Panama is getting a renewed shot at becoming a hotspot in the Nearshore business process outsourcing (BPO) ecosystem.
Panama is known today among BPO operators as one of the most mature markets in the region. The Central American country garnered fame as a viable option for investment due to its political and economic stability, infrastructure, English-speaking workforce, use of the dollar as official currency, convenient time zones and its cultural alignment with the US. These and other perks have sweetened Panama in the eyes of companies that want to ease their way into outsourcing their business operations.
But it wasn’t always like that. In fact, the path of Panama as a BPO hotspot can be summarized in three chapters: a loud boom, a precipitous fall and a sudden resurgence which can still be observed today.
A Brief History Lesson
In the early 2000s, Panama hit it big in the outsourcing industry. Its low labor costs –promoted by the government in turn–, coupled with the aforementioned qualities, made it one of the most attractive spots for companies looking to outsource operations. The market was so active that some industry experts count the number of BPO providers at the time closing in on the thousands.
But it all came to a sudden halt in the next decade. Starting in 2012, the government instituted a policy to increase the minimum wage nationally, pushing it steadily to levels that to this day remain among the highest in the region.
The country’s position in the market shifted from a viable destination for low-cost investment to one of premium rates. Though top players might have been willing to pay extra, many opted for regional rivals, such as Colombia.
The path of Panama as a BPO hotspot can be summarized in three chapters: a loud boom, a precipitous fall and a sudden resurgence
The pendulum has begun to swing back, though. Investors see Panama again as an attractive destination for BPO investment. Market research recorded double digit growth in the country’s industry from 2020 to 2021, and analysts are optimistic about the near-term future of those numbers.
Once more, Panama’s in the conversation for the next regional BPO hotspot. How did it happen?
Riding the Nearshoring Wave
Panama got lucky, in a way. The country has been able to ride a rising wave of interest in the Nearshore as a hub for BPO investment. Post-COVID, companies in the US, Canada and even Europe and Asia have given more thought to outsourcing as part of their business strategies.
“I think macro factors played a bigger role,” said Fabio Herrera, Senior Manager at Dash BPO, an operator with presence in the country. “The pandemic, the lockdowns, companies closing and the fact that many were not prepared for remote work. All of these generated massive opportunities [for BPO] not only in Panama, but pretty much any country in Latin America.”
Panama’s profile in the region has attracted more than the usual customers. Traditionally, the country saw a slew of companies coming from telecom, tech and retail. Now, buyers are coming from industries as varied as health, manufacturing and media/entertainment.
“I think macro factors played a bigger role. The pandemic, the lockdowns, companies closing and the fact that many were not prepared for remote work”—Fabio Herrera, Senior Manager at Dash BPO
There has also been a wave of what is known in the industry as “digitally born” clients, which include fintechs and other sorts of companies that bet on innovation and technological disruption. For all these, Panama stands as a perfect “gateway” into outsourcing, even when prices remain high when compared with local rivals.
Lemons and Lemonade
Panamanian BPO is making the best out of the economic turmoil caused by the COVID-19 pandemic.
About 40,000 small and medium sized enterprises (SMEs) were fatally wounded by the COVID crisis, which represents nearly 40% of smaller enterprises in the country, according to Panama’s National SME Association. About half of the Panamanian formal workforce is employed by SMEs.
Also, call centers were one of the few activities decreed by the federal government as essential, allowing operators to keep their businesses running while most industries were forced to reconfigure their labor models or pause activities entirely.
With much less competitors in the job market, BPOs were able to leverage their position and snatch the available workforce.
“What has contributed to this change [in the industry] is that the economy was booming at that time and we were basically at full employment across the country. Now that the economy is more in a normal mode, jobs in the BPO industry are back in high demand,” explained Alorica, which has been operating in the country for years, in a statement.
The government has also been on the move since 2020. In September of that year, Commerce and Industry Minister Ramón Martínez met with executives from Sitel, Alorica and Iterum in an attempt to attract investment and “consolidate the country as an industry hub”.
Visitamos la empresa SEM de servicios de Call Center @AloricaLatam, la cual estará brindando servicios a una reconocida compañía de ventas en línea, habilitando unas 300 plazas de trabajo para nuestra gente.
Conoce más ➡️ https://t.co/inXrW5806j#UnPanamáMejor pic.twitter.com/7scJP4kfDq
— Ministerio de Comercio e Industrias de Panamá (@MICIPMA) September 9, 2020
In early 2022, it was decreed that all phone service providers and any other company that delivered “public services” should have their call centers physically located in the country, a move seen by industry players as an attempt at job creation.
All of the above, coupled with the post-COVID rise in demand for outsourcing services, has put Panamanian BPO in an enviable position.
What Should Come Next
Panama was able to make the best out of recent trends in the Nearshore BPO ecosystem. The question is: what should it do next?
The industry overall finds itself under the squeeze of two forces: a low supply of talent –exacerbated by high attrition– and rising inflation. After keeping prices relatively unchanged during the pandemic, vendors are now pushing for rate hikes. There’s little data at the moment on how buyers are responding to such requests, but industry analysts see them paying extra to secure the volumes of service in a context of growing demand.
Panama’s rates are already higher than most players in the region. With inflation pressuring vendors to increase wages, some local industry actors see a necessity for government intervention in the form of tax reliefs.
“We would have to work out something with the government in the realm of taxes to compensate for the differences with the region, because our minimum wage almost triples that of most countries here. Of course, it would have to be done without affecting wages, because we do have a high cost of living,” pointed out Fabio Herrera, from Dash BPO. “That’s the main factor behind Panama’s inability to reach the massive growth numbers seen in the industry long ago”.
Other industry experts suggest the opposite approach for Panama: just ride the wave and keep steady.
“I don’t see a need for significant change, necessarily,” commented Sebastian Menutti, Industry Principal at Frost & Sullivan. “What they need to do is maintain their economic and political stability, as well as a friendly investment climate. These are very important factors for companies choosing which country to set up operations on.”
“Keeping good relations with the governments of the US and other partners will keep that sense of security among new investors. I think that’s the path to keep those growth numbers,” he added.