This week, Bank of America announced 3,000 layoffs across operating sites in Costa Rica; Guadalajara Mexico; and Taguig City, Philippines. Intel Corporation also announced the layoff of the majority of its Costa Rica workforce – some 1,500 out of 2,500 jobs. These layoffs, a major event for both Guadalajara, Mexico’s second largest city, and the small Central American nation of Costa Rica, come just two days after a new left-leaning president, Luis Guillermo Solis, was elected to succeed outgoing Costa Rican President Laura Chinchilla’s scandal-plagued administration.
So within this larger context, are these layoffs a key indicator of problems or shifts in nearshore market tectonics? Or are they merely isolated incidents and coincidental with the synchronization of layoffs between two major employers and the recent presidential elections. One theory is that both companies were holding off on announcing the pending layoffs until after the vote count in Costa Rica, so as to stay out of the campaign fray and not interfere with the presidential electoral politics.
But the Bank of America told Nearshore Americas that this is not the case. After all, in Bank of America’s case, the layoffs will not take place for another year. On the other hand, because employees interact globally, it is better to coordinate steps like this across geographies. Bank of America spokesman Dan Frahm told Nearshore Americas, “The announcement timing was determined based on the best availability of our employees across all three locations, which we wanted to coordinate since they interact often. Additionally, we have a commitment to our employees to tell them key decisions as soon as we know them, which we did in this case, allowing our employees as much time as possible to transition to their next position outside our company.
“We review our global operations on an ongoing basis to make the best use of our resources, balance capacity across our sites and simplify our company for our customers and clients around the world,” Frahm added. “It was important to us that as soon as the decision was made, we inform our employees. By communicating with them as much as a full year in advance, our employees will have more opportunities to pursue and transition to new positions outside our company.”
Frahm went on to emphasize that these cuts are to back-office support personnel that service bank operations and do not affect the global banking and markets business, which continues to service commercial and corporate customers throughout Latin America and the Philippines. The cuts were to personnel in Bank of America’s BA Continuum shared services subsidiary, which provides support to multiple Bank of America business units. With regards to Guadalajara Mexico, Frahm says there are no external social or political factors involved in the decision and it should not be interpreted at all as reflecting negatively on Mexico. “We found Guadalajara to be an excellent location and business climate for our operations, and an excellent location to employ very skilled professionals. Our decision to discontinue this operation is based on Bank of America’s ongoing effort to simplify and streamline our company for our customers and clients” Frahm responded.
A Dose of Reality
When it comes to Intel, independent observers in the know seem to have the same opinion. “The timing of the release of the news is unfortunate, but the reductions [in staff] pertain to their operations and do not reflect any judgment or forward looking statements about the President-elect. Intel is logically integrating their global supply chain, and leaving Costa Rica [with respect to] manufacturing to go closer to where their customers are. What we, Ticos [Costa Ricans] do best is articulate value in a more complex set of problems, not a commodity like manufacturing,” says Mario Merino, the Costa Rica country manager for Gorilla Logic, an international technology services firm.
“The departure of Intel and Bank of America should inject a dose of reality and remind us of the importance of remaining competitive. Labor will always be tight in a country as small as this, but the service economy in Costa Rica is still young and becoming more professional as a function of time as well as growing. It’s clear that what we do best is articulate value,” Merino added.
That optimism is shared in Mexico. Does the bank’s move out of Guadalajara make a statement about conditions on the ground locally? “I don’t think so,” says Mexican economist Eduardo Barenque. “Guadalajara is not so bad as some other major Mexican cities. I think is more about their strategies.”
“Costa Rica is moving towards services, no longer manufacturing,” says Robert Wolf, general manager of EX2 Outcoding, and one of Nearshore America’s Power 50 most influential nearshore outsourcing executives. “Manufacturing in Costa Rica is no longer as attractive. In some sectors, Costa Rica is no longer going to be that competitive. Energy costs in Costa Rica are very high. Until we start managing, until we start fixing the energy costs; there is a monopoly and we need to start changing towards the private sector so the costs go lower. That is going to be an issue that the new President is going to have to fix.
“I think those two companies were facing ongoing issues, so in some respects it’s normal,” continued Wolf. On the other hand, elections have consequences. Wolf says the incoming party that won the presidential election is composed of constituencies that have been against the free trade zones, free trade agreements and liberal economics in general. “He has people assuring that he is not going to change the rules. I hope he keeps his word. He is also saying that in the first two years he is going to consider adding new taxes. I am sure [Costa Rican Investment Promotion Agency] CINDE right now is trying to negotiate about that, because then we will start to lose a lot more employers.”
“All this is an isolated case and it should have something to do with Bank of America’s internal situation. Nothing interesting is happening regarding any other conditions on the ground in Mexico or specifically Guadalajara” says Guillermo Ortega, co-founder and COO of Guadalajara, Mexico based IT firm iTexico. According to Ortega, Bank of America’s pullout does not necessarily mean bad news in a large market like Mexico. “Oracle and other companies are also growing fast and aggressively here…. as are we. So maybe more good people free in the market does not sound like super bad news for me!”
Ortega is probably correct. The nearshore region continues to enjoy a positive economic outlook, especially as it relates to job growth. Just this same week, outsourcer Convergys announced that it is hiring for 700 new jobs in Costa Rica, and needs to have these employees in place within six months. Since 2009, they have increased their footprint by 1,500 employees in the San Jose, Costa Rica area. “Convergys is completely committed to Costa Rica, and our operations remain solid. We are proud of our achievements in the last five years, and we are sure that we will continue celebrating successes here,” said Eugenia Rojas, Convergys’ public relations manager for Latin America.