The historic normalization of relations between the U.S. and Cuba during the Obama administration gave many American firms the opportunity to explore the potential of the Caribbean island as a Nearshore software sourcing destination.
But the arrival of Donald Trump to the White House in 2017 saw most of that interest dissipate. Though most of Obama’s policies on technology cooperation with Cuba remained in place during the Trump presidency, the overwhelming amount of sanctions imposed on the Cuban government and the rhetoric of confrontation between the two countries made any further business progress impossible.
This was on top of the long-term trade embargo first placed on the island by President John F. Kennedy in 1962. The embargo suppresses the development of the island’s tech sector because the tools and services necessary for growth are simply unavailable for many.
“We had so much uncertainty with Trump. The Treasury Department allowed US companies to do business with the private sector in Cuba, but the level insecurity was too high,” said Manuel Alejandro Gil Martín, cofounder of Code Labs, a software consulting firm employing Cuba-based tech workers and now CTO at Escala.
In the meantime, Cuba experienced important domestic changes. The growth of Chinese involvement in telecommunication infrastructure development was primary among them. Huawei equipment was used to extend and elevate the level of connectivity across the island through the installation of the hundreds of public WIFI hotspots and private networks. Cuba’s main technology providers supporting its 3G and 4G rollout are also Chinese companies.
Within this context, what are prospects for the growth of Cuba as an outsourcing market for US companies? And how have independent Cuban outsourcing firms evolved to remain relevant and accommodate new global trends?
New Trends, New Prospects
A few years ago Cuban software developers needed to buy dial-up connections on the black market and rent time on wireless connections at big hotels to do their jobs. In spite of Cuba’s remaining outdated infrastructure, the introduction of mobile data and internet connectivity for private homes and businesses has helped deliver greater stability for companies. Between 2010 and 2019, internet penetration grew consistently in Cuba. While in 2010 only 15.9% of the population was actively using the internet, 61.84% had an internet connection by the end of 2019. However, the service remains expensive and Cuba is still behind countries such as Costa Rica and Chile, which maintain the highest rates of internet penetration in the region.
“There is a new level of professionalism and competence on the business side” – Gil Martín
During the last two years, Cuban software developers and tech workers have moved away from individual freelancing. Instead, the outsourcing landscape in Cuba now presents more formal enterprises with stronger capabilities, such as recruitment of human resources, business development and client relations. “There is a new level of professionalism and competence on the business side,” added Gil Martín, who also founded Cubaoutsource.com to connect Cuban developers to the international market.
Cuba is also implementing new reforms to provide flexibility for self-employed workers. The government is considering legislation to authorize the association of micro, small and medium size enterprises with entrepreneurs and tech workers in established firms. With international companies increasingly seeking IT outsourcing partners which can provide trust and long-term engagement, moves like this bring hope for Cuba’s future as a Nearshore location.
The costs of outsourcing in Cuba for foreign firms is going up – but so is the quality. Cuban professionals now combine moderate rates with mature workflows and high-quality results. “The cost is still low but there has been a change in the mindset of local developers. I think now they know what they can charge and probably will see the rates get closer to international standards,” added Gil Martín.
Among the Cuban diaspora, tech workers and entrepreneurs are still building bridges between the island’s software developers and foreign clients. “After immigrating to Chile, I realized that there was a large community of Cuban expats in different countries acting as middle man. This has been the main source of work opportunities for many inside Cuba,” Gil Martín said.
The connection between Cuba and Miami, a city with 700,000 Cuba-born residents, could elevate the relevance of the Caribbean island as an outsourcing destination
Miami has begun to position itself as a global tech hub, attracting Silicon Valley investors and entrepreneurs, and using innovative components such as cryptocurrencies to attract the attention of tech founders. The connection between Cuba and Miami, a city with 700,000 Cuba-born residents, could elevate the relevance of the Caribbean island as an outsourcing destination if Miami’s intention to grow as a tech metropolis is successful.
Cuba is keeping up with global trends for worker’s specialization. Although not uncommon on the international market, Cuba now offers data engineers and blockchain specialists. The question for the future is if Cuban professionals can rapidly and efficiently access new technical know-how and technology. For example, cloud computer technology, which allows data to be processed and stored on servers outside the local network, is becoming more popular in the outsourcing industry due to cost-efficiency and scalability principles. As a record number of businesses are moving their data to the cloud, the demand on suppliers of cloud solutions will increase and Cuban outsourcing companies will have to update.
Other trends like the use of robotic process automation and artificial intelligence will challenge Cuba as a destination while financial limitations persist. “We have a great level of sophistication, many of my friends that immigrated now work for Facebook, Google or Apple. We just need practice and access to technologies,” said Tomas J. Ramirez, a Cuban software developer.
Challenges to Market Growth
For Gil Martín, Cuba faces some challenges in the development of its market. “The legal framework in Cuba is a problem. I used to talk about the stability of the system but there is too much regulatory risk nowadays. This problem also comes from the U.S.”
Beyond the island’s outdated electrical grid, limited internet access and lack of IT financing, perhaps the biggest challenge remains the legal and business landscape. Cuban authorities maintain a tendency for monopoly control in the telecommunications and IT markets while the narrow space for private initiatives in larger IT projects limits the possibilities for outsourcing firms.
Cuba now offers data engineers and blockchain specialists
While companies are increasingly focusing on cybersecurity and compliance, Cuban outsourcing firms have a long way to go to develop effective trust and risk prevention tools. “Unfortunately, contract enforcement and other tools between the US and Cuba parties are not efficient. This needs to change. There is a lot of work to do in that area,” Gil Martín explained.
Despite these challenges, Cuban outsourcing firms are showing a maturity and organization that elevates the prospects for industry growth. With President Biden preparing to review US policy toward Cuba while the island’s authorities deepen some economic reforms, Cuba’s future as a Nearshore location may be set for change.