Duncan TuckerAs an unincorporated U.S. territory, Puerto Rico is a very different nearshore option from most other Caribbean nations. Higher labor costs (the result of an above-average minimum wage) are somewhat offset by financial incentives, while the island also offers all the security of the U.S. legal system and a large English-speaking population.
“I would not say that Puerto Rico is a low-cost location; I would say it’s a high-quality US-based location for operations,” said Antonio Medina, executive director of the Puerto Rico Industrial Development Company (PRIDCO). Puerto Rico’s primary strengths are its robust regulatory and compliance standards, and its high-tech infrastructure, Medina told Nearshore Americas.
Puerto Rico’s contact center sector comprises around 5,500 seats and $110 million in revenue, but this is set to increase as in January 2014 Infosys announced plans to invest US$9.3 million and create up to 300 jobs on the island over the next two years. The BPO venture will see the Indian multinational providing customer service, order management and administrative services to clients in the defense and aerospace industries.
“This particular operation was part of a larger trend that we’ve seen where we’re taking on more end-to-end work from our clients. This is focused largely on the aerospace industry, supporting order to cash operations from there,” Aniket Maindarkar, head of Americas operations at Infosys BPO, told Nearshore Americas. “Clients are saying more and more, ‘I don’t care how many people you’re doing this with – all I want is an end result,’ and we need the right kind of talent in the right kind of location which is conducive to that kind of industry.”
“We’re currently working from the client’s location but the plan is for us to move into our offices sometime in July, August or September,” Maindarkar said. “We’re already fully functioning; we have an HR team, a finance team, and a publishing team.” Infosys is currently contracted to serve just one client (whose identity remains confidential for now) from Puerto Rico but once its center is operational it will look to serve others from the island. The company is “also looking at Puerto Rico as a location to support other government work,” Maindarkar added.
Infosys always scouts locations from a business environment perspective, a human capital perspective, and from a cost perspective, Maindarkar explained, “and in this particular case Puerto Rico ended up being the perfect choice for us … it really is a hotbed for talent in the aviation industry. Aviation, life sciences and probably manufacturing are the largest industries out there.”
Compelling Incentives
Infosys’ investment in Puerto Rico was also encouraged by PRIDCO, which offered compelling incentives under the Economic Development Incentives Act. “The cost structure was a little more amenable in comparison to some of the other locations in the U.S.,” Maindarkar said, as PRIDCO offered a 100% exemption on taxes on earnings and profits, and a 90% deduction on local property taxes. PRIDCO also helped train staff and aided Infosys in finding the right location, he added.
Puerto Rico’s Act 20 is specifically aimed at service exports companies, whether in BPO, IT, advertising/PR, research and development, and consulting, with typical benefits including a 4% maximum corporate tax rate and 60% exemption on municipal gross receipts tax. “It includes asset management, capital investment services, legal services, software development, software sales, data processing, call centers, KPO and BPO,” Medina explained. Moreover, “For a company established in Puerto Rico the local state tax is the only tax that applies to their income, as companies do not have a requirement for filing US tax returns, despite being in Puerto Rico, which is obviously a US territory,” he added.
Aside from providing information and managing incentive packages, the PRIDCO also has “the largest real estate portfolio in Puerto Rico,” Medina added. “So when somebody comes to Puerto Rico we can take them to one of our facilities and provide rent incentives, or we can build to spec.” For example, PRIDCO is going to build a large new site to spec for Honeywell, which already has a center of excellence in Puerto Rico for its own global operations. “It’s going to be a $35 million investment,” Medina said. “They’re going to create over 300 new jobs in Puerto Rico over the next 18 months once construction is over. We expect them to be fully operational by the end of 2015.”
In general, “setting up a business can be done very quickly, but a more normal negotiation involving real estate can take three to six months, depending on the complexity of the situation,” Medina added. Other outsourcing firms in Puerto Rico include Aon Hewitt, which provides HR outsourcing from the island, while major financial institutions such as KPMG, Deloitte, PricewaterhousCoopers all have operations there as well.
Overcoming Challenges
The minimum wage in Puerto Rico is relatively high compared to other Caribbean nations, but “where we complete very effectively is when you compare Puerto Rico with other US jurisdictions,” Medina told Nearshore Americas. Costs on the island are about 20% cheaper than in low-cost mainland U.S. locations and 40% cheaper than more expensive destinations like California or New York. The Puerto Rico workforce is strongest in the fields of aerospace, electronics and IT, medina added. “We have such a strong STEM (science, technology, engineering and mathematics) degree-based workforce,” he said, and “about 80% of the population speaks English, while basically every college-educated professional speaks the language.”
Maindarkar said Infosys has encountered no major problems in Puerto Rico but did note that financial difficulties and political change had led to record numbers of people migrating to the U.S. mainland last year. As Infosys’ delivery center is based in Aguadilla on the west coast of the island he also noted that they would like to be able to fly there directly in the future instead of landing in San Juan on the northeastern side and having to transfer by road.
One area where there is room for improvement in Puerto Rico is in energy costs, Medina said. “Islands tend to have a more difficult time with energy costs because of the high costs of oil,” but the government is building new facilities and working to increase production of both oil and natural gas in a bid to lower costs, he explained.
With regard to communications infrastructure, Puerto Rico is “Very competitive with other nations in the Caribbean and Central America,” Medina said. The island is linked by undersea cable to Florida and Rio de Janeiro, while it also “has redundant connections with other fiber-optic grids through multiple companies.”
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