Nearshore Americas

Valparaíso, Chile: A Solid Choice or Too Unstable?

On June 28 hundreds of university students committed “Mass Suicide by Education” in Valparaíso, Chile. The symbolic demonstration was just one of a series of vociferous acts being played out over the country since May by students, teachers and their supporters. With such internal conflicts, is one of the country’s strongest centers of higher education (Valparaiso), going to become less appealing as a sourcing destination?

Student Upset

The demonstrations are gaining intensity and support, resulting in injury to both police and demonstrators, and destruction as was seen when a riot police vehicle in the port city was covered in paint and claimed by students at the beginning of August. Could images of the countrywide public disobedience, and aggressive reaction by police, affect business, and Chile’s overall attractiveness to investors?

The fact that demonstrations like these can manifest at all, and gain momentum, is a sign of a healthy democracy, says Nicolo Gligo, a Chilean consultant to foreign companies and former executive director at CORFO USA.  However, the protests also include calls for broad democratic reform, and more pluralistic representation. Such instances could give pause to potential investors, especially as the Knowledge Process Outsourcing (KPO) sector is just finding a home in Valparaíso. The UNESCO World Heritage site, and its twin city of Viña del Mar, are more known for the long-established industries of shipping, agribusiness and tourism, and are overshadowed by Santiago as the sourcing destination of choice for Nearshore operations.

“One advantage for a foreign company,” says Gligo, “is that it is easy to set up a facility and you are able to get support from local government. It is easier to make arrangements with the universities and to develop specific programs as compared to Santiago.” Of course, working with the universities assumes that they will be functioning effectively, and not be under fire from students and faculty.

English language proficiency has traditionally been a concern when entering Chile, but Gligo sees this as posing more of a challenge for call centers than it does for BPO and software development operations. “The government is making an effort. There is a database of around 40,000 people who speak English, about 50% of which live in Valparaíso. The government also provides a scholarship for people who want to learn English.”  With seven universities, five of them being in the top-ten of the country, an influx of bilingual computer engineers, industrial engineers and business majors enters the job market annually. This is beneficial for BPO and tech companies, but the call centers are still at a loss when sourcing agents.

Yet, the main challenge for companies considering Valparaíso, Gligo assesses, is the attraction to Santiago. With its population of six million people, the capital city towers over the much smaller Valparaíso and Viña del Mar, that have a combined population of 800,000 residents in the center, and a total of just over a million in the metro area known as Greater Valparaíso.  However, says Gligo, people are happy to work for a company that allows them to stay in their region or come back to it, as was the case with the CEO of Evaluserve’s facility in Valparaíso.

For their 200 seat facility, Evalueserve ramped-up with bilingual Chilean talent, and recruited staff from almost 20 other countries to fill the missing blocks

Metropolis or Small City?

Once they ruled out other countries in favor of Chile for their Latin American operations, Evalueserve conducted an extensive comparison study between Santiago and Valparaíso, with the much smaller city of under 300,000 people winning-out. Even though they would be pioneers in the KPO sector, Evalueserve looked at the whole picture and found that the university town offered a combination of factors which created a positive environment for them to grow into.

Greater Valparaíso is comprised of the communes (small administrative subdivisions) of Valparaíso, Viña del Mar and Concón, Villa Alemana and Quipué. The first three are coastal cities focused on industry and the others, located in the interior, are the residential hubs. The limited population of Greater Valparaíso may not be of concern to Evalueserve, but it could be troublesome for companies such as Oracle, Experian, McAfee, Capgemini, that operate out of Santiago, and need a larger talent pool.

“The biggest advantages,” Evalueserve’s Country Manager Mohit Srivastava reported, “are the business environment, infrastructure, education system, the talent pool and the immigration policy.” For their 200 seat facility, Evalueserve ramped-up with bilingual Chilean talent, and recruited staff from almost 20 other countries to fill the missing blocks.  “If you look at something like IT, the industry has not yet developed in this part of the world. It involves a lot of training. That’s where the immigration policy helps, so that we can hire people with the right skills.” While the industrial banking industry has been historically very well developed in Chile, other business segments such as IT are relatively new to the country and Srivastava agrees with Giglo that universities are open to collaborate with companies in order to provide the types of classes required to fulfill the needs of new industries.

Although the Chilean government does not provide tax incentives, the national training agency SENCE allows for subsidies on corporate tax returns based on the costs associated with training of qualified employees, thereby alleviating some of the development costs. A percentage of training and HR administration costs can also be reimbursed by government programs in cash.

Spatial Issues

The availability of appropriate space is a constant concern when looking at any destination, and is one that CORFO, the Chilean investment agency, tried to address when they built a top-tier technology building in the Curauma Industrial Park, about 60 miles from Santiago and eight miles from the port of Valparaíso. “This works as a buffer for companies that need space to start their company, and then can move to another location when they grow,” says Gligo. This is the path that Evalueserve took when they moved into the building four years ago which afforded them a rent subsidy and the ability to get a foothold in the market. The company will be relocating to a larger space in downtown Viña del Mar by January 2012. Part of this move is motivated by the need to expand, but also, to improve their staff’s commute.

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Although public transportation in Viña del Mar and Greater Valparaíso is served by a subway, buses, aging trolleys and a funicular system, none of these networks reach the industrial park. The highway system has undergone modernization, however, employees in the KPO sector may not have cars, or choose not to drive. And one freeway bypass between Curuama, Placilla and La Polvora is mainly utilized by trucks going to and from Chile’s oldest port. This lack of adequate transportation makes the industrial park less than desirable for many companies. Srivastava sees a lot of opportunity waiting for tech companies in Valparaíso, and says that he would return to set up business again.

With regard to the protests, Gligo says, “What is really important is that this is part of the democratic process for people to express themselves and ask for a change.  In a lot of countries, a civil society, it is part of the process. In the long run it will be beneficial for the country because it will strengthen the country, and improve the quality of education,” which has a long way to go. With improved education comes increased opportunities, as might -one day- be seen in Greater Valparaíso.

Kirk Laughlin

Kirk Laughlin is an award-winning editor and subject expert in information technology and offshore BPO/ contact center strategies.

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