Cost, talent and culture have made Latin America an attractive region for the nearshore business model for every blend of service, including ITO, BPO, and KPO. But recently, an idea started circulating that if several of the smaller countries in Central America worked together to operate as a nearshore hub, their attributes would be even more attractive than their larger LATAM rivals, such as Mexico, Argentina, Brazil and Colombia. This idea has developed into a strategy that several of the trade promotion bodies in Central America are now pursuing.
The Central America Argument
There are two fundamental reasons why the idea of several Central American countries working together as a single bloc should be considered a serious strategy for the region:
- Each of the national trade bodies naturally wants to develop their own market, but there are many promotional activities that can benefit from the economy of scale achieved by working together. Those of us who can remember the early days of Nasscom in India will recall that individual regions and cities inside India used to compete openly for business, until the idea of a united front was seen as more likely to win more business for all the regions – a similar approach is now being adopted in Central America.
- There are several countries within Central America that will not directly compete with each other for different types of services. The region as a whole becomes an attractive destination for businesses that require several types of services – different parts of the business can be located in different areas, though all within the same region.
This strategy helps the trade promotion bodies to ensure their message receives a broader audience and there is a strategic interest in being able to offer multiple services from the same region.
Who Are the Key Players?
The idea of this Central America nearshoring hub is focused on six countries working together more strategically: Costa Rica, Guatemala, Honduras, Nicaragua, Panama and El Salvador.
Together, this bloc becomes a significant force with the scale to compete against much larger LATAM neighbors. For example, it comprises over 40m people with 72% of them under the age of 39. Combined GDP growth of 4.2% is reflective of steady growth, without the issues of hyper-growth experienced in Asia.
This region is extremely well connected when contrasted to other LATAM countries. Uruguay has direct flights to just a single city in the United States, while Colombia and Chile are both connected to seven U.S. cities. By comparison, the Central America region is directly connected to 30 different U.S. cities.
Customer services and call centers are still growing in Central America. The region has a very strong bilingual workforce because family and friends in the United States are linked to so many people in Central America. Inhabitants of Central America believe that learning English is a priority for their future and this has helped to create this initial wave of services growth.
To understand the picture on the ground in more detail we spoke to Javier Chamorro Rubiales, Director Elect at Pro Nicaragua, and Ann Harts, the owner of HartsGroup, Inc.
What Can Be Gained From Working Together?
Chamorro explained that the proposed regional bloc is really led by two countries rather than being a group of equals: “What you have is a couple of countries that have been very successful in developing a service sector and have now been able to become Latin American leaders in the service sector – Panama and Costa Rica.”
He added: “Some other countries have been developing services and have attained some maturity, but are not quite at the same level of valued-add services that you will find in Costa Rica and Panama. So there are those in the region that have gone up the value chain, but the idea is that every country in the region has the potential to develop further to improve the quality of their service exports. As an economic bloc, these countries are better positioned to compete with other global players because the entire bloc can offer greater economies of scale.”
This combined force will allow the trade promotion agencies to also work together, leveraging their own promotional budget to get great visibility for the region, but Chamorro believes there is an important opportunity with a hub-based approach to nearshoring, too. He said: “Nicaragua can give you the best cost competitive solution for customer service. So call centers can come here and work at a better cost than any other operation in the region. This could be complemented with an operation in Costa Rica where the labor cost is higher, but there are people with different skills. This approach is not so different to a company locating two different centers in – for example Colombia, but Managua and San José are much closer than Bogota and Medellin.”
Harts has seen that some of her client requirements match the offer of a united Central America: “I have a client who’s looking eventually to grow to 5,000 seats and that’s not necessarily for just call center, it’s also shared services, back office, human resources, finance, and also some lower level IT work. So this focus on developing in several areas is one of the things we’re looking at – having a package of information from a region about how they could serve all these needs would make that job much easier. I can see that cost of management could be dramatically reduced for my clients.”
I believe there are six key areas that need to be improved or addressed to further strengthen the message for a united Central America. These are:
- Creating a focus on ‘what we do.’ The region should not make the mistake of telling potential customers that they can do anything. If customer services appear to be the best option then focus on this and be one of the best, but remember it’s better to offer world-class services in a few areas rather than poor service in many.
- Labor mobility. If the region wants to go to the market as a unified area, then labor mobility needs to be explored. It should be possible to invest in several locations in the region and to get people on board from all across the region rather than being concerned about visa issues clouding the image of a united Central America.
- Fiscal and labor regulations. Labor standards and rules are different in each country. It may be impossible to completely harmonize labor rules across five or six countries, but a serious effort should be made to ensure the main differences are removed.
- Education and language. The adoption of English as a second language, and education in general, differs widely throughout the region. This should be approached as a region-wide objective to encourage the future of investment and jobs – with skilled local workers, more companies will continue to invest in the region.
- Branding the region. The trade promotion agencies need to join forces on a campaign that can educate the industry analyst community, the major international business journalists, and the bloggers who focus on nearshoring, as well as create a more positive flow of information with a greater effort towards the rebuttal of unjustified negative stories from the region.
- As mentioned earlier, it’s easy to get from Central America to the USA, but transportation within the region needs to be explored in more detail so companies that do invest across several locations can be assured that they can get to their various sites easily.
There is a great opportunity for the countries of Central America to work together if they can move beyond partisan concerns. Bringing more business to the region as a whole is not a zero-sum game – everyone can win.