A mere 230 miles from Miami, Havana’s ultra-attractive geographic positioning continues to push Cuba on to the radar of ‘what ifs’ when looking at explosive possibilities in the Nearshore services sector.
But before floating into dream land – let’s review the facts: Cuba’s BPO market today is nearly non-existent and the Cuban government is not focused on jump-starting it. Despite an intelligent workforce that is increasingly exposed to private-run business, Cuba still has a long way to go to become viable for global services. We drew upon our pool of experts and did some poking around of our own to find that Cuba lacks a BPO scene because of the Cuban government’s preference for other industries, a weak technological infrastructure, a dearth of transparency, and political and workforce uncertainty.
“The Cuban government doesn’t appear to be that interested in BPO; they seem to be more focused on tourism and natural resource extraction. You really may need a regime change to get things moving with BPO,” says Peter Ryan, lead analyst at Ovum. His opinion reflects the results of a recent Nearshore Americas online poll that indicated over 65% of audience members saying “Wait for the Castros to Move On” before examining Cuba.
Cuba already has plenty of experience participating in joint ventures with first-world democracies like Canada and Spain albeit in non-service related industries. Canada based international mining giant Sherritt Corp. has operations in Cuba. Spanish foreign direct investment is mostly focused on the Cuban tourism industry, which currently accounts for 12% of the labor market as reported by the US State Department, and was made possible by a series of market oriented reforms in 1993 and 1994 in attempts to stave off fiscal crisis.
Joint ventures occurring between Cuba and international companies would seem to be a signpost of Cuba’s readiness and capability to take on BPO operations, even majority foreign ownership has supposedly been allowed since 1995 despite little evidence of its actual existence. Regrettably, joint ventures between the Cuban government and foreign firms steadily declined in the seven year period between 2002 and 2009. Reasons cited for the decline are encumbering regulations, grueling bureaucracy, and high-priced inefficient labor.
“Therein lies the problem, it is not a free market,” says Ryan when asked about how a company interested in launching a BPO joint venture with the Cuban government would go about negotiating wage rates. “Instead you have the DR or Jamaica right there and they are already proven BPO markets with less red tape and more transparency.”
“I am sure Cubans can adapt and provide quality customer service, but it will not happen overnight”
Is the Workforce There and Ready?
UNICEF data shows that the Cuban population has 100% literacy and youth enrollment in primary and secondary education is on par with that of the most economically successful nations in Latin America. That reality combined with the fact that 12% of the labor market is employed in the tourism industry, where those workers may be either formally or informally receiving an education in current hospitality standards, is an argument used by some to predict that Cuba is ready for BPO. How many workers of that 12% are truly focused on guest centric activities? The impact is overestimated.
BPO would also find it difficult to pinch those few readied workers focused on guest centric services from the tourism sector because of the tips they receive; it is not uncommon for a worker to receive a tip that is half their monthly salary. As for the vast majority of the Cuban workforce that is not involved in tourism, although highly educated, may take time to deliver high quality BPO services.
“It is hard to conceptualize Cuba becoming a hub for customer service anytime soon. Customer service is very much an idea rooted in the North American business psyche. To generalize, Cubans have simply not been exposed to this practice and as a society and they will need time to switch gears. I am sure Cubans can adapt and provide quality customer service, but it will not happen overnight,” says Sonya Fierst, a research analyst for Centro de Estudios en Economía Sistémica (ECSIM) who recently traveled to Cuba.
Even if Cuba were to become a market economy tomorrow the communism hangover would endure for some time.
Internet connectivity in Cuba has been known to be abysmal with the Cuban National Statistics office reporting as recently as 2010 that only 2.9% of the population used the internet over the previous 12-month period. The arrival of an undersea fiber optic cable in early 2011 from Venezuela evoked wary optimism by freedom of information supporters; all Cubans know that with any increased access to virtual information monitoring and blocking technologies will escalate in lockstep. As to date there has been little reporting on the anticipated internet access that was promised with the delivery of the fiber optic cable, sources on the ground say internet access for the average citizen continues to be absent.
Political and Economic Uncertainty
Any BPO buyer has political and economic stability on the top of their due diligence checklist. Unfortunately, Cuba remains a wildcard in terms of its post-Castro future. The island is also preparing for an altered relationship with Venezuela and the Cuban government, which now employs 85% percent of the Cuban workforce, claims that within the next 4-5 years 50% of the country´s economic activity will be in the private sector as reported by NPR.
However, the Cuban regime has a track record of making claims and not following through or reversing course, especially when it comes to the issue of economic liberalization. It remains true that the small subset of Cuban entrepreneurs cannot deal directly with foreign firms, and until a big shift occurs an unpredictable Cuban government still controls everything.