Time and time again, the editors and analysts at Nearshore Americas have often found that it is the overlooked and under-appreciated cities of Latin America and the Caribbean that hold the most promise for captive and outsourcing investment. The tendency to only concentrate on the ‘well-established’ locations is one of the most common and consistent oversights made by corporate decision makers who, with little justification, dismiss lesser known destinations as ‘untested’ or ‘immature.’
As a result, we decide to gather our own select list of the ten most “under-appreciated” cities of Latin America. We choose to gather this list partly because top-tier, powerhouse cities face an increasingly long list of constrains and challenges. Salaries are rising and the scarcity of a high-skilled workforce creates additional pressure on the firms operating there.
Having set out a criteria including the need for an openness to foreign investment, a competitive infrastructure, an availability of universities and technical schools, and a welcoming immigration framework that grants work visas or residence status to foreign qualified professionals, Nearshore Americas has identified a group of feisty underdogs who, we are confident, will continue to emerge as viable hubs for BPO and global services’ investment.
San Pedro de Sula, Honduras
Yes, criminality rates are high in the second largest city of the country, but San Pedro, with a population slightly over one million inhabitants, is responsible for 60% of Honduras’ exports, according to the World Trade Centers Association. Although it is known as the nation’s industrial capital, its service sector is also growing. Today the city has almost 60% of all call centers in Honduras; its competitiveness stems from sharing a similar time zone with the United States and a growing English-speaking youth population.
The government has changed policies to encourage business and entrepreneurial activities and this has already borne fruit with U.S. BPO firms StarTek and Alorica both expanding operations to the city earlier this year. Universities such as UTH, Unitec and the Catholic University of Honduras are participating in the effort of training a qualified workforce. There’s also a clear political will to promote connectivity and access, as demonstrated by the inauguration of a WiFi free spot in San Pedro’s Central Park attended by President Juan Orlando Hernández in June. If the strategy is to relocate foreign talent, San Pedro’s cost of living is low and real estate is easy to acquire for foreigners.
According to the Neo Group Global Supply Risk Monitor Team, “this Tier II city has made remarkable strides in global services, competing with Mexico City, Monterrey and Guadalajara.” The data and intelligence firm observes that lending rates and foreign exchange fluctuations have all boosted investor confidence in Queretaro, while low crime rates make it the second safest city in the country.
In addition, “the operational cost of doing business in Queretaro is less than that of Mexico City and Monterrey on account of cheaper labor and lower rents,” Neo Group points out. Consequently, “the size of the ITO sector has ballooned to $0.5B, with over 140 companies in the ITO and BPO sector.” The biggest challenge facing the city is the limited availability of human resources, but it is far from unique in this respect.
“Barranquilla is moving, move to Barranquilla” is the slogan devised by local officials eager to speed up progress levels around this Colombian city’s most valuable assets: its port, the Magdalena River, a diverse cultural legacy and its hard-working people. ProBarranquilla, the institutional body set up by the local government to facilitate business and foreign investment, reports that, during 2013, “FDI in the region reached 390 million dollars,” only second after Bogota and surpassing numbers in Cali and Medellin. The BPO sector was the leading recipient of investments.
Chilean company Sonda, which is dedicated to the development of software and databases, has initiated operations in the city, while Delcop, Xerox and IBM have also opened branches in the city, along other 80 companies providing BPO & IT services.
There are 20 higher education institutions across the Atlantico State offering programs related to IT professions; including the top-notch schools Universidad del Norte and Universidad del Atlántico. In terms of infrastructure, the city is served by 10 telecom operators and directly connected to four submarine cables. In 2014, fDi Magazine ranked Barranquilla 8th among the 10 cities of the future in Latin America, stating that “it has an excellent business environment.”
The third largest city in the South American giant, Belorizonte is located in the state of Minas Gerais. According to the Brookings’ Global Cities Initiative, , Belorizonte ranks 5th in economic performance among Brazilian metropolitan areas and 7th in GDP per capita with an average of US$17,239. Since the 1990s the service sectors have grown more than any others, especially information services. The city is the South American headquarters for multinational corporations like Google and Biomm technology. As in many other cities, companies struggle to find talent locally, even if there’s less convergence of tech competitors. On the flip side, salaries are lower than in Rio or Sao Paulo, as is the cost of living. High quality universities such as UFMG are preparing future batches of engineers.
Guatemala City, Guatemala
Compared to neighboring Mexico, Guatemala’s economy is small. According to a report by Euromonitor International, the official GDP figures (US$25 billion in 2011) might be underestimated, considering that approximately half of the city’s workforce is engaged in informal activities; the study also found that Guatemala City is ranked low among Latin American cities in terms of investment attractiveness, due to its poor urban environment and global reputation.
Still, Neo Group notes that the city has achieved growth in the outsourcing industry, “especially in verticals such as telecommunications, energy, banking and financial services.” The intelligence firm also observes that “the operational cost of doing business in Guatemala City is relatively lower than its neighbor, Mexico. As of Q2 2014, Guatemala’s ITO and BPO industries were reported at $0.11B and $0.22B respectively, an 11% increase from the previous quarter.”
Leading companies like Capgemini, Atento, Xerox, ACS and Help Desk have all located their offshore delivery centers here. The next challenge will be to produce enough engineering graduates, while improving English language proficiency.
Many people were surprised earlier this year when the Global Innovation Index named Barbados the most innovative country in the Latin America and Caribbean region. However, the Caribbean island has been building up its capacities for years to improve its infrastructure, create a business friendly environment and enhance the nation’s brand in the eyes of foreign investors.
According to the World Investment Report 2014 by the United Nations Conference on Trade and Development, “FDI inflows are quite substantial relative to the economic size of CARICOM countries.” Barbados received $2.62 billion, 10.2% of the region’s FDI. With around 100,000 inhabitants, Bridgetown is the capital and largest city on the island. It is regarded as an important financial, informatics and convention center in the Caribbean region, while the excellent climate and security levels should compensate for the very high cost of living for expats in the city.
Located in the Bío Bío region, Concepción is Chile’s second largest city in population after Santiago. It is also the most industrialized area, close to the very busy port of Talcahuano. Even if current trends point to a slowdown in the economy and investment – Bío Bío only grew just 1.8% between January and March 2014 – Concepción has seen an awakening of entrepreneurial activity in recent years, and is line for greater support from the government that wants to bolster development in the Bío Bío area.
In general, the cost of living and salaries are lower than in Santiago, where the numbers are steadily increasing. The talent gap is pervasive and English proficiency can be an issue, but the high quality universities with a significant student population can provide a source of labor for IT companies. Within Latin America, Chile ranks high in transparency and security while very low in corruption. The legal framework makes it very easy to get work visas for foreign specialized workers.
As part of Guayaquil’s Digital Project, a partnership between the public administration and Cisco aims to provide the city with several digital services. The goal is to put Guayaquil on track to becoming a smart city. The plan includes offering free Internet in 6,000 locations citywide. The project also entails connecting hospitals and clinics, providing e-government solutions and investing in computers, tablets and Internet access for public schools and universities.
If that promise becomes reality, Guayaquil could become an IT dreamland for entrepreneurial investment and outsourcing services. With a population of just 2.5 million the demand for talent would be high and could put a lot of stress on competitors, but the presence of relevant universities like ESPOL and the UTEG can contribute to training a skilled workforce. Moreover, in the long term graduates from Yachai will become a competitive resource for talent.
Close to the Chilean border, Arequipa is the second largest city in the Andean country. As in the rest of Peru, economic policies are open to FDI and designed to create a business-friendly environment. As a result, the city has doubled its GDP during the last decade. A beautiful landscape, lower cost of living and a strong cultural legacy could draw foreign talent to relocate, thus compensating to some degree for the lack of a highly skilled local workforce.
Arequipa hosts an important academic community, a resource tapped by the National Council of Science and Technology (Concytec) to implement the first postgraduate programs specialized in computer sciences and to create Arequipa’s Technological Park which is scheduled to launch in 2015. A startup ecosystem is starting to develop with initiatives such as Arequipa Valley and events like Startup Weekend Arequipa. In a recent post, Google software engineer Manuel Bellido says “the interaction of Lima’s investors network and Arequipa’s academic community could produce a creative technology industry.”
Located in the Yucatan Peninsula very close to the Caribbean Sea, Merida could be regarded as the Cinderella of this list. GPD has grown slowly since 2009; it is expected to increase 2.2% in 2014, according to the American Chamber of Commerce in Mexico. In 2013, Merida received $39.17 billion in FDI. In a local economy which has heavily relied on tourism, agriculture and more recently real estate, the IT sector is incipient. The good news is that from here, it can only grow.
There is political will. The Yucatan state government has invested heavily in the Program for the Development of the Software Industry (Prosoft) and the beginning of the construction of a Scientific and Technologic Park in Yucatan made headlines not long ago. The goal for the park is to create an IT cluster that will attract foreign and domestic investment and eventually transform the region into a leader of technological development. So far, 380 companies have generated 5,000 jobs in the local IT sector. In 2013, IBM opened an office in the city to serve a growing corporate sector that demands intelligent solutions and business analytics.