By Jeff Pappas

Over the years, the US has been Latin America’s primary outside investor and leading trading partner, followed by Western Europe. Latin America’s leading imports in past years have included cars, chemicals, electrical equipment, farm machinery, and pharmaceuticals, while its leading exports include bananas, coffee, cotton, meat, wood, and rubber.

Many of the firms within these industries are located in Free or Foreign Trade Zones (FTZ).  While these industry sectors will continue to be valuable to neighboring countries, the largest US import most recently to Latin America has been jobs. More importantly, opportunities that can offer the local labor force high wages and the ability to utilize the skills acquired through education and/or job experience.

A powerful attraction in conducting business in this area is the high unemployment rate in every Central American country except Costa Rica and Panama, which translates into an inexpensive pool of labor that drastically reduces the cost of operating a customer contact center. Most American businesses in Latin America support the US market, rather than their own domestic markets.

An Instrument of Commercial Policy and Development

But what exactly is the purpose of an FTZ? Originally, the focus of an FTZ was to develop industrial activities of goods or commercial services with the purpose of creating jobs and engaging new capital investments.  FTZs were first established more than 2,000 years ago. Within the last half of the 20th century, FTZs have undergone substantial changes and adaptations as the result of an exponential growth in world trade. As an instrument of commercial policy and development, FTZs have been transformed and adapted to the realities and local conditions of each region. The FTZ is chosen as a location for business activities moving nearshore, in search of a low or lower cost basis. All of the benefits the FTZ can offer manufacturer, Business Process Outsourcers (BPO) and processors are too numerous to list here. To highlight a few main benefits that account for most of the companies that use the Zones program: tariff relief, duty elimination and weekly entry savings are just a few. While it is easy to see that a manufacturer would benefit greatly, but focusing on the job creation and capital investment is where the benefit for customer contact center would come into play. What benefits does an FTZ offer a Business Process Outsourcing (BPO)? 

BPO’s are attracted by Latin America’s proximity to the United States and its availability of highly skilled employees who are willing to work for low wages (at least compared with the United States). From a customer’s perspective, the three main attributes of the FTZ can be summarized in one well known marketing adage, ‘LOCATION, LOCATION, LOCATION’. This adage is not simply related to the positioning of a FTZ but also relates to global trends in outsourcing and the whole process known as globalization.  

Operate Largely Tax-Free

For example, tax exemptions in Costa Rica include:

• Capital tax (10 years)

• One-hundred percent income tax exemption for eight years, then 50 percent for the next four years

• Sales tax

• Property tax

• Real estate transfer tax

• Withholding tax on payments made outside of Costa Rica.

Income tax exemptions of up to 12 years are available in certain circumstances. Another benefit to conducting business in Latin America is simplified customs clearance procedures, according to Pilar Madrigal, director of international affairs for the Costa Rican Investment Board, or CINDE, a San Jose, Costa Rica-based nonprofit organization that helps advance the country’s social and economic development.

Accessing the Right Labor Pool

While tax benefits are strong, the key for any BPO is the possibility of finding trained, available and nearby human resources. The Bogota Free Trade Zone (BFTZ) has become one of the best developments for BPO operations in Colombia, as well as Latin America. One key is that over 44% of Bogota’s population lives in neighborhoods around the BFTZ, while there is a much lower concentration on other zones in Bogota.

Also, BPO training programs within the premises of the BFTZ with access to the BFTZ employment portal (which has more than 2,800 resumes for BPO services) while staff recruitment processes must usually be contracted. More than ten (10) BPO companies are currently operating at the BFTZ generating more than 8.000 direct jobs. Such companies include UPS, Samsung, Teleperformance, Genpact and ParqueSoft. Lastly, many restaurants, banks, a medical center, internal bus transport, are located within the BFTZ creating its own mini municipality as access to El Dorado Airport and public transportation has been improved. 

While access to labor is important, the access to the “right” labor is paramount.  FTZ’s are typically far away from business areas in the city and from most of the bilingual population. According to David Aponte, Investment Director with Invest in Bogota, “an important event will be the new Transmilenio route that will transit through Calle 26, and will have a “feeder” route that goes straight to the FTZ. This will help bring the bilingual population closer to the area via a transportation system largely used by bilingual students and young professionals”.

Also, the BFTZ is developing a joint strategy with Rosetta Stone so businesses or individuals of the BFTZ can acquire licenses to study and learn virtually.  While access to bilingual labor is important, the location of the FTZ could hamper the ability to attract due to its location within the city. Nicaragua has clearly seen this as a problem and has worked to address this immediately. Actually in Nicaragua’s case FTZ regulation is quite flexible and does not refer to a geographical location, but more so to a fiscal incentive system.

According to Javier Chamorro, Executive Director of ProNicaragua, “we’re allowed to declare a FTZ in any physical area we decide, which can even mean partially declaring infrastructure a FTZ (i.e. a FTZ can be one floor within a building or a specific office within a floor).”  In this case, a potential investor would only have to select a site within a particular area of Nicaragua and the local authorities would declare that property an FTZ site”.  As our clients site selector, what we would do is find the exact location that offers maximum financial advantage to the BPO and have the authorities grant FTZ status to the site.

Manufacturing Dominates; Services Qualify

While manufacturing remains the dominant activity in free trade zones, service activities generally also qualify for FTZ status. As such, the need for improvements in the telecom infrastructure is vital. Concerning the IT infrastructure, a high speed data connection and access to the Digital Network System is required. Investment and adaptations are required for energy and be available.  The Free Trade Zone must be outfitted with the infrastructure for all major utilities. Excellent electricity and telecommunications systems must be in place. For instance, the BFTZ has a double supply ring at different tension levels and 24-7 electrical emergency support. This will allow savings in investments and fines due to the unavailability of services. The equipment shared infrastructure and the availability of connectivity & energy within the FTZ will generate savings in high-cost investments such as a contact center.

As can be seen from the above, there are numerous business and investment opportunities in Latin America, each of which has its individual advantages and disadvantages. Nonetheless, setting up shop in Central America is no guarantee of a successful business. Anyone wishing to establish a business there must be sure that there is a viable niche for that business in the chosen country. This means locating information about the chosen locale to find out the benefits, as well as the shortcomings of doing business there. In the last few years, we have been approached by several small and midsize BPO companies based in the United States looking for opportunities to reduce their costs and are searching for excellent services that can trigger them to newer opportunities. The economic downturn may have helped speed up the process of companies expanding to Latin America.

There are many other substantial benefits that the Zones program has to offer BPO’s, but the benefits listed are the key benefits that attract most companies to the Zones program. More and more companies look globally when deciding to locate or expand a new back-office facility. When these companies make these location and expansion decisions, they do take into account all costs of services in a certain country. The FTZ’s can play an important role in providing a level playing field when investment decisions are made and have proven to be a success by creating and retaining jobs and capital investment in Latin America.

For additional insight on Jeff’s recent economic analysis of Latin America, feel free to contact me at 214-696-4364 or email jeffp@arledgepartners.com

Jeff Pappas was included on Nearshore America’s Power 50; our annual list of the most powerful outsourcing executives. He is the Executive Vice President of Arledge Partners Real Estate Group (www.arledgepartners.com), located in Dallas, Texas. Arledge Partners focuses on international site selection, labor analytic studies, incentive negotiations and real estate identification and acquisition for the contact services/BPO industry.

Genpact will operate out of the popular FT zone "Zona Franca'

By Patrick Haller

After scouring Latin America for a new hub, the global BPO company Genpact has decided that  Bogota is where its future lies.  Citing an impressive improvement in security, political stability and a high-quality talent pool, Genpact announced yesterday  at a special press conference in Bogota, that it is in the process of building-out 750 square meters in one of the city’s Zona Franca facilities. With a long-term vision that anticipates the hiring of up to 1,500 employees (95% of whom will be Colombian) and an investment of up to $10 million over the next three to five years, Genpact is angling to plant its footprint solidly on the Latin American landscape.

Although it already has a presence in Mexico and Guatemala, the company has determined that Colombia is a country where it is easy to implement this type of investment, especially where Human Resources are concerned.

Genpact has earned a reputation as pioneers in the BPO sector in countries such as China, India, Poland, Hungary and Mexico, and in Colombia it has found all the ingredients that are conducive to growing a strong business. This discovery is due, in part, to the work and dedication of Colombia’s Ministry of Commerce, Industry and Trade (MCIT), ProExport Colombia and Invest in Bogota. “It is always hard [being pioneers] but it has been easier here. We have gotten greater support from them than anywhere else in the world. They are first class,” said Pramod Bhasin, Genpact Vice Chairman, referring to the Colombian agencies. He continued, “Colombia offers a favorable business climate for Genpact and for our clients; a rich talent pool with a high literacy rate and complementary skill sets. Genpact is honored to establish its roots here in Colombia and become part of its culture and its thriving business community.”

ProExport has been working with Genpact since 2008 when a representative in its India office approached the BPO provider with the idea of exploring Colombia

The company is currently recruiting up to 100 employees to launch its 200 seat center by January or February 2012. First it will offer Finance and Accounting (F&A) service as well as procurement and supply chain BPO to North American clients, then add business development staff to secure Latin American clients. The Bogota location will also act as Genpact’s hub for its Smart Decision Services business, which encompasses analytics, reengineering and risk management services. Genpact’s investment is part of the Productive Transformation Program that the Colombian federal government has been developing to promote the outsourcing services sector as one the 12 economic sectors that are considered “pillars of industrial policy.” According to the MCIT, Colombia aims to create 72,700 new business process management services jobs by 2014, which will bring the total to 142,280. It also seeks to increase exports from $200 million to $1.1 billion during the same period.

ProExport has been working with Genpact since 2008 when a representative in its India office approached the BPO provider with the idea of exploring Colombia. “We are convinced that this decision not only confirms the confidence that foreign investors have in the country,” said President of ProExport, Maria Claudia Lacouture, “but the great potential of the business process management sector.” Genpact’s investment, Lacouture explained, is not so much one of capital, but one into Human Resources, allowing Colombia to show a different capability than what the world may be accustomed to.

Gartner has determined that Colombia is one of the main countries in which to locate BPO services. “The welcoming of Genpact to Colombia will be an important milestone of third-party outsourcing for Colombia,” stated Lacouture. Bogota is a center for BPO providers that accounts for 55,000 employees. Some of the elements that have fostered this growth are the 94,000 annual university graduates, 50% of whom are engineers. “The industry has been developed,” said Adriana Suarez, Executive Director of Invest in Bogota, “there are more than 16 companies in Colombia: IBM, DirectTV, Indra, Everest. IBM has a sales center in Bogota, Convergys has 1,000 employees here. Genpact gives a very high aggregated value.” Teleperformance has also established a strong presence in Bogota.

The Genpact deal was the first joint effort between ProExport and Invest in Bogota, agencies that have traditionally pursued separate opportunities. The success of this venture could signal a turning point in their approach to doing business, one that has been a long time coming. “This cluster is very important for Colombia,” declared Juan Carlos Garavito, General Manager, MCIT, “from now to 2014 we expect to create 70,000 more employment opportunities.” Bhasin stressed that Genpact is committed to providing such opportunities, and said that when Genpact enters a market a large percentage of the industry will also establish operations there. “I hope we can be a catalyst for investment into Bogota. This supports our strategy for Latin America,” he explained, “Our aim is to build a local technical, reengineering, BPO business to serve Latin American clients.”

Bhasin went on to say that the developed world is going through turmoil today, and industry is turning to emerging markets as safe havens. Taking a local approach wherein local employees respond to local (regional) clients, enables Genpact to train the employees –a process which can take up to three months– and introduce other opportunities to that market. “We hope to provide high-end services such as analytics and advanced modeling to Latin America from Colombia,” Bhasin said. Over the next two years Genpact will explore other Colombian cities such as Medellin and Barranquilla to determine where it would be most advantageous to open additional offices.

Genpact’s entry into Colombia is fortuitous, as Rodrigo Chávez, Sector Manager Latin America & Caribbean Region at the World Bank announced today that Colombia is the best prepared country in Latin America in which to withstand another global economic recession.

We caught up with friends from across CALA yesterday during the reception at the Gartner Outsourcing Conference in Orlando. During the day, at least four Gartner analysts we listened to singled out the Nearshore as the ‘hottest’ outsourcing destination in the world right now. “More than once a day, I hear from either a prospective buyer or provider about this market,” said Cassio Dreyfuss, Gartner’s lead LatAm IT analyst. (See our recent interview with Cassio here.) 

By Karina E. Cuevas

Bogota employs over 30,000 people in the contact center industry

Plenty of heads shook with dismay across Latin America, and particularly in Colombia, when Bogota was labeled as the riskiest outsourcing destination in the world for 2009, according to publishers of the Black Book on Outsourcing.

Lots of rankings come out annually about outsourcing providers, specialty areas, regions and cities – but this particular announcement seemed to be so at odds with reality that it triggered a slew of condemnations across the Internet and raised serious questions about the methods used by authors Scott Wilson and Doug Brown. (For further opinion, see Nearshore Americas’ reaction here.)

Modern City on the Rise

A city that generates over $250 million annually in the call center/outsourcing industry can hardly be called a dangerous investment option.  “It [Bogota] has a big and modern economy with over 500,000 college students, a major international airport and the advantage of moving more cargo in Latin America [than any other country],” says Vladimir Ramirez, Managing Director of International Development Group, a management consulting firm with operations in Colombia, New York and Chicago.  “It was number one in foreign investments last year (in LATAM) making it the first port of entry in Latin America and having both Colombian and international Spanish call centers located in Bogota.”

With facts like these, it’s hard to believe the negative comments on Bogota, but Black Book of Outsourcing doesn’t stop there. It places Bogota under the radar as a dirty and polluted city with an immature legal system.  When contact about the report, authors Scott Wilson and Doug Brown did not respond to questions.

“Many people know very little about Latin America and nothing about Colombia, so I don’t know if those people have ever been here or where they get their data,” says Ramirez. “Colombia, within its political context, has never had a coup d’état, it has only entered in a recession once at the end of the last century and from a public order point of view it is no more corrupt than India, Indonesia and other countries in Latin America.”

Teleaccion: Training Plays a Key Role

Colombia counts on the expertise of a consulting and training company, unique to Latin America, called Teleaccion.

• It’s a 21-employee institution specialized in improving technology and BPO management within the country and nine other nations around Latin America.
  
• It has focused on three primary countries of growth for the call center market, including Colombia, Peru and Venezuela.
• “We have trained around 23,000 people within 157 contact centers in Latin America,” says Patricia Alzate, General Manager of Teleaccion. “We work for Latin American reality, not for American or European cultures. Our method is a practical and simple one that has showed great results.”

According to Ramirez, Colombia is a market waiting to be discovered by the international community.  Currently there are around 120,000 employees within the call center industry.  The largest call centers are located in Bogota which employs around 30,000 people. The country, with seven distinct regions, offers over 12 cities in which to base a company.  In five years, the call center/outsourcing industry is expected to generate $2.5 billion in revenue for the country.

Colombia has over 20 contact centers around the country all with different levels of success. Teledatos, located in Bogota, ranked number two in 2008 accounting for 13 percent of the market revenue.  With 15 years of history, Teledatos has become a leader in domestic services and has an open door policy for international business. They focus on the health care sector, air and land transportation with their services delivered mainly in Spanish, but also in Portuguese, English and Papiamento (the official language spoken in the Caribbean islands of Aruba, Bonaire and Curacao).  It has a consistent portfolio of loyal clients, one that has maintained a 14 year long business relationship and others that see their quality in customer service and have stayed for over four years and counting.

Over 55 Clients Served

“Teledatos is born in Medellin and then in Bogota, being it the capital it went on to be part of the growth strategy,” says Mauricio Velasquez, Commercial and New Business Vice President. “We employ around 6,200 people and service 55 companies from Europe, the United States and Latin America.”

Profile: Mauricio Velásquez M.

Commercial and New Business Vice President of Teledatos

Systems Engineer of EAFIT, Specialized studies in Management in Universidad Pontificia Bolivariana and in Direct Development in INALDE.

He is a professional and numbered member of the International Association of Outsourcing Professionals – IAOP, USA.

He was Manager of Business Development with an emphasis on Outsourcing for HP in their region MCA (Multicounty Area), Director of Sales for business lines of Telecommunications for Unisys in Puerto Rico, Project Leader of IBM, among other related positions within outsourcing in technology.

Since 2009, he is the Commercial and New Business Vice President of Teledatos S.A. company that thanks to the strategic vision of its management team, it has leader the transformation of the Contact Centers in Colombia, transforming them in to one of the most strategic sectors of development in the country.

In the national market they place as number one when it comes to number of employees and annual capital.“Latin American culture is very easy and it’s not the same as in Pacific Asia because they have a barrier which is the English language,” says Vasquez. In Latin America we speak English and we weren’t born with it as a main language, so for companies like Samsung or LG that cater to the Hispanic population it would be easy for us to take care of their needs in our language, but for Indians to learn Spanish would be a very difficult process.”

The Colombian government is taking English language training seriously and is developing incentives to bring more qualified workers into call centers and outsourcing.

Government Steps Up its Role

“For this sector and with the help of the Department of Economic Development and the local government of Bogota we created a program called Talk to the World that is currently training 575 future employees in English and we expect to train 10,000 more in the next four years,” says Monica Ramirez Hartmann, Investment Officer of Invest in Bogota, a nonprofit investment promotion agency created by the Alcaldia Mayor de Bogota and the Bogota Chamber of Commerce.

According to Hartmann, Invest in Bogota together with other government institutions such as Servicio Nacional de Aprendizaje (SENA) is training and helping employ as many people as they can within the contact center industry regardless of their career choice. They want to attract as many foreign investors as possible by offering them the best customer service at a low price and therefore making Bogota grow from its 60 percent annual revenue within the industry.

“Colombia is a country that for 20 years has had a bad image, but today’s situation is not the same, it’s a problem on how you perceive things and reality,” says Ramirez Hartmann. “This is the least expensive country in Latin America when it comes to payroll, infrastructure and telecommunications and it’s all very effective, they don’t offer any problems to companies. We are also in a great geographic position compared to India and the Philippines, since it’s a city where all the major airlines arrive making it therefore a convenient destination.”

Karina E. Cuevas is a contributing writer to Caribbean CRM Central. She is based in the Dominican Republic and can be reached at: kecuevas@gmail.com