Matt KendallCompared to large Nearshore locations like Canada and Mexico, Central American countries are low on the favorability scale for new ITO and BPO investment.
This is in large part down to how investment promotion agencies (IPAs) present their countries as safe, secure, and lucrative places to invest, or don’t, as the case may be.
Recently stepping down as the head of ProNicaragua, Javier Chamorro has been in the perfect position to see what works and what doesn’t, and how IPAs should be stepping up their game to attract more BPO and ITO investment.
Nearshore Americas: In your experience, why are Central American countries lacking favorability among companies investing in the ITO and BPO space?
Javier Chamorro: Perception has a huge impact on investment decisions, so the first thing IPAs in the region need to do is work on building a positive country image to create awareness about the opportunities in the country. This is a challenge to agencies because most of them are not mandated to work on country image, hindering their ability to create that flow of investors they want to see.
On the Nearshore, Central American nations tend to be perceived as having significant challenges for investors, including security issues and availability of human resources, because these are smaller markets that don’t necessarily have the same scalability that you could find in Mexico or Canada.
Secondly, investing anywhere implies risk, so the other critical component for agencies is de-risking projects in their countries by providing the most accurate information possible for investors to carry out feasibility studies.
When companies are deciding where to implement a project, they put together a list of potential destinations based on their general opinion. They generally don’t do in-depth studies or analyses to build initial lists; they try to find out where other companies are investing and do a general list that is probably only analyzed at a superficial level.
The difference between two destinations could simply come down to how certain an investor feels that the information they have is accurate. Even if one country seems to have better opportunities, the investor may choose another location purely because they are uncertain about the information provided.
Nearshore Americas: What precise strategies should IPAs be using to overcome these barriers?
Javier Chamorro: Using a more targeted approach, they should try to create more awareness about the opportunities and realities on the ground. They can use previous investments to create a word-of-mouth strategy to attract more investment.
There are exceptions. For example, ProColombia was given the mandate to work on country image, besides the usual investment promotion activities. Other agencies, such as CINDE in Costa Rica, doesn’t have the mandate for country image, but it works very closely with the agency network, providing input into strategy design and implementation to try to build that.
Not every country has recognized that, as the general consensus is that country image has to be worked on from a tourism perspective. They don’t understand that this is the key component to attracting investment, so agencies are not generally part of that process.
IPAs need to work harder on creating information and creating knowledge. They have to go above and beyond the data they already have by helping investors to analyze and understand that data. If they do that, they will create greater chances for the country to be chosen.
I normally suggest to agencies to work very heavily on SEO programs where they can guarantee that their information gets to the investors first.
Unfortunately, when we’re designing investment strategies, many countries tend to forget that over 50% of all investment flows come from the expansion of companies that are already doing business in that location. We tend to forget this because it’s the more challenging aspect of the work. Policy designers and implementers tend to want to work on the more sexy side of investment promotion, carrying out communication campaigns, missions abroad, and participate in shows and presentations.
If you want to attract investment, the first thing to do is to get everything in order and make sure that companies have the possibility of expansion in a good investment climate with easy implementation steps and reduced red tape.
Nearshore Americas: What have been the key techniques that IPAs are using to make sure the information and data they are gathering is correct? Do governments support this process?
Javier Chamorro: There’s a wide range of realities in different countries, even in Central America, as there is a variety of capabilities in both gathering and publishing data. Agencies don’t have the in-house capacities to create all the data needed for a country, so normally they rely on a network of sister institutions within government that gather data and prepare information. From that, agencies can extract what they need and further prepare the info in a more business-oriented way, making it easier for potential investors to process.
This causes challenges in gathering data in certain countries, but, nonetheless, agencies can work on creating their own information. As they better understand sectors and their activities, they can focus their limited resources on creating the critical information.
A good example of this is the BPO and ITO sector, because we know that talent availability, talent cost, and language capabilities are all key components of the industry. Around 60-80% of the cost in a BPO or ITO company is going to be human resources, so agencies should be focusing on information regarding that, while understanding what type of information investors need.
Things like minimum wage are not usually that relevant for investors, because there is a large gap between real wages and minimum wages, especially for bilingual individuals. While preparing information on real wages, the IPAs need to help investors understand what the total accrued cost would be for them, which includes potential social benefits, turnover rates, and productivity information. By providing this knowledge, they would be giving an investor and accurate and real cost of one person per hour and what output they could expect.
This is easier said but done, but it should be the focus of agencies. Those agencies that can do that will increase their chances significantly.
Nearshore Americas: What has been holding agencies back from implementing these strategies?
Javier Chamorro: One is that we need more stable, well-funded agencies in Central America. We see a very broad spectrum of results, with some IPAs showing that they are at a best-practice level within a global ranking. Some countries have faced challenges in keeping their IPAs working and funded enough to deliver results. This is surprising because the results are evident. The potential of having good IPAs supporting and attracting investment is a proven strategy, but unfortunately, many countries in Central America do not pursue that opportunity. Even so, there are good people and good institutions that haven’t been able to deliver in some cases because of a lack of support.
Despite countries like Costa Rica, Panama, and Guatemala having seen significant development in the sector, policy makers in the region generally do not see the outsourcing or services sector as a top priority. This comes down to a lack of understanding of the potential of this sector. From a policy perspective, Central America could do a better job in getting businesses and governments to collaborate to develop the industry and increase investment, which, in the end, would be better for everyone.
Javier speaks from a great point of experience and any IPA that is looking to make a real difference should heed much of what he says, especially setting the stage for information gathering and making sure the agency is well funded. To get outsiders to invest, you must invest inside.