Kirk LaughlinBy Tarun George
Chile may not be as big as Brazil or have as many IT professionals who speak English as they have in Mexico, but that hasn’t deterred global sourcing leaders in this Southern Cone country from putting a lot of muscle behind a thriving outsourcing industry.
Over the past few years, Chile has gained important momentum from an aggressive government campaign to attract high profile companies, with high tech outsourcing needs. With the triumphant win by right-wing billionaire Sebastian Pinera in the recent president election, experts see Chile continuing to offer a stable and welcoming investment climate for multinational firms.
Since 2006, President Michelle Bachelet has used generous incentives and government support to make the country the main nearshore destination in Latin America. And it’s been paying off – Chile ranked 8th in the world in the 2009 A.T. Kearney Global Services Location Index. The index measures 50 countries as offshore destinations, and placed Chile ahead of all its LATAM counterparts.
Some figures showing Chile’s prominence:
On December 15th 2009, Chile was invited as a full member of the OECD, a group of the most developed nations. It will be the first country in Latin America to join.
The Doing Business 2009 index (World Bank) ranked Chile as the most “business friendly” country in Latin America
The Economist Intelligence Unit (EIU) ranked Chile 15th in its Future Leaders in Global Offshoring 2005 report, above others in the region
Chile has the lowest foreign currency risk of any country in the region, and is rated A+ by Standard and Poor’s.
Why Chile?
Chile has big ambitions for its IT and BPO service industries. In 2008 Chile’s outsourcing industry brought in US$ 843 million in revenue, of which $169m were from ITO and $198m were from BPO services. Raul Rivera, Chairman of Chile’s Innovation Forum and one of the architects of its outsourcing strategy, predicts that the country will be exporting US$ 5 billion in services by 2015. In recent years, Chile has attracted companies like JPMorgan Chase, Yahoo!, Capgemini, Shell, Citigroup, and General Electric, to name a few.
So what does Chile have to offer?
The most politically stable country in the region, it keeps strong financial institutions and sustainable economic policies as its focus. Since 2000, the economy has grown by an average of 4% per year, and inflation has been between 2 and 4%. Businesses are attracted by the high literacy rate (96%), and the fact that it is in the same time zone as New York and the eastern US. Chile also has an extremely well developed telecom infrastructure, with the highest broadband and mobile telephony penetration rates in the region (11.9% and 80.4% respectively). The Economist Intelligence Unit 2008 ranked Chile as Latin America’s most e-ready market, and AméricaEconomía magazine ranked its telecom network as most competitive in the region.
A plus for IT companies – Chile has the second highest R&D investment in the region after Brazil, and President Bachelet has pledged to increase this to more than 1% of GDP by this year. An open immigration policy adds to the appeal. “Work permits are processed within a week”, says Mohit Srivastava, Country Manager, Chile for Evalueserve. “It’s a huge advantage for companies looking to bring in talent from the US or India to kick-start their LATAM operations”. The high level of business transparency and employer-friendly labor laws complete the package for him. The fact that Santiago is the safest capital city in Latin America, and the least corrupt doesn’t hurt either.
WAGES: Average salary for a bilingual call center rep: $900-1100 per month. Salary for an advanced IT software programmer/product developer with five years of experience: $2600-3100 per month.
Trade and tax system: Chile is one of two Latin American countries that are members of APEC (the other is Peru), which aims to facilitate economic growth, trade and investment. Independently, Chile has access to more than 90% of the world’s GDP due to its network of free trade agreements with the US, Canada, Japan, Australia, the European Union and China, among others, as well as a network of double taxation agreements that allow companies to export services without paying taxes in both countries. “There are no specialized tax benefits as in India, but customs duties are low, and with the trade treaties you get various tax rebates”, says Srivastava. Chile also has one of the world’s lowest corporate tax rates (17%).
Labor costs: Chile is not the cheapest country in Latin America. As labor costs go, it’s in the same range as Mexico or Brazil, but is more expensive than Colombia or Argentina. The average salary for a bilingual call center rep would be $900-1100 per month, while the salary for an advanced IT software programmer/product developer with five years of experience would be $2600-3100 per month. But, says Nicolo Gligo, Executive Director USA for the Chilean Economic Development Agency (CORFO), “labor costs are one aspect of a company’s total cost analysis. If you look at the incentives we offer, infrastructure costs and access to local talent, in the long term Chile is a very low cost profitable country to invest in”.
Government support: Much of Chile’s success comes from its willingness to invest heavily in its ITO and BPO industries. The recent copper boom resulted in a trade surplus, which allows Chile to offer tempting incentives to companies that others in the region cannot. CORFO through its InvestChile program, has rolled out the red carpet for high tech businesses by providing a range of monetary incentives and government grants.
CORFO also takes an advisory role in helping companies set up operations in Chile. “You have somebody there to walk you through the process”, says Brad DeMent, leader of LATAM shared-service operations for ScottMadden Consulting. “CORFO acts as a mediary to file for government grants, set up tours, help with real estate, and more”. Srivastava mentions its level of professionalism – “It is a friend, consultant and guide, rather than a government agency”.
English As a Weakness
The main obstacle to Chile becoming the Nearshore destination of choice is the low number of English speakers. Only 8% of the technical graduate population speaks English, which is much less than in countries like Mexico, Costa Rica or Argentina. But since 2004 CORFO has been using fully funded English programs in major cities to make thousands of IT engineers bilingual, and the population of English speakers has more than doubled.
CORFO has also created a National Register of English Speakers on which 37,000 workers are registered, nearly all of which have some form of higher education. “Companies looking for English speakers can surf the database to find the necessary workers – the website allows employee searches according to areas of expertise”, says Nicolo Gligo of CORFO. “English proficiency is good among recent graduates from universities, and if you’re looking at IT work, it’s easy to find the talent you need”, adds Srivastava.
A small population is another issue for Chile. With a workforce of about 7.2 million, 3.1 million of which is in Santiago, it’s easy to see how larger outsourcing economies in Brazil or Argentina could win out. “Because our population is smaller, we focus our efforts more”, says Gligo. “Instead of basic call center workers, we provide highly skilled educated workers that specialize in IT innovation, research or product development”. It is this IT specialization that will move Chile’s outsourcing market forward in coming years.
IT Specialization
One of Chile’s advantages in the IT field is an education system that is more detailed and longer in duration than in most LATAM countries. The system is divided into university degrees (5 years), and technical degrees (2-4 years). Bachelors and Masters programs are completed one after the other, and the result is some of the best educated people in the region. Graduates are highly skilled and experienced, especially in fields like analytics and programming, and the availability of this talent pool is allowing Chile to move into high-end ITO services like research and innovation – and companies are taking note. Yahoo! opened a research lab in the University of Chile, citing ‘local talent and internet know-how’ as main reasons. Other IT companies with software development and BPO projects in Chile include Synopsys, Intersystems, Software AG, Citigroup and Tata Consulting Services.
Complementing India: One effect of this IT specialization is companies that diversify operations between India and Chile. “There is a strong proposition to collaborate with India, since the ‘heavy lifting’ can be done there, while the vale-added and time sensitive ITO work can be handled in Chile”, says Srivastava of Evalueserve. “ITO companies serving the US market can have a workforce model of 10% in the US, 20% in Chile, and 70% in India, which results in dramatic improvement in communication and service levels at a slightly higher cost”.
Evaluserve is one of the Indian outsourcing companies that have set up in Chile to serve their US clients in the same time zone. Another Indian provider, Orion Systems, came to Chile in 2008 and develops software for US companies.
Chile realizes that skilled ITO and BPO work is the next step for its outsourcing industry. It is no surprise that CORFO’s InvestChile website URL is www.hightechchile.com . Chile does not have the population to support armies of call center reps like Brazil and Argentina, and so value-added IT and BPO services is what CORFO is focusing on.
With 500+ local IT companies, and over 75,000 people employed, the country has made huge strides forward. “Five years ago, Santiago wasn’t on my radar screen”, says Brad DeMent of ScottMadden. “But I think in the coming years it will become a hub for higher end application development, IT outsourcing and KPO in Latin America. The future is extremely bright for Chile”.
It looks as if all the places are in place for Chile to join India as an outsource powerhouse.
I think this is a good overview. The fact is that Chile has a good value proposition, both relative to the region and the rest of the world.
A very good and concise overview ! Chile has several advantages and some issues too, but countries have always progressed by focussing and leveraging their strengths. The thought of complementing India is a sound strategy – Chile with its more detailed IT education system can draw clients expecting higher quality work and emerge a winner in IT innovation, Research and Product development. Brad is right – the future is bright for Chile !
The article provides a comprehensive view of Chile advantages as an offshoring / nearshoring location.
From there, I would like to highlight a couple of additional points for the analysis:
– Together with the “hard” infrastructure availability (modern highways and airports, telecom network, etc.), there is a well established “soft “ infrastructure (government institutions, legal system, transparency, cultural matters, etc.) which makes easier to do business.
– On the other hand, Chile has a solid local IT services industry, as well as advanced Industry Practices specially on Banking/Financial Services and Retail, where BPO and KPO services may take advantage of.
– Besides Santiago, capital city of Chile where most of offshoring centres are located nowadays, there are attractive “second-tier” cities particularly Viña del Mar, Valparaíso and Concepción, which have lower living costs but similar infrastructure availabilty and top level universities.
And last but not least, Chile is a safe country to live in, has a nice mediterranean weather at the Central Zone, and is also a producer of fine wines to enjoy.
Fernando Ortiz
A very good piece on Chile, which gives a good insight and perpective on agrowing economy that has the ability to cater to U.S. based companies and can provide time zone overlaps (to the US) that have always served as a barrier for having time sensitive work done in IT hubs like Asia.
Hi guys,
We are trying to set up a IT shop in Santiago, I'd appreciate if you could send me (or point me to) any information regarding labor costs, such as contributions by employer/employee, health insurance, retirement account, bonus, severance/termination pay and anything else you can think of.
(BTW, what is the average salary for a junior support tech –who would provide support to corporate clients on it security software)
Thanks!
val
Hi Val, you will want to check in with Nicolo Gligo and the rest of the team at CORFO. All the information is packed in to our recent profile of Chile: https://nearshoreamericas.com/chile-it-thrivin…
Best of luck and keep us posted on your venture.
Good article because it addresses cost, workforce size and English as a weakness. All LATAM countries need to address these key points. CORFO has initiated their database because of demand but the saturation of suppliers has a wage inflation scenario taking place as the talent pool shrinks. At best, Chile is a boutique quality player but should never be referred to as an "outsource powerhouse". They just don't have the population to justify.