With total Finance and Accounting BPO having surpassed $25 billion in 2014 and reaching a growth rate of 5%, and multi-process F&A BPO reaching $5 billion for the first time, according to HfS Research, it is little wonder that San José, Costa Rica is reveling in an uptick in FAO investment. Appetite for offshore FAO of all sorts is showing no signs of slowing down – and Costa Rica’s capital is benefitting from it.
Despite concerns about increasing petty and violent crime and worries over saturation, a number of industry companies have ramped up their presence or entered the country of late, and Costa Rican Investment Promotion Agency, CINDE, has said that the sector is now generating up to 4,000 related jobs per year. Overall, some 120 ventures have led to at least 50,000 jobs. Much of that business is focused on the San José Greater Metropolitan Area, which encompasses San José, Heredia, Alajuela and Cartago.
Jorge Sequeira, Managing Director of CINDE, told Nearshore Americas that the Greater Metropolitan Area is still today home to the vast majority of services companies that are installed in the country.
“CINDE recently presented a strategy for attracting investment to other parts of the country that have potential to host investment projects of this type, therefore it is expected for the coming years that new projects that choose Costa Rica may also review other non-traditional areas to install their project in the services sector,” he said. For the moment, though, San José and its surrounds are the epicenter of the IT services sector in Costa Rica.
High Skill Options
According to Sequeira employment in the IT sector is 47 times what it was in 2000 and the number of companies investing in the sector in the country as a whole has multiplied by 20, most of them in the GMA. The investments demonstrate a significant move away from tier 1 BPO to higher skill offerings, tailored for the FAO market.
The country delivers 18,950 diplomas in Business, Economics, F&A, Engineering, IT and Logistics majors per year and about 18,100 trained people by INA in service programs per year. All of this makes for an attractive option and companies are placing their F&A investments in San José and the surrounding areas.
Bosch Service Solutions, a major player in the BPO world, chose to open its first service center in Heredia in September to support finance and accounting, and technical operations for the company’s North American operations. It will also offer technical support for Bosch external customers, leading to the creation of some 300 jobs by the end of 2016.
Cargill opened its “Cargill Business Services” in Belen to offer finance and human resources services to the Americas, with plans to later throw its hat in the ring in other areas, such as information technology, strategic sourcing, transportation, and logistics.
Then there is Infosys, which established its third center in San José in February 2013, and UST Global, which opened a new center in Grecia on the outskirts of the San José metropolitan area in 2014.
Emerson also projects the addition of 200 employees, many in finance-related areas, in the next three years as it pushes its Escazú-based facility to a 1,000-worker capacity, Fiserv Costa Rica is trying to add bilingual finance and IT professionals and technicians as it opens a new facility in Tres Ríos, and GEP is also looking for multilingual professionals for a services center it plans to open in Costa Rica before the end of the year.
Non-industry companies are increasingly looking to operate out of Costa Rica as well. Renowned rum-maker Bacardi, for example, houses its accounts payable, inventory management, and general accounting services, among others, at a 17,000-square-foot facility in Escazú. And Mondelez International — the Kraft Foods spinoff responsible for brands like Oreo, Cadbury, Nabisco, and Trident — just chose San José as the location for a new human resources center that will support its North America business. It has just started hiring.
Two drugmakers, Aspen Pharma of South Africa and GSK, have followed suit. Aspen installed a shared services center to provide finance and accounting services for Spanish-speaking operations in Latin America, and GSK plans to add 150 people to its two-year-old service center in the country. In a news release, GSK noted that “this major expansion reflects the strengthening of financial services and the addition of a new range of services of special relevance for markets such as the US.”
Sequeira emphasized the multifunctional and multilingual services sector industry on offer with over 70 different business processes, delivered in 10 different languages.
FAO is not the only vertical to see growth in the capital and surrounds. Pharmaceutical giant Roche recently set up a new service and distribution center in La Aurora de Heredia’s Ultrapark Free Zone. It aims to serve more than 20 countries in Central America and the Caribbean, and a $5.5 million investment will ramp up its storage capacity for biotechnology products while adding high-tech environmental and energy saving standards.
Sequeira said: “We see a growth in activities such as: human resources, purchasing, project management, software development, digital services, cyber security, virtualization software, and cloud computing.”
The Costa Rican Appeal
It is easy to see why Costa Rica has drawn so many companies in recent years. Less than 10 minutes after you enter Costa Rica, you will be told about the “Pura Vida,” literally pure life, lived by those in the country. This is what makes it the happiest place on Earth — a claim routinely backed up by research. Based on a combination of life expectancy, citizens’ self-reported well-being, the country’s environmental quality, and other factors, for example, nowhere else comes close to Costa Rica in the “Happy Planet Index.”
The government also boasts about not having a military. The nation of 4.7 million has long evaded the conflict and violence that has plagued the rest of Central America for decade, and it attributes much of its prosperity and regionally unparalleled $11,500 per-capita GDP to its zero-dollar annual military budget. It’s no surprise that it outranked every other country in Central America in the Institute for Economics & Peace’s 2015 “Global Peace Index.”
The economy still shines above its peers, despite a decrease of 21 percent in 2014 to $2.1 billion in foreign direct investment, according to the Central Bank. The nation got nearly half that sum from the United States due to its membership in the Central America Free Trade Agreement and a similar treaty with the European Union attracts considerable attention from Spain and others.
Despite the idyllic portrayal of happiness and peace, Costa Rica has its problems, however. Unemployment is high, many citizens still lack access to banking, and the nation saw a troubling violence spike in 2014, with 471 murders in 2014 compared to 411 the prior year, per the Judicial Investigation Police.
This was described as an “important increase” as it reversed a steady multi-year drop in killings since 2010 and coincided with a 6.9% year-on-year rise in breaking and entering crime. “Costa Rica, in the last several years, has become a more violent country than we’re used to having,” said Francisco Segura at a press event, per the Tico Times. He added that ‘the Costa Rica of the 1970s is not the Costa Rica of today.”
A March 2015 travel warning from the US Overseas Security Advisory Council noted that “the downtown area of San José [is a no-go area] after dark and citizens are advised to avoid the El Pueblo Centro Comercial area of San José at all times. U.S. government officials are not permitted to stay in hotels in downtown San José due to safety concerns.”
But Sequeira emphasized that Costa Rica is the safest country in Latin America, and is found in the Latin Security Index by the Latin Business Chronicle in 2014. “It is not an issue that worries investors because of the political, social, economic strength and security that characterizes us,” he said.
The transportation network, too, needs improvement. A study by the University of Costa Rica’s National Laboratory of Materials and Structural Models found that nearly two thirds of the country’s roads are in poor condition. “As long as we have these conditions, we’re going to be holding back tourism in this country,” said national lawmaker Antonio Álvarez Desanti, according to the Tico Times. In a positive development earlier this year, the country approved a $440 million project to the route from San José to San Ramon.
Core to the BPO industry, there have been concerns about the possible saturation of San Jose in terms of tier one agents, with increasing labor costs and high electricity costs impacting on the competitiveness of the country.
But service exports from the country as a whole are still on the up. With an increase of 4.8 percent in 2014, reaching what COMEX called a record figure of $6.3 billion, Costa Rica is seeing particular growth in financial services with a 47 percent increase in the last three months of 2014. A focus on FAO could help San Jose offset decreasing demand in other sectors – Intel closed a chip manufacture plant last year — and reposition the city as a niche outsourcing location for North American clients.