Nearshore Americas

COUNTRY PROFILE: Peru Remains a Great Bargain, but Watch for Gaps in English and IP Protection

There’s no question that Peru has been in the sourcing spotlight lately. In January Google announced plans to locate to the country, in July we heard about Tata Consultancy Services (TCS) setting up in Lima, and then in September Allus Global completed its new BPO center there with an investment of $5 million.

Not bad for one year, and those are just a few examples. But while Peru is not dogged by the usual workforce scalability issues, analysts are worried that inherent problems with the political system, investment and intellectual property protection, and English proficiency in the workforce could be major roadblocks to the country’s expansion in services. Here we summarize Peru’s strengths, weaknesses, and prospects for the future.

Stellar Growth

With the fastest growing economy in Latin America (9.8% in 2009), Peru is increasingly seen as the rising star of the region. GDP is forecasted to continue growing at 7%, and inflation will hover around 2% for the next few years. Although battling an abysmal approval rating since 2006, President Alan Garcia has managed to lower poverty rates, double per capita income, and steer the country toward a more decentralized and pro-business market. And the businesses have been coming. Notable US companies now operating in Peru include IBM, HP, Microsoft, JP Morgan, Oracle, Verizon, Cisco, Citigroup and AT&T.

Some telling stats on Peru:

  • 2010 Ease of Doing Business rank of 56, behind Mexico but ahead of Argentina and Brazil.
  • Ranked 78 out of 131 countries on the Global Competitiveness Index 2009-2010 by the World Economic Forum (WEF).
  • First in the region for government readiness for private investment, according to WEF. Approximately 25% of GDP comes from private investment.
  • Economist Intelligence Unit placed Peru’s average annual salary for a contact center rep lower than Colombia, Argentina, Brazil, Chile, Mexico and Costa Rica.
  • Currency risk rating of BBB- by Standard and Poor’s. Country GDP is $129 billion, with the trade in services accounting for 53%.

Big Workforce = Small Wages

Peru has a population of 29.5 million, with 7.6 million in Lima where the offshore industry is based. Since the country is only just being noticed by foreign companies, the workforce is nowhere near saturated. In fact the large labor pool and high unemployment rate lead to intense competition for jobs, which guarantees low wages at least for the next few years. The official monthly salary given by Peru’s investment promo agency ProInversión for a bilingual call center rep is US$ 335-500 (Note: we estimate it to be slightly higher), while the salary for a junior level IT programmer is $600-800, according to software development firm Avantica Technologies. That makes Peru one of the lowest cost sourcing destinations in Latin America.

That being said, the action is concentrated mainly in the capital city, with the rest of the country going relatively unnoticed. 88% of the contact center companies in Peru operate out of Lima, with 35% in the San Isidro business quarter of the city.

Skilled labor – It’s difficult to judge the level of technical education in Peru’s workforce, because there is such a disparity between smaller cities and the large business hubs. Tertiary enrolment is 28% and there are 91 universities in the country, 29 of them in Lima. Systems engineering is reportedly the most popular degree.

“Few countries in Latin America are poised to deliver the kind of talent and infrastructure we need. Peru fits the bill”, says Mario Chaves, CEO of Avantica. When expanding the company out of his home base of Costa Rica, Peru was his first choice. “There are many more qualified tech workers here, mainly in the telecom industry and in software development, all at a low cost”. The IT potential of the population was also echoed recently by Gianfranco Polastri, General Manager of Google Peru. (Where Google is looking to hire a enterprise sales manager.). “There are great possibilities out there because the Peruvian Internet user is the most sophisticated one of all Latin America”, he said. Peru has a high internet penetration rate of 25.5%.

Peru has excellent personal and business data protection laws, but the problem is in enforcing them. “Firstly there are limited resources, and secondly the judicial system is slow, inefficient and corrupt” — Richard Neff, founder of Neff Law Firm

Low English proficiency – While the IT value-added industry is still developing in Peru, BPO and call center services are booming. It’s due to the low wages and the modernized telecom system, but also the neutral Peruvian Spanish accent, which firms love using to service the US Hispanic population. The main obstacle to continued growth however, is poor English capability. “People are only just noticing how important it is to learn the language, so it’s hard to find fully bilingual engineers”, says Gerardo Delgado, Peru General Manager at Avantica. “But we do have regular meetings with local universities where we speak about our qualification needs, and what they should be focusing on”.

The government is slowly reacting to the demand for English and other training. “There are a few programs in place by the Ministry of Education, including one specifically designed for tele-operation services called Revalora Peru”, says Harry Chang, Investment Promotion Director at ProInversión. The initiative he’s referring to was created last year in response to the economic crisis, and provides support to entrepreneurs, and job training and labor certifications to workers, including language courses. It’s still nowhere near the scale of English training required in Peru though.

Investment Climate

Data protection – Peru has excellent personal and business data protection laws, but the problem is in enforcing them. “Firstly there are limited resources, and secondly the judicial system is slow, inefficient and corrupt”, says Richard Neff, founder of Neff Law Firm, who was recently invited to Peru to talk about IP protection and how to improve it. “Peru must implement deterrent penalties – they’re supposed to as part of their free trade agreement with the US, but they don’t”.

Peru was actually the first LatAm country to institute IP courts five years ago, but they were disbanded this year as a result of being completely ineffective. The International IP Alliance in its 2010 report estimates business software piracy at 71%, citing lack of resources, enforcement and legislation as major causes. Peru’s IP administrative agency INDECOPI has been working on increased accreditation, support for companies, and more frequent inspections, but nothing much has changed.

Competitiveness – Peru’s low competitiveness rank by the WEF is due to corruption in government and weak ineffective institutions. But the country recently secured a $50 million credit from the Inter-American Bank to finance reforms of the business environment and boost productivity. According to IDB, Peru aims to reduce transaction costs for opening and operating businesses, as well as facilitate the use of its free trade agreements with the US, China, Chile and the EU.

Peru has a colossal informal sector, encompassing almost half the workforce. “Official unemployment is at 9.5% but if you consider the informal sector, that increases to 30-40%”, admits Chang. “It’s why we like APECCO, the Peruvian association of call center companies. It establishes minimum service quality requirements for doing business, as well as hiring standards like employing only under contract, that all firms in APECCO adhere to”.

ProInversión and Investment Incentives

Investment Promotion Program – ProInversión is ramping up its marketing campaign to foreign BPO companies. In addition to the creation of APECCO and the increased IP laws, it’s also generating new business clusters for contact centers in major cities to facilitate sharing of resources and training. In terms of tax exemptions, ProInversión offers a few industry-specific ones like the removal of the Value-Added Tax of 19% on all contact center services exported out of the country. However firms have noted the lack of more extensive incentives for the IT and BPO industries.

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Regarding stability of the investment climate, Richard Neff had this to say: “Because there’s no permanent civil service in Peru, you never know how the rules of the game will change. Political parties are many and disorganized, and often a vehicle for certain interest groups. If a new government comes in, the business rules could change”. Chang disagrees however – “Every new company signs a Legal Stability Contract with ProInversión, which guarantees that the rules will stay the same for at least ten years. The minimum investment to be eligible for this is $5 million over two years”.

Services offered – ProInversión also offers a range of support services to foreign companies even before they decide to locate to Peru, such as information gathering, and arranging meetings with potential partners, customers, government officials and trade organizations. Once the decision has been made, ProInversión will help with opening the new center or production facility, as well as guide the firm through securing various authorizations and immigration documents. After the start of the operation in Peru, ProInversión acts as a liaison between companies and the various government offices.

Peru is poised to offer a solid value proposition to US firms, and not just because of the low labor cost and same time zone as New York. There’s a lot of potential there, evidenced by the strong growth rate, but there are also many issues that must be dealt with. How the government and ProInversión handles those issues will determine whether Peru explodes, or just fizzles out.


Kirk Laughlin

Kirk Laughlin is an award-winning editor and subject expert in information technology and offshore BPO/ contact center strategies.


  • David –

    The corruption claim is something I hear from many sources about Peru. To what extent in your opinion does that hurt US companies locating to the country? Is there anything being done to reform the investment climate?

    Would appreciate your insight…