Tony Mataya, managing partner of ThinkSolutions, spoke today in a webinar sponsored by the Outsourcing Institute, providing insight into his experience in Costa Rica.
He addressed the following questions:
• Why is LATAM considered a key source for services?
• What are the most important requirements when looking for a provider in LATAM?
As labor prices rise and concerns about India and China’s instability grow, many firms are seeking alternative locations for services. Firms are turning increasingly to nearshoring for the following reasons:
• Many companies seek portfolio diversification to strengthen their overall outsourcing strategy.
• Many services require extensive collaboration, which is more attainable in Latin America due to similar time zones and collaborative culture of Latin America’s work force.
• Cultural compatibility is sought-after strength of LATAM.
• Attrition rates and other “hidden” costs impact savings; the high risk and other costs make India more expensive.
• Risk avoidance is becoming an increasingly weighty factor in the decision to outsource.
What are the most important requirements when looking for a provider?
ThinkSolutions breaks the factors into three categories: financial, business factors, and workforce capabilities. With a highly educated and experienced workforce, 20-30% cost savings over the U.S., and low attrition rates, Costa Rica has strengths in all three areas.
Costa Rica Overview:
• Strategic central location allowed the country to become a trading hub for IT and telecom
• Compatible time zone and a short flight from major U.S. cities
• Political and economic stability
• Eco-tourism and IT services exist in harmony
• Friendly environment and low risk to attract business
• Excellent quality of life
• Attractive investment incentives and strong relationships between investment promotion agencies (CINDE and Procomer) and potential buyers.
• Strong telecommunications infrastructure
• Important companies are already located there, such as IBM, Oracle, HP, Microsoft, and more.
Looking specifically at the differences between Costa Rica and India
India is rapidly improving its infrastructure, but Costa Rica currently offers a more reliable electricity and telecommunications infrastructure. In Costa Rica, English is spoken by most service providers, and their accents are easy to understand. The attrition rate is a pressing issue in India, currently at 55% in the BPO and ITO sectors. In Costa Rica, the workforce is highly loyal, and the attrition rate is much lower at 8%. The cost of labor is traditionally lower in India, allowing firms to see between 10-15% more savings than they would have in LATAM. However, in Costa Rica, you’re getting highly skilled labor, whereas in India the same project might be assigned to a less experienced individual. It’s important to consider “apples to apples” when you consider labor costs. There is also a strong relationship between Silicon Valley and Costa Rica, creating a strong tech sector in Costa Rica.
Johnathan Washburn, CIO of TRANZACT, has buy-side outsourcing experience worldwide. In the webinar, he shared his experience working on the ground in Costa Rica as compared what he has learned in offshore destinations. So far, he has built a captive shop in Ukraine, outsourced two projects to India, and has TRANZACT functions over to Costa Rica after spending all of 2011 researching in Latin America. With experience in the outsourcing sectors of Easter Europe, India, and Latin America, Washburn shared his insight into working on the ground in Costa Rica as compared what he has learned in offshore destinations.
For starters, he sees value in both India and Latin America, and advises that firms assess their project goals before choosing a location. According to Washburn,
India and China still make sense still if your project is very well-documented and large-scale, but if you are pursuing a more fluid project and desire a rapid turnaround, LATAM will work well for you.”
Once within Latin America, every country brings a very unique set of offerings. In 2011, Washburn evaluated 5 countries, visiting firms, talking with providers, and studying the level of risk, business environment, and overall stability of the country. The countries he visited were Argentina, Brazil, Chile, Costa Rica, and Peru, and TRANZACT ultimately chose Costa Rica as their sourcing destination. Costa Rica stood out because of its strong education system, workforce possessing both education and skill, strong communication/ English language skills, and investment incentives provided by organizations like Procomer and CINDE.
The webinar will be available on the Outsourcing Institute’s On Demand Channel.View the Webinar