Nearshore Americas

El Salvador: On the Right Path

Strategically located in the heart of Central America, El Salvador is close enough (and in an attractive time zone) to be appealing to companies based in the U.S. and Canada. The country offers competitive pricing in comparison to neighbors such as Mexico, Panama or Costa Rica.  However, the Salvadorian outsourcing industry still has some untapped potential, which I will be covering briefly in this collaboration to Nearshore Americas.

Early Inspiration

El Salvador was launched as an outsourcing destination in the 2004-2005 period, when Dell and Sykes started operations in the country.  At that time, the jobs generated by the industry went from  1,000 to over 9,000 in 2010, a real testament to the attractiveness of the country as an outsourcing destination.  There are currently 38 centers in El Salvador (including two finance-specialized BPOs), out of which 20 are working almost exclusively with offshore clients.

One thing to take into account is how significant this industry is for El Salvador.  In the most recent census (2007), the country’s population reached 5.7 million, with an economically active population of 2.8 million people.  This is relevant because despite the size of the country, and the small percentage of the economically active population working in the outsourcing business, the economic spillover of the outsourcing industry was calculated around USD$75.8 million last year, making it an important job and income generating business for local people.

Approximately 85 to 90 percent of the outsourcing business in El Salvador is directed towards North America, and the rest is mostly serving the internal market.

Who is El Salvador Really Competing With?

When asked about the amount of English speaking people among the Salvadorian agents, I have been told that it reaches levels ranging from 70-75 percent, which speaks of the nature of the industry in this country.  Approximately 85 to 90 percent of the outsourcing business in El Salvador is directed towards North America, and the rest is mostly serving the internal market. This focus in North America means that outsourcers in El Salvador are competing for accounts not just with other Latin American service providers, but primarily with companies based in India and Philippines, countries with seasoned service providers and killer pricing structures, as well as an immense pool of bilingual people.

How are outsourcers based in El Salvador approaching this fierce competition? Besides its geographical position, one of the elements the government is trying to convey is a cultural edge. Not just the government is portraying the local agents as driven sales people and revenue generators in the contact center, but also their strong understanding of North American culture is a card often played. Additionally, local service providers often refer themselves as having impressive KPI’s and seem quite open to compare their performance against other destinations as a sales tool.

Not that the pricing in El Salvador is not attractive:  The average salary of a bilingual Salvadorian Agent ranges around USD $600, and can go as low as USD$ 250-350 for Spanish speaking-only agents. It is interesting to note that the average salary of a bilingual agent in El Salvador is similar to those in India or Philippines, giving the country little competitive advantage on the monetary front alone.  However, when it comes to Spanish speaking agents, customer care provided from El Salvador would be considered inexpensive when compared to many Latin American counterparts, which would give the country a cost-reducing advantage if the industry decided to proactively attack this market.

Benefits for Outsourcing Companies/ Service Park Summary

  • Free of tax, outsourcers can bring or import to the service parks any equipment, furniture or office appliances that allow the outsourcing operations to run.
  • Exemption to Income Taxes from the day of commencement of operations in service parks
  • Exemption of municipality taxes over the company assets for the period of operations.

The requirements to qualify for this, that apply mostly to outsourcers, include:

  • Facilities rented/acquired should not be less of 500 square meters
  • Register as a service provider with the Ministry of Economy
  • Investment during the first year of USD $150,000 in working capital and salaries
  • Having at least 10 permanent work posts
  • Having a lease for at least a year.

The requirements seem quite easy to comply with for a medium-sized outsourcing operation, which shows the government’s eagerness to attract more investment to the country.  This was reaffirmed with the recent launching of El Salvador Strategy for Fostering Exports 2010-2024 (Estrategia Nacional de Fomento a las Exportaciones, in Spanish).  This plan stresses support of existing call center outsourcers, but its main message is the intention of migration towards more complex outsourcing services, such as legal, administrative, and accounting, with the corresponding support in fiscal exemptions.

Strategic Opportunities

A big opportunity is the Spanish speaking market in Latin America.  For instance, Mexico outsources a large amount of contact center business to Central America (mostly Guatemala) and even Peru, be it in the financial and telecom verticals, which El Salvador could be benefiting from.  Granted, Mexico doesn’t outsource most of its business, but due to the size of the Salvadorian Market, this is an example of what could represent a significant revenue stream for the industry.

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Under the current regulation, if BPO providers want to take advantage of fiscal incentives, they have to establish operations inside a services park, which is –  per se – a positive thing, unless they are call center outsourcers that are already running operations outside a service park.  In this case, if an outsourcer decides to include BPO to its portfolio, the revenues generated by BPO activities will be subject of taxes, unless the company moves its operations to one of this parks, with all the logistical inconvenient that this might involve.

There are several initiatives in the country and a formal proposal to the government to include BPO service providers under the umbrella of exemptions that outsourcers are subject to, with a final resolution expected in the second half of 2010, which would be crucial to increase the attractiveness of El Salvador to BPO providers looking for an offshore destination.

Victor Hugo Casiano is an Industry Analyst with the Frost & Sullivan Latin American Information & Communication Technologies Practice. He focuses on monitoring and analyzing emerging trends, technologies and market dynamics in the Telecom and Enterprise Communications industry in Latin America.

Kirk Laughlin

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

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