings.

• PPP projects developed through the Puerto Rico Public-Private Partnerships Authority include a recent $120 million education and training initiative to which Intel contributed $12 million as seed money.

By Patrick Haller

When making sourcing decisions, a lot of attention is paid to the pricing structure and qualifications of service providers, while their actual location is sometimes a secondary  consideration. However, when assessing a destination, it’s important to realize that what might be favorable today can morph into a nightmare scenario tomorrow. Don’t be caught unaware and unprepared for the ever-changing dynamics of  the Nearshore.

The best-shoring process goes beyond looking at the usual criteria like cost effectiveness, employee attrition and service capabilities, and examines issues such as the hidden aspects of hiring and firing, how non-performance claims are managed, a country’s political stability, propensity for natural disasters, nationalization of businesses, and concerns about infrastructure. It’s dangerous to give these critical factors short shrift when concentrating on which provider offers the best financial deal.

International management consulting firm A.T. Kearney advises that “the best-shoring evaluation process selects the most favorable location by applying a comprehensive set of criteria, which include not only current cost effectiveness and scenario analyses, but also an assessment of service and quality levels, as well as the question of warranty.”

“There are several items that are driving the trends towards best sourcing of solutions,” said Ed Fitzpatrick, director of Managed Services at Charles River Development, during a podcast about IT development, “The key thing is the competitive nature of the industry. Especially coming off the last couple of years in the worldwide financial situation, it’s about proving competitiveness, lowering costs, driving operational efficiencies, getting more value out of their investments in technology and systems, better aligning costs and values, and of course, reducing the strain on limited internal IT resources.”

Looking deeper than immediate cost savings, buyers should take into consideration driving factors, such as:

• Available Talent – How big is the current qualified labor pool? Will the operation be able to scale-up over the next five to ten years? Who are the competitors for the same talent? What are the strengths and weaknesses? Are wages expected to increase from year-to-year? Do the labor laws favor workers or employers?  For example, even though Brazil has the largest population in South America, can the country offer better software developers than Colombia? Can Colombia compete on the wage scale with Chile? Will Chile produce enough qualified candidates for contact center work over the long-term than Argentina? Will wage inflation and restrictive labor laws in Argentina have an adverse effect on the ability to continue operations there? Which nation is known for a strong work ethic as compared to the others?  When it comes to hiring and firing, every aspect of the country’s employment law should be examined carefully.

• Soundness of Infrastructure – Just because a country was known for having solid infrastructure in the past does not mean it will be true in the future. For instance, Chile was thought of us being relatively sound in this regard, but recently President Piñera warned executives that Chile would face an energy crisis during his administration due to an estimated annual demand increase of up to 7%. Other nations too might face energy crises, or an inability to keep up with the need for improved telecommunications technology and internet access. Safe roads and highways, efficient and adequate transportation systems, accessibility to international airports are also major considerations. El Dorado, the main international airport in Colombia’s capital city, Bogota, is being completely rebuilt in order to accommodate the heavily increased passenger traffic. However, observers have noted that by time the new facility is completely operational it will already be inadequate. Therefore, plans are under consideration to build a second airport.

• Natural Disasters – No country on earth is safeguarded from nature’s wrath. However, some are more prone to disasters than others. As charted by PreventionWeb, Chile is more prone to earthquakes than flooding, Colombia can suffer from flooding and earthquakes, Argentina is also susceptible to flooding whereas drought is the biggest threat to Brazil. Whatever the hazard, be sure redundant systems are in place and assess how quickly business can resume.

• Claims for Non-performance – Even though the contract might contain very specific clauses relating to non-performance issues, what jurisdiction will the contract be enforced in? If in the provider’s home country is there a enough of a history of similar cases in order to establish a precedence, and if so, who have they favored? If not, how would such a case be handled?

• Political Risk – Are foreign business entities welcome to operate freely within the selected country? Does the country have a history of nationalizing private enterprises, or are there indications to suggest this will start happening? Can the government close down an operation that is deemed contrary to their philosophy? Will a foreign entity, or a company hired by a foreign entity, be abruptly shut down? These are very real concerns, especially in Latin America where the political dynamics change rapidly in some nations. Closely examine the policies of countries such as Venezuela and Argentina who have been shown to be volatile environments, whereas Chile and Colombia stand as recent examples of political stability.

• Immigration Policies – Providers might need to hire employees from other countries, even on a temporary basis, in order to ensure they have the right individual in the right position. Also, companies that have shared services or captives most likely will want at least some high-level personnel from established business centers to oversee their operations. What countries are more welcoming to foreign workers? Where are the least restrictive immigration policies? Can foreign employees be arrested or deported without cause? Be sure to research these policies in-depth and gain an understanding of a particular country’s record, and pay attention to the “writing on the wall.”

Do not underestimate the importance of digging into these fundamental aspects of sourcing. Remember that the relationship is not only with your provider, but also with their country.

By Bill Huber, Partner, ISG, and Kristen Elvinger, Research Associate

Concerns exist over the capacity of Latin American service providers to absorb rapid growth. Several global providers currently have a presence in Latin America, and tax and other trade incentives will help attract more outsourcers to the region. And, many Latin American countries are positioned to further develop emerging areas of specialization. Indeed, lessons learned from India, China, and some Eastern European countries suggest that specialization and quality-focused differentiation will be the keys to success, especially for countries with small populations.

Following is a review of major outsourcing destinations in Latin America, including assessments of strengths and business environments.

Mexico’s Head Start

Mexico benefits from a ten-year or so head start in the outsourcing business (primarily in call centers), proximity to the United States, membership in NAFTA, and a large pool of English speakers. Additional pluses: high-quality telecom infrastructure, good quality road and railway networks, and many airports. Mexico’s growing IT and BPO offerings are expected to increase 10% year-on-year, according to a study by HfS. Several cities offer a variety of trade incentives, including cash grants of up to 50% of total investments, and tax credits up to 30% of R&D expenses. Indeed, competition between states and cities to attract clients is helping to drive Mexico’s outsourcing maturity. While some have expressed concern about Mexico’s ability to develop higher value offerings, a number of initiatives – such as the Programa para el Desarrollo de la Industria del Software (PROSOFT) – are in place to develop skills for the workplace. On the downside, myriad security risks, both real and perceived, have hurt Mexico’s reputation.

Brazil Is Bigger

With the largest IT market in Latin America and the world’s second largest pool of COBOL programmers, Brazil boasts formidable outsourcing resources, characterized by a the presence of several global providers, well-established call center business, many R&D development centers, and a strong global services industry. While English fluency rates are low at 5%, that figure still represents approximately 10 million people, meaning Brazil has the ability to scale. Brazil also has very good telecommunications infrastructure, wide use of broadband, and the second highest number of airports in the world.

With a history as a quick adopter of new technology and methods, Brazil anticipates significant growth in high-value BPO and ITO in the next two years. Labor and export regulations, however, are a negative. And while incentives such as reduction in social security contributions and tax deductions for technology transfers are attractive to IT companies, exports of services are taxed heavily. Moreover, unfavorable labor laws and associated employment costs can be a concern. This paired with their large potential talent base gives them the opportunity to become a large nearshore destination if the government can create better trade incentives and bureaucracy.

Argentina’s Infrastructure and Bilingualism

Argentina boasts the best telecommunications infrastructure, the second-largest IT market, and the largest pool of bilingual employees in Latin America. Following the devaluation of the peso in 2001, Argentina took an economic hit that drove down wages and office real estate, which in turn attracted outsourcers. Responding to the opportunity, the government implemented a plan to develop the IT industry, focusing on software development and technical call centers. The initiative was characterized by a range of incentives for IT companies, including a 60% income tax exemption for software companies, 70% reduction on social contributions, and no restrictions on wiring foreign currencies for imports.

Argentina’s more progressive standards and data protection laws, moreover, are attractive. While Argentina is well-positioned to attract further outsourcing activity, bureaucratic hurdles are an obstacle, as with many other Latin American countries. Also, Argentina is implementing new trade restrictions . To address the challenges, many foreign companies are initially partnering with local providers when entering Argentina’s market.

Chile Seeks Higher Value

Chile’s stable government and currency, well-developed telecommunications infrastructure, and easy immigration policies make for an attractive destination for outsourcers. Recognizing that its small size requires a quality-rather-than-quantity-focused approach, Chile has created longer, more extensive IT education programs geared to high-value KPO, ITO, and shared services. The Chilean Economic Development Agency (CORFO) created InvestChile to provide investment incentives in more high-tech fields. Free trade agreements with the US, Canada, Australia, and China, as well as agreements to avoid double taxation on exports, are also attractive. Although approximately a ten-hour flight from the US, Chile shares time zones with the US. ChileiT is also actively working to promote its members to the international market.

Other Nations on the Rise

Other Latin American countries growing their outsourcing offerings include Costa Rica, Panama, Uruguay, El Salvador, Colombia, and Nicaragua. Most offer a few tax incentives and relatively good language skills. Key requirements will be to improve telecommunications infrastructure, grow English speaking populations, and develop IT skills. At present, most activity is in call centers, with a focus on specialization as a differentiating factor. Costa Rica, for example, touts its expertise in financial services.

Latin American countries are working hard to gain market share and raise their profiles as outsourcing destinations. Years of developing workforces, improving trade incentives, and building political stability are paying off. Concerns over scale are being addressed through pooling across multiple locations. Providers who are pursuing this strategy include Accenture, Capgemini, IBM, TCS, HCL, Cognizant, and Wipro.

Specialization can help Latin countries gain further advantage aside from being a nearshore destination. Although this strategy includes some risk, as outsourcing trends can change, many large destinations got their start using this approach. So far, Latin America has taken great steps in developing better skilled workforces and better business environments to support their Nearshore advantages of shared time zones, cultural affinity with the US, and more accent-neutral English skills. With proper identification of processes to outsource and the appropriate matchup of location and company, US companies can benefit greatly from Nearshoring to Latin America.

Bill Huber is Partner with ISG, a leading technology insights, market intelligence, and advisory services company. Kristen Elvinger is a research associate.

Jamaica’s growing reputation as a top Caribbean destination for investment in Information and Communication Technology (ICT) and other key growth sectors is set to take centre stage on March 1-2, 2012, as the island lays out the red carpet for investors seeking opportunities in the region’s largest English-speaking economy.

The Jamaica Investment Forum 2012, which will be staged at the new Montego Bay Convention Centre, will focus on the business opportunities that exist in ICT, as well as other priority areas such as Tourism, Manufacturing and major privatization and development projects.

The Prime Minister of Jamaica, the Most Hon. Portia Simpson Miller, will head a high profile slate of local and international speakers at the Forum, which is being organized by JAMPRO, the country’s investment promotion agency, in partnership with the Inter-American Development Bank (IDB) and the Compete Caribbean Programme. The opening of the event will feature presentations from Anthony Hylton, the Minister of Industry, Investment and Commerce, and a high-level representative from the IDB.

The sectoral session on ICT will focus on opportunities in Business Process Outsourcing (BPO) and IT Export Services (ITES) and will feature a mix of information and testimonials from expert panellists and existing investors. Among the confirmed speakers for this session are Connie Harvey, EVP, COO, Commercial Solutions, ACS, A Xerox Company; Dr. Harsh Muthal, CEO Tholons Inc.; Ambassador Patrick Casserly, Special Envoy for ICT; and Helena Lawson Brooks, SVP- Specialty Operations, Convergys Corporation. Phillip Vandervoort, Head of Business and Marketing Operations, Microsoft, is scheduled to deliver a presentation during the investment climate plenary.

Participants will have the opportunity to see first-hand some of the select investment projects on specially arranged JAMPRO site visits and private meetings. Prime Minister Simpson Miller will also host a welcome reception at which participants will be able to meet members of the Jamaican Government and senior leaders in the private and public sectors. A special “Jamaica Night” reception will cap off a comprehensive social programme that will offer participants, diverse opportunities for leisure, tours and sightseeing.

Jamaica is home to four of the world’s top 10 outsourcing companies, and currently has over 11,000 full-time agents in the offshore business process outsourcing (BPO) sector. With nearshore access to the United States, a neutral English accent, low attrition rates and high labour force availability among secondary and university graduates, Jamaica continues to offer a very strong value proposition for BPO investors.

Most recently, Jamaica landed a major investment from Convergys Corporation, one of the largest agent-assisted customer service companies in the world. The company is projected to employ nearly 1,000 persons when its first call centre slated for Montego Bay becomes fully staffed in 2012.

The Jamaica Investment Forum will provide potential investors with insightful information pertaining to the Government of Jamaica’s investment policies and incentive regimes; and networking opportunities among existing investors and leaders in the local business community. The Forum has received strong backing from the local business community. Among the many local sponsors are: FLOW/Columbus Communications, LIME, Digicel, Jamaica Public Service Company, and the Bank of Nova Scotia.

Source: MercoPress

President Cristina Fernandez has more power than Juan Domingo Peron “ever had” and Peronism in Argentina is guarantee of governance, according to Carlos Corach a former Interior minister from the former President Carlos Menem administration and a respected solicitor and political analyst.

“Cristina Fernandez is probably the president which has enjoyed more power in the history of Argentina. I’d say even more, she has more power than what Peron had. Peron had to deal and negotiate with very strong corporations, and economic and political sectors”, said the former minister.

Corach added that Peron (the Army Colonel who was president from 1946/1952, re-elected in 1952 but ousted by a military coup in 1955, to return triumphantly in 1973) had to learn to live with the Armed Forces, a very powerful Catholic Church and an opposition that also had strong and charismatic leaders”.

“Currently the majority of those players don’t hold such positions. So the conclusion then is that CFK is the most powerful (elected) president in Argentine history”. However “a democratic and political system need of counter balances for a political equilibrium and that today is non existent”.

Corach admitted that the evolution of policy in recent years has led to this situation and recalled a famous Peronism party congress back in 2001, which he identified as “the beginning of the very strong institutional deterioration process” suffered by Argentina.

Asked specifically about Kirchnerism and its quest for power concentration, Corach said that political science shows “that power leads to the concentration of power” and admitted that Peronism “has in its DNA a strong tendency to concentrate power”.

“All of us Peronists have committed mistakes, in the government of Peron, in Menem’s and under the current administration. We all committed mistakes but nevertheless the Argentine electorate continues to vote for Peronism and this is because it has internally engraved that Peronism is the guarantee for governance” in Argentina.

Likewise Corach said that there are “great similarities” between Menemism and Kirchnerism, and Carlos Menem and Nestor Kirchner “had much in common”.

“They both implemented socio-economic plans that were prevalent in the economic thinking at the global stage of their time. Likewise and I said so on leaving office in 1999, ‘Menemism’ does not exist because they are political currents which nurture on the charismatic personality of a leader or the political boss at the time. What remains is the essence of Peronism and it’s very close link with the trade unions’ movement”, added Corach.

Finally he recalled that when former president Nestor Kirchner was governor of the province of Santa Cruz “we had regular and standing contacts, he would come regularly to my office, many times with (Federal Planning Minister Julio) De Vido, and I have travelled many times to the province and Rio Gallegos. We shared lunch quite often at the Governor’s residence, with his wife and my wife”.

Source: CNN

The rise of Brazil as an economic force has brought with it a policy challenge familiar here in the United States: immigration.

Recently crowned the world’s sixth-largest economy, Brazil has become an immigration magnet, both to low-skilled workers –some of whom enter illegally — and high-skilled workers looking for opportunities in the country’s thriving sectors.

Brazil historically has been welcoming to immigrants, but the challenge now is more pronounced as the government seeks to accept foreigners while protecting its hard-won prosperity.

The country faces two simultaneous challenges: how to deal with recent illegal immigration, mostly from Haiti, and how to make it easier for highly educated immigrants to get work permits. A number of Brazilian ministries have either proposed or are deliberating policies as the country ushers in a new era of immigration.

“You cannot become the sixth economy in the world with impunity,” Defense Minister Celso Amorim, a former foreign minister, said recently.

Before, people left Brazil to chase a better life, he said. Now, the tide has turned.

“Naturally, we have to study how to act during this new situation. It’s not just Haitians, but Brazilians who are returning. We have to try to exercise the same humanitarian spirit that’s present in Haiti (where Brazil leads a U.N. mission), and in a manner that compatible with our means,” Amorim said.

In 2011 through September, Brazil processed 52,353 work permits to immigrants, a 32.8% increase over 2010.

Brazil’s needs and wants have created the situation where there are ideas to limit the entry of some immigrants and entice the entry of others.

In recent decades in Brazil, the education levels of the population have increased significantly, said Ernesto Amaral, a demographer and professor at the Federal University of Minas Gerais, Brazil.

In that period, an increase in the number of educated workers meant more competition for jobs and a negative impact on wages, he said.

“But this negative impact is decreasing because we have the demand for skilled labor in Brazil,” he said.

In other words, Brazil’s boom has created an environment where the demand for high-skilled jobs is now outpacing the growth of Brazil’s educated workforce.

To meet this challenge, Brazil will have to ramp up its education efforts even more.

“Immigration is important in the short run. We need these workers in Brazil right now,” he said.

At the same time, an opposite effect is happening for low-skilled work, Amaral said.

The percentage of low-educated Brazilians is decreasing, but the demand for low-skilled labor is decreasing faster, he said.

Amaral summed up the way that Brazilians, usually welcoming to immigrants, see this development: “We want to help these low-skilled people, but there is a limit.”

Facing with illegal immigration from Haiti, Brazil’s National Council on Immigration agreed this month to provide 1,200 work visas per year to Haitians affected by the 2010 earthquake who emigrate to Brazil.

The work permits will be good for five years, a period during which the immigrants will find jobs and apply for extensions, or will return home. Unlike other work visas in Brazil, applicants need not have a job contract in hand when they arrive.

Under the plan, those immigrants already in the country who entered illegally will be “regularized.”

Unlike the United States, where illegal entry by low-skilled workers is often viewed as a threat, Brazilians are extolling the positives such newly-legalized immigrants can bring.

“For example, the Haitians speak French and could be useful in the cities where the World Cup games will be held,” Labor Minister Paulo Roberto dos Santos Pinto said.

The country’s justice secretary, Paulo Abrao, is another immigration cheerleader.

“Brazil can be an example to the world of an immigration policy that is open and democratic that reflects our historical welcoming tradition,” he said on Twitter this week.

He continued: “Immigrants add cultural value to Brazil and collaborate in the development of the nation.”

In addition to providing visas for the Haitians, the health department offered 1.3 million reais (U.S. $745,000) for healthcare for them.

But pleasantries aside, Brazil has an economy to protect, and the work visas might signify a closing of a door rather than an opening.

“The attempt to grant visas is an attempt to limit and control the number that come, rather than being generous and open,” said Albert Fishlow, professor emeritus at Columbia University and the author of “Starting Over: Brazil Since 1985.”

The approach toward immigration by Brazil and the United States isn’t that different after all, he said.

“Both countries want to benefit from advances in technology and both countries want to attract people who are relatively skilled and have an opportunity to contribute to that,” Fishlow said.

As for low-skilled immigration, there are other forces raising opposition to their entry.

The Haitian immigrants are arriving mostly to the western states of Amazonas and Acre, in the heart of the Amazon rain forest. A debate of great importance in Brazil currently is how to protect the Amazon. This is the larger issue behind the immigration debate, Fishlow said: will the Amazon be less protected with an influx of newcomers?

Meanwhile, the country’s Secretary of Strategic Affairs has created a team that will propose a new national immigration policy wit emphasis on high-skilled workers.

One reported proposal would create two “lines” for foreigners applying for work visas in Brazil. One for highly-educated applicants, and one for everyone else.

The coordinator for the project, Ricardo Paes de Barros, declined to speak to CNN about the commission’s deliberations.

Source: MarketWatch

Financial market analysts and economists reduced their forecasts for Brazil’s inflation this year for the ninth consecutive week, a survey by the Central Bank of Brazil showed Monday.

Economists now expect the country’s inflation to average 5.28% this year, down slightly from a forecast of 5.29% a week earlier, according to the survey. The forecast is still above the central bank’s inflation target of 4.5% for the year.

Brazil’s inflation rate reached 6.50% last year, the highest since hitting 7.6% in 2004.

For 2013, respondents kept their inflation forecast at 5%.

The central bank’s weekly survey tracks the opinions of 100 analysts and economists and reports the average of their expectations.

The forecast for the central bank’s benchmark Selic interest rate at the end of 2012 remained at 9.50%, while the forecast for end-2013 was raised to 10.38% from 10.25%.

Respondents kept their estimate for Brazil’s 2012 gross domestic product growth at 3.27%. For 2013, they lowered their view to 4.15% from 4.25%.

The average expectation for Brazil’s debt-to-GDP ratio at the end of this year was reduced to 36.95% from 37%.

The forecast for this year’s trade surplus increased to $19.80 billion, from $19.60 billion. Analysts expect Brazil to post a current-account deficit of $65.90 billion at the end of this year.

Brazil’s currency, the real, is expected to end this year at BRL1.80 to the dollar, according to the survey.

Source: The Jamaica Observer

Although mandated studies have found an estimated overall 64 per cent level of “compliance” in the Caricom Single Market and Economy (CSME), the harsh reality is that it is yet to be “fully embraced” by a number of member states.

That, basically, is the assessment of findings in reports submitted to the Georgetown- based Caricom Secretariat with free intra-regional movement of services and the right of establishment identified as the two areas of “major deficiencies” among the five “core regimes” of the CSME.

Additionally, there continues to be disappointment and discomfort with respect to the pace of progress in addressing the old problem of free movement of Caricom nationals with particular concern in relation to advancing the process of free movement of skilled nationals of the 15-member community.

The five “core regimes” of the CSME — the often claimed “flagship project” of Caricom which will mark its 39th year of existence with this coming July’s annual Heads of Government Summit — are the free movement of skills, goods, services and capital, and the right of establishment of businesses to freely operate in member states across the community.

While, at first glance, the approximate 64 per cent “compliance” may bring comfort to some, the real concern for all governments and business sectors anxious for the realisation of substantial progress of the CSME should be an effective process of combined monitoring by them to ensure required compliance.

This does not have to be done publicly — unless really necessary — but quietly with set timeframes with a view to, hopefully, avoid more of the same ad nauseam post-mortem why the CSME seems stuck in the mud while our ears continue to be filled with official rhetoric of our regional “survival together” — against the odds — or “perishing collectively”.

Much criticism is often levelled — and not without relevance — about the foot-dragging politics by governments in steering a committed course in advancing the arrangements for realisation of a seamless regional economy via the CSME.

The reality, however, is that too often the regional private sector, and in particular the so-called “captains of industry” and “enlightened entrepreneurs” escape blame when such blame should be shared.

Caribbean Business Council

A good example, outside of the real and perceived “deficiencies” in the “compliance” level with respect to the CSME could well be the failure by governments and the private sector to make a reality of the long mooted and recognised need for the creation of a Caribbean Business Council (CBC).

Such a mechanism was once vigorously advocated by once very articulate and visionary spokesmen on behalf of the region’s private sector — such as Jamaica’s James Moss-Solomon and Guyana’s Pat Thompson. I have covered regional Heads of Government and ministerial meetings where leaders of governments and the region’s private sector spoke eloquently in favour of establishment of the CBC.

But sadly, while by October 25 last year we were learning of the coming establishment of a Latin America and Caribbean Business Council as an initiative of the Group of Latin American and Caribbean Countries (GRULAC) — an announcement that came via Kuwait — there is yet to be some concrete evidence of regional initiatives within Caricom for the inauguration of the long promised Caribbean Business Council.

Truth is, more than the apparent need for hastening the process for inauguration of the CBC to strengthen government/business partnership for regional development, and consistent with the primary objectives of the CSME, there seems to be an urgent need for a permanent monitoring mechanism on “compliance” with provisions of the Revised Caricom Treaty on which the CSME is anchored.

But it is felt that such a process, which could be done with minor staff adjustments within the Caricom Secretariat, should be approved — perhaps at the coming first Inter-Sessional Meeting of community leaders in Suriname — but should be linked to a sanction requirement on defaults.

Other wider perspectives on the future of Caricom, and specifically realisation of the CSME, include suggestions for new invigorated approaches to deepen intra-regional investment and trade to include Cuba, the Dominican Republic and Central American states such as Costa Rica.

Further, that public-private sector partnerships could be pursued within the scope of a new arrangement for a special window being opened with the Caribbean Development Bank (CDB) and the Eastern Caribbean Central Bank (ECCB) for the blending of grants and concessionary loans along with excessive liquidity available in some countries.

The sectors to be targeted, according to such advocates who are regularly monitoring regional developments, can include maritime transport, food security with increased production of staples like root crops and rice, as well as small livestock (for sheep and goat meat) and tropical agricultural products and cultural services geared for the tourism industry.

By Luke Bujarski

High employee turnover is something that sourcing managers have learned to put up with when offshoring IT and BPO tasks to India. But now the Philippines has also begun showing signs of overheating. Given Latin America’s relatively small labor pools, we worry that the region might follow suit and succumb to the same pressures that have pushed the Philippines to its limits. So far, rampant turnover has not been a major problem with LatAm markets. But just in case, we decided to take another look at some of the details around attrition and other symptoms of hot labor market conditions.

What we found is that while Latin American labor pools are fewer and often smaller, sound management practices at the company level, greater company loyalty, and slower, more organic industry growth have kept attrition rates lower than what has been seen in both India and the Philippines.

What’s Up with the Philippines? 

“BPO firms [in the Philippines] are experiencing difficulty in hiring and retaining “capable employees,” thus, resulting in higher attrition rates and an increase in hiring and retention costs,” noted global consulting firm Tholons in a recent report. Other sources suggest that up to 75 percent of the Philippine people speak good English, so it’s no surprise that the BPO industry (in revenues) has been growing at 20 percent annually. Market research firm XMG Global also expressed concern over the growing “talent problem” in the Philippines – not only with today’s labor force, but also with high dropout rates in the labor pipeline in primary and secondary school. As a result of this and other factors, labor costs are expected to go up by 25-60 percent over the next five years.

Despite these warning signs, the Business Process Outsourcing Association of the Philippines, in a joint report with Everest Research, anticipates the industry to almost double by 2016 to 900,000 employees. For those service providers already battling it out with runaway training and recruitment costs, wage inflation, disrupted project workflows, and inconsistency in service level quality, those projections may be a hard pill to swallow.

LatAm Sensitivity to Demand Pressures 

When it comes to contact centers and BPO, English-speaking labor pools in Latin America are relatively small and hence tend to be more susceptible to demand and supply misalignment. Central American countries are a case in point as is currently being witnessed in Guatemala, where a growing price war for bilingual agents is forcing companies like 24/7 Customer to diversify their coverage base into Nicaragua. Going forward, as even smaller markets like Belize and Honduras grow into the BPO industry, service providers should take care not to over promise and under deliver on total cost and service level agreements. Likewise, government officials should be careful not to ‘over promote’ their regions’ capabilities, without backing up their initiatives with matching training and education dollars.

Concern over employee churn also has a lot to do with the type of business that you’re in. According to Tony Mataya from Think Solutions, on the whole, Mexico’s IT services industry has not seen the type of attrition rates experienced in India. Chris Snyder CIO of Hulcher also said that it has a lot to do with the fact that just like Americans, “Indians don’t want to work the third shift if they don’t have to” – referring to the 12-hour time zone gab between the US and India. This is particularly true when dealing with agile, scrum and other live-time software development methodologies. “We tried agile with India, but turnover got to the point of ridiculousness.” Snyder also noted that they’ve had much better luck in Brazil, although they’ve found it increasingly difficult to retain and recruit talent since signing on with Stefanini Solutions three years ago.

Market Fundamentals: Mexico vs. India vs. the Philippines 

When looking at macro-level data there are a couple of things to be mindful of when analyzing labor markets. Consumer price inflation is perhaps the most indicative of rising wages, since employers typically need to adjust salaries annually in line with overall inflation. Below we see that the cost of living has more than doubled in India over the last five years, while Mexico and the Philippines have seen lower inflation year on year. GDP per capita is clearly much higher in Mexico, which puts a premium on wages. Likewise sheer market size in terms of population emphasizes India’s dominance as an offshore hub to both Mexico and the Philippines.

Attrition Boils Down to Economics, Management, Culture

Personal expectations and the promise of higher wages is what ultimately cause BPO employees to jump ship. However, work culture and company management style also has a lot to do with it. Eric Simonson Director of research at Everest pointed out that “the Indian work mentality is focused more heavily on ‘getting ahead’, rather than subject matter expertise. We’ve seen good things coming out of Poland lately partly because the work culture follows a more artisanal approach focused on mastery and domain expertise.” Mataya from Think Solutions also backed up this claim and mentioned that it is “not uncommon to see BPO workers in India move companies for ten cent raises”.

By Reshaad Durgahee

Lima, Peru: Surprisingly emerging.

In the period 2003 through 2010, Europe and Asia were the largest recipient regions of foreign investment projects in shared services and BPO activities, accounting for 46% and 29% respectively. Meanwhile, interest in Latin America has clearly been growing. The number of shared services and BPO foreign investment projects in Latin America rose year on year until 2010, when the total number of projects entering the region decreased by 15%.

However, in terms of jobs created by these investment projects in shared services and BPO, 2010 saw the highest number in the Nearshore region since 2006, increasing by almost 10% over 2009.

After the Asia-Pacific region, Latin America is now seeing the largest-size centers being set up, and indeed, the region continues to be characterized by a number of labor-intensive shared-services projects, with on average 350 announced jobs per center in 2010.

General trends in announced shared services jobs by world region, 2003-2010

Typical destinations for shared-services establishments in Latin America, such as Colombia and Costa Rica, continued to lead the rankings in 2010, representing 22% and 14% of regional shared-services job announcements. Brazil and Argentina – as dominant markets in the region – also continue to attract their share of investments.

Top ranking SSC/BPO destinations in Latin America & the Caribbean by estimated jobs, 2003-2010

However, it is the emergence of newcomers in the rankings, such as Nicaragua and Peru, that piques the interest of the observer of the outsourcing industry. These two countries attracted large-scale investments in shared services, demonstrating the widening of investor confidence across the region. Companies are now seeing the potential of previously untapped labor markets. Countries such as Nicaragua and Peru offer companies that are willing to take risks a first-mover advantage in terms of potentially lower labor costs, lower levels of competition from similar operations, and the opportunity to become the major player in a new market.

This would be in contrast to already well established shared-services locations in the region, which offer a more experienced labor pool and potentially higher-quality level of infrastructure, but are also starting to experience side effects such as increased levels of competition and elevated attrition rates.

The Rise of the Second Tier

In 2010, leading agglomerations in Latin America in terms of job creation through foreign investment in shared services and BPO included Bogota, Lima, San José, Guadalajara, Managua, and Medellin, the first four of which make the Global Top 20 ranking. Examples of new investments include Sitel, which announced 450 jobs at its new contact center in Managua; National Instruments, which has announced the establishment of a shared service center in San José creating 200 jobs in CRM, finance, IT, and sales; and Convergys, which has established a bilingual contact center and back-office support site in Bogota, creating up to 1,000 jobs.

The appearance of Bogota and San José, as now-seasoned shared services destinations comes perhaps as no surprise. The Mexican city of Guadalajara and Colombia’s second city Medellin highlight the potential of such second-tier cities in the region to operate shared services at lower cost than their capital cities, whilst still maintaining suitable operating environments desired by investing companies. Recent investments include West Customer Management’s bilingual contact center in Guadalajara and HP in Medellin.

Function-wise, investment in this sector into Latin America has been focused on contact centers (primarily to serve the local market and Spain, but also increasingly bilingual centers to serve the United States). In addition, in recent years, more and more companies have seen the potential for more value-added shared services operations in the region’s more mature locations, where there are now multiple finance and IT shared services, for example.

Sources of Investment

By far and away the largest source country of foreign investment in shared services operations in Latin America is the United States, which between 2003 and 2010 accounted for more than half of the jobs created in the region in this activity, generating almost 70,000 positions. Although Europe and Asia remain the most popular regions for US companies setting up shared services and BPO operations, Latin America remains a key market, in particular for nearshoring activities due to factors including timezone advantages and natural availability of Spanish language skills.

Between 2003 and 2009 Spanish companies (such as Telefonica and Banco Santander) accounted for about 20% of jobs created in shared services and BPO in the region, solidifying Spain’s position as the second largest investing country in this sector in Latin America.

Top source countries for SSC/BPO foreign investment into Latin America & the Caribbean, 2003-2010

Much has been written on the rise and dominance of India as a destination for shared services and BPO, but it is also interesting to note the rise of India as a source of such activities. Globally, Indian companies created over 15,000 jobs in this sector in 2010, continuing the year-on-year growth witnessed since 2005, accounting for 12% of all jobs created worldwide by foreign investors in this sector. From a Latin American perspective, in 2010, Indian companies such as Wipro, Genpact, and 24/7 Customer created just over 10% of shared services and BPO-related jobs announced by foreign investors in the region – a 60% increase from the previous year. It all represents a move to get closer to customers in a new market, highlighting the rise of India as an outward investor in shared services and BPO activities.

Profusion of Possibilities

Latin America continues to succeed at offering attractive options for companies wishing to establish shared services and BPO activities, as demonstrated by the increasing number of jobs created in the sector from foreign companies in recent years. These options come not only in the form of mature, well-established destinations, but also up-and-coming locations that companies are now finding worth investigating for outsourcing activities.

That is not to say that the mature shared services locations of the region are in decline. On the contrary, mature locations such as Costa Rica, Colombia, Argentina, and Brazil continue to attract their fair share of investment. In today’s economic climate, many companies have become increasingly risk-averse, and are content with opting for tried-and-tested options in the region, where costs may be slightly higher but where there is an availability of highly experienced shared-services profiles to recruit from. On the other hand, emerging Nearshore destinations offer those companies willing to be pioneers the opportunity to tap into new sources of talent and at a lower cost base, resulting in these locations now appearing next to traditional shared services locations in our global rankings.

Latin America’s profusion of location possibilities – both mature and emerging – means that it continues to develop as a strategic region that companies are considering for their shared services and BPO operations. Be it North American firms using the region as a nearshoring solution, Spanish companies cementing their presence in countries with similar linguistic and cultural affinities, or companies from emerging countries such as India wishing to extend their global footprint and gain a foothold in a new market, Latin America is sure to remain “on radar” for companies for the foreseeable future.

Reshaad Durgahee is a Senior Consultant at IBM Global Business Services’ Plant Location International (PLI) division. More analysis of location trends is available by download here.