Kirk LaughlinIs Santo Domingo really what the main trade organization of the Dominican Republic (DR), CEI-RD, would have potential investors believe it is? While the official line touts cultural affinity, proximity to the US, similar time zone and widespread bilingualism as attractive offerings, Nearshore Americas looked past the propaganda and found that while these benefits are real, there is much more than meets the eye.
The World Economic Forum’s Global Competitiveness Report 2010-2011 (GCR) found that on the 2010 corruption index, the Dominican Republic ranked more corrupt than some other Nearshore CALA countries. When asked about the corruption factor, Jose Luis del Rio, CEO of Newtech SA, the largest IT company in the DR and founder of ClusterSoft, a consortium of IT companies in Santo Domingo, said, “It’s a hard one, but in terms of what we do on a daily basis, we don’t really see the effects of that corruption. We don’t see it from the point of view of companies providing services to local and international clients. We don’t do much business with government institutions and can’t really say how bad it is.”
The GCR report also ranked the DR at 45 out of 139 countries for its strength of investor protection, 73 for the “number of procedures required to start a business,” 68 for “Time required to start a business,” 121 for “Prevalence of trade barriers,” 59 for “Business impact of rules on FDI,” 111 for the “Quality of overall infrastructure” and 121 for its “Capacity for innovation.”
Although Vittorio Dall’Omo, CFO of United Nearshore Operations, sees an up-tick in foreign interest in Santo Domingo, and current employment for over 10,000 people in the call center and tech sectors throughout the DR, he also observed that the public transportation system is almost non-existent, the power supply is unreliable and expensive, and the education level is “medium to low.” That said, he is enthusistic about the current government programs to promote English as a second language, and to improve computer skills. “A third program, oriented to provide call center soft skills training and reinforcement in oral and written language (Spanish) is being worked on with the participation of the DR Cluster and the Call Center Association.”
Higher Education Matters
One of the factors that attracted Newtech to Santo Domingo, said del Rio, was the access to the educational system. “Finding the right people is always difficult. Being able to work with universities is key. We asked universities to change programs around what we need, and they reacted very quickly. Within the IT market we can find people that can read, write, speak well, but we need more people. They have tech skills, but they also need to understand business analysis. Some universities have English as part of the standard curriculum. I think 1,000 students graduate from English programs each year and the government has sponsored a program with 900 hours of classroom and practice.”
However, a well positioned source reported, “The English program in the DR has been on again and off again over the past seven years. And, I don’t believe they have yet to require intensive English in the classrooms of any primary, secondary or high schools, something Panama did when they found themselves out of English-speaking resources in 2006-2007.” Add to that competition from the tourism industry for bi-lingual talent and the island could become an English language desert.
Salvador Salazor, Regional VP Caribbean and LatAm (CALA) Operations of Stream, told us that, “Since setting up operations six years ago, Stream has found many reasons to be happy with Santo Domingo.” The call center operator services mainly telecom and entertainment clients from its three Santo Domingo locations: San Isidro, the Parque Cibernetico (Cyber Park) and downtown. Each fully staffed facility has between 500 and 600 seats. “The DR has been a stronghold for us. We have benefited from the cultural affinity and reverse immigration from the US, particularly from New York and Florida. The level of English is very good.”
According to Anupam Govil, President and Partner of Avasense, Inc./Avasant, LLC, with Santo Domingo customers get “a first world Nearshore destination at third world costs.” Santo Domingo, says Govil, is the largest domicile in the Caribbean with “the status and critical mass to be a gateway into the region and Latin America. It can play a hub kind of role; companies can base regional headquarters, data centers and facilities in DR. It can be a test market for services and products. DR is also a center of excellence for Spanish language services.”
“The English program in the DR has been on again and off again over the past seven years”
Legislative Difficulties
Newtech’s del Rio spoke about recent developments that have caused much concern, “Some things are a bit insecure. We used to pay 25% of profits to the government, and within a week it was decided that number would go to 29%. Utility rates also increased very quickly. Lately some of the changes are catching us by surprise. We don’t like that. If you are an international company looking to set up in the DR, you might be concerned about quick changes in regulations and it may scare investors. We have blackouts every so often and it hasn’t been resolved. This creates problems when there is a blackout in the middle of a meeting and foreigners don’t understand that it is normal. But, we have systems to deal with that.” Such occurrences require that every company install on-site generators to mitigate this risk.
Labor laws present their own set of obstacles, and, according to Luis Echiverria, co-Founder and CEO of VIXICOM, individual companies have to address their particular needs with the Ministry of Labor. “The labor law is pretty old and we can not fire someone for cursing over the phone (as an example), so we developed our internal rules, submitted them to the Ministry of Labor and it took a couple of years get them approved. When you do fire someone, you have to pay them several times the amount of their monthly salary. Overall it has improved a lot but it still needs a lot of modifications. Everyone doing business here is aware of that. CEI-RD guides them through the process.” With regard to retention, Echiverria says, “My rotation levels are 18% to 19% per year. I have a very tight operation and processes are in place. I have seen others that are at 85% – 90%.”
Summarizing the Challenges (based on GCR figures):
Corruption 19.3
Inefficient government bureaucracy 12.8
Access to financing 10.7
Tax rates 10.3
Tax regulations 8.5
Inadequate supply of infrastructure 7.7
Inadequately educated workforce 5.4
Crime and theft 5.2
Poor work ethic in national labor force 4.9
Restrictive labor regulations 4.3
Policy instability 3.1
Inflation 3.0
Poor public health 3.0
Foreign currency regulations 1.5
Government instability/coups 0.3
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