With 3000 employees in Panama City, and around 2000 in Managua, Sitel could be the call center company most invested in Central America. But lately it seems the company is aggressively expanding its footprint in Nicaragua, while putting its other regional operations like Panama on the backburner. That subtle strategy change is representative of a wider trend. Managua has attracted some juicy deals in recent years – GE, Walmart, Kraft, Stream, Sitel – while several high profile pullouts from Panama City in recent years tell a very different story.
So is Managua really on the rise and Panama City on the decline? We decided to investigate the various drivers making these two Central American cities appear to go in opposite directions.
Labor market saturation
Maturity – The relative maturity of the two markets is possibly the biggest factor in their attractiveness to call center companies. Managua is much less developed than Panama City in terms of outsourcing, and therefore has greater opportunities for firms to expand freely. Since vendors arrived much later than in Panama, there’s more opportunity to acquire better infrastructure and higher quality labor – it’s a more interesting market.
The size of the respective labor pools is a huge factor in their appeal to US companies. Nicaragua has twice the population of Panama, and although Panama has more specialized skills, finding that high level talent has become a challenge. “Labor saturation is definitely a concern for me. Only so much of the population has the requisite skill base, and it’s very hard to grow that in Panama,” says Andy Efstathiou, Director of Banking Sourcing at Nelson Hall. “If we go back 20 years, the Panama education system was much better than Nicaragua. These days Panama’s education is still good, but Nicaragua’s system has radically improved.”
Services offered – The type of services expertise available is very indicative of a country’s outsourcing focus. Panama has one of the most sophisticated financial services sectors in Latin America, and because of that banking culture, talented graduates all want to work in finance and accounting rather than in a call center operation. Legal process outsourcing is also big in Panama. All this means that, as Sitel’s LatAm HR Director Julio Mosquera-Stanziola told us last year, “oddly enough it’s not call center companies competing against each other but other industries, as jobs are more sought after in the hospitality or banking industry than in outsourcing”.
Contrast this with Managua, where the main workforce expertise is in customer service, sales, retention programs, data processing and analysis, and it quickly becomes clear why the location is more in demand. “Another attractive aspect of the Nicaraguan population is that it is very young; approximately 80 percent is under 39 years of age.” says Marcela Castillo, Investment Promotion Director at ProNicaragua.
Wage structure – Panama City’s labor market becoming increasingly crowded is now causing a wage spiral that many companies are steering clear of. A basic call center worker would be paid US $800 per month, which is the upper end of costs in Central America according to Mario Lopez, VP Human Resources and Marketing at Transactel. In 2009 Transactel pulled its operations from Panama, citing the constant and costly need to compete for skilled workers with other businesses. Managua offers not only lower salaries ($500 per month), but also cheap and available office spaces.
While its labor market is nearing saturation in the BPO industry, it may be a stretch to say that Panama outsourcing is on the decline. According to the Latin Business Chronicle, Panama ranks second in all of Latin America as a country that attracts foreign investment as a percentage of GDP (after Chile). And in terms of political risk, Panama’s democratic businessman president Ricardo Martinelli looks much more welcoming than Nicaragua’s Daniel Ortega, often linked to Hugo Chavez. Especially in the recent political climate of uprisings, that will be a key consideration in the minds of US companies.
“Panama is the only country in the world run by a businessman, not run by a politician and there is a hell of a difference between a politician and a businessman,” said Martinelli at the recent WEF conference in Davos. “We haven’t taken the full blown opportunities that have been presented to us. I think this is the opportunity….and we shouldn’t let it go by again.” So it seems like the commitment to attracting international investment is there in Panama’s government. In fact Martinelli landed a deal last year with Microsoft to train 40,000 new teachers in Panama in the use of computers in the classroom – a much needed move for Panama to create more technical skill.
Both Panama City and Managua have extremely well developed telecom infrastructures. Panama in particular offers cable speeds of over 5Mbps, while the majority of Central American operators don’t offer higher than 2Mbps. Nicaragua’s infrastructure is also advanced, with the entire system in the country using fibre optic cables – it was the first country in the region to offer 4G services.
As we talk to many clients and BPO vendors in Central America, we get the feeling that everyone is prioritizing Managua. Even the Indians are getting in on the game, as PV Kannan, CEO of 24/7 Customer told us last year – “Our entire focus right now is on growing Nicaragua in the region. Our center there is now up to 200 agents, and there’s a capacity of 700. So for the next 12 months we’re looking to fill it up, and then keep growing.” Managua is still a small market, and all this attention is now leading to labor saturation concerns, just as in Panama City.
Time will tell whether Managua will go the same route as Panama City, and whether the latter can pull itself back up and create a strong labor offering for companies.