Bumpy Road Ahead For Venezuela’s Outsourcing Sector

Hugo Chavez was a divisive and controversial figure but a man acknowledged by his critics and admirers alike as a political titan who left his mark on Venezuela like no leader before him. His death last week brings to a close a 14-year era that radically reshaped the political, social and economic landscape of the entire country. For those involved in outsourcing and services provision, and for the business sector in general, it is not an era that will be remembered warmly. The flip side of Chavez’s massive social investments was stifling bureaucracy and restrictive regulatory environment that strangled competitiveness.

Throughout the Chavez era, Venezuela’s domestic private sector stumbled on. Its outsourcing sector, though, lies moribund. Demand for services is low and shows no sign of growth in the current economic context. The regulatory environment stifles start-ups and deters established companies; while labor protections increase costs and fears are rising over the potential impact of a new BPO union. On top of this, margins and the ability to repatriate profits are severely affected by currency controls and Venezuela’s government imposed exchange rate – which despite a recent devaluation remains a fraction of the blackmarket rate.

Power Struggle

However, even among Chavez’s most ardent critics in the business world, there is little optimism his death will spark a business revival.  Chavez’s death triggers new presidential elections that are constitutionally required to be held within 30 days and whoever wins is likely to face a period of political instability characterized by fierce divisions and bitter rivalries.

The ruling United Socialist Party of Venezuela (PSUV) will almost certainly be represented by Chavez’s hand-picked successor, Vice-President Nicolas Maduro. He is likely to face the defeated candidate from last October’s elections, Governor of Miranda State Henrique Capriles.

In last October’s elections, Capriles lost to Chavez by more than 10% of the vote, despite polling more votes than any other candidate to face off against El Comandante. Although Maduro lacks Chavez’s magnetism and charisma, Capriles is unlikely to be able to overturn such a large gap and Maduro remains a strong favorite to hold on to power for the PSUV.

The prospect is not an appealing one to those with experience of working in the Venezuelan BPO sector. “Maduro will be a Chavista with same tendencies as Chavez or even more hardline, he is from an even more socialist line,” said Vinicio Rodas, a former Venezuela Country Manager for Contact Center and BPO giant Atento. (Rodas talked about his Venezuela experience and operations in  a 2010 Nearshore Americas report.)

“If Maduro wins, Venezuela is going to be the same or worse,” he says.

The PSUV is currently presenting a united front around Maduro, who has controversially assumed the role of interim president. The opposition claims the role should be taken by a man perceived to be Maduro’s main rival within the party, Diosdado Cabello, as the constitution requires the President of the National Assembly to take over from a president-elect. The PSUV meanwhile claims although Chavez did not swear in as new president, as there was no change in rule he should be treated as president, and so, constitutionally, the job should go to the Vice President.

Maduro VS Capriles

Whether the current unity shown by the PSUV can survive the coming elections is uncertain, as Maduro does not command the same across the board support as Chavez. “There is a strong division in Chavismo,” said Rodas. “If Maduro wins the elections there is going to be an internal power struggle.”

However, a Capriles victory is also unlikely to bring about the new beginning craved by the business sector. As well as facing a politicized judiciary and security forces, Capriles will have to deal with a congress still dominated by Chavez supporters, who are likely to block attempts to open up the economy at every turn. “For the possibility of starting over, we have to talk about after the 2014 [congressional] elections,” said Rodas.

Nevertheless, Rodas is not yet prepared to give up on the prospect of a Venezuelan outsourcing sector. “It is going to be very difficult for Venezuela to be competitive with other markets – it is very difficult to compete with places like Colombia and Peru on cost and quality of services for export,” he said. “[But] if the laws are made more flexible and the sector manages to get some good benefits, there could be a boom.”

For this to happen, Rodas is counting on Capriles to overcome opposition to fist win power and then enact key reforms – the most pressing being an end to currency controls and tackling the sort of labor protection legislation laws that led to approximately 20% of his Venezuelan workforce get paid without working during his time with Atento.

There remains a long road ahead if this is to happen, but Rodas remains optimistic that Venezuela will eventually emerge from the looming political crisis to at least create the potential for this to happen. “Venezuelans are cheerful, joyful people, who look towards a better future, so I believe they will find their way out this crisis,” he said. “They are good people and very capable.”