Chile’s business and IT offshoring industry has, over the last few years, squandered its once high-ranking position in Latin America sourcing. The country’s right wing, hands-off government has deliberately avoided promoting the sector for the past few years and many well-connected executives in this otherwise high-performing country are angry and dismayed. “The new government has not taken the industry seriously in the first place,” says Gordana Stojkovic, the former Executive Director of Chile-IT, which itself was dissolved two years ago.
When the Chilean government launched a series of investment promotional programs, like Start-Up Chile, outsourcing analysts thought this would attract a new set of global BPO providers into the South American country. That did not really happen. The current challenge facing the Chilean government is more focused on retention of existing outsourcers rather than attracting new ones.
“Foreign outsourcers feel lonely once they set up shop in Chile; all their excitement will be deflated in no time. There is certainly a shortage of skilled labor,” said Mario Tucci, research firm Tholon’s chief in Latin America.
A few years ago, the Economist Intelligence Unit identified Chile as the best place to do business in the whole of Latin America. The British magazine praised the Chile’s government for developing what it called the “Chilicon Valley” by enticing investment from global technology companies. Yet, the drum beat of encouragement for startups and innovators has had little to no material spill-over into the nearshore sector.
“I think the glory of Chile’s outsourcing industry is over,” says Stojkovic.
In 2010, Tholons conducted a study to find out Chile’s potential in providing outsourcing services to international clients. In its report – which was sponsored by the Inter-American Development Bank (IDB) – Tholons made a list of recommendations, that aimed to groom the country as a ‘destination of choice’ for global outsourcers.
Teaching English language, grooming domestic BPO companies, offering tax breaks to outsourcers, wrapping up double taxation agreements with potentially strategic nations are some of the important aspects in the recommendation. The report was released with some fanfare. In fact, Tholons’ then CEO Avinash Vashishta, came to Chile and discussed the findings in a public forum with executives from the IDB and Evaluserve, one of the few foreign-owned outsourcers to set up shop in Chile. Despite the notoriety, not a single one of the directives in the report were followed by the Chile government.
“It is really disappointing that government did not implement any recommendation whatsoever,” said Luis Stein, President of Chile’s Association of Software and Services.
When the IDB originally commissioned the study, Chile was governed by a left-leaning government that was eager to develop services sector, particularly outsourcing and IT services. “As the government changed, so did the policy and priority. The current government, I think, is more interested in copper mining,” Stojkovic added.
The question around what the country’s leadership is focused on in terms of economic development is probably the most crucial issue. During the last twelve months, CORFO – one of the lead promotion agencies – has seen its size reduced dramatically and a number of executives have either been let go or reassigned. The country’s foreign ministries have taken on some of the investment promotion roles held by CORFO, but clearly the changes have left many outsiders confused about who has what role.
Furthermore, there are some that surmise that Chile is simply maturing to such a degree that – quite frankly – the rewards offered by outsourcing no longer carry the same impact as they once did for a country that is on the cusp of being a ‘first world’ nation.
A Nation at the Cusp
Chile, without question, has carefully developed a sterling reputation in Latin America. The country has a strong telecom infrastructure, a stable government and little or no drug-related violence. This is the only country in all of Latin America where both Google and Yahoo have established operations. Google is building a huge data center in the outskirts of Santiago, its first and the only data center in Latin America.
Accenture and and Tata Consultancy Services (TCS) have delivery centers here. Global industry giants such as Shell, Air France, Delta Airlines, Unilever have long been relied on Chile for providing customer support services to their Spanish-speaking clients all over the globe.
Moreover, the cost of operating in Chile is at par with other nearshore destinations such as Mexico, Costa Rica, Brazil and Argentina. Unfortunately Chile is not recognizing its own ability and trying to compete with countries like Peru, Uruguay and Costa Rica.
The biggest challenge for outsourcers is finding youths with English speaking ability. According to the Tholon’s report, US tech giant Oracle had wanted to hire 500 people in Chile, but after looking around and doing some interviews – the firm could only identify 260 potential employees. “Even Capgemini has expressed concern about the lack of English-speakers in the country,” the report adds.
When contacted, Matías Mori, Executive Vice-President of Chile’s Foreign Investment Committee (FIC), did not directly answer the question over the lack of skilled labor, instead he cited a statement from Evaluserve in which the Indian company commented that the easy availability of human capital was in fact what drove it to expand operation in Chile.
“The Chilean labor market has proved to be adequate and has exceeded the expectations of our clients because the access to university engineering courses produces candidates with a robust educational experience and wide technical knowledge,” Mori quoted the Evaluserve as saying.
Mori did not however clarify whether Chile had implemented the recommendations of IDB but has denied the argument that foreign IT/outsourcing companies were staying away from Chile.
Over the past one year, Mori said, the foreign investment committee worked with 38 companies from 13 countries in the area of ICT and offshoring. “This shows that there is a continued interest among foreign companies in setting up operations in Chile.” In an email message to Nearshore Americas, Mori does not confirm whether the companies his committee worked with did actually invest in his country.
“After the Tholon’ report emerged, 4-5 outsourcers might have walked into Chile and two-three BPO firms might have decided to go out of the country,” Stojkovic said.
When asked how many foreign BPOs are operating in the country, she said: “This is a difficult question to answer, because here there is no data. We don’t have industry associations like India’s NASSCOM or Brazil’s BRASSCOM, so nobody is tracking the offshoring industry properly.”
According to Mario Tucci, ‘there could be about 20 BPO firms’ in Chile. And several of them, including Atento, Entel, Actionline, Prego, Unisono and Sitel are primarily Spanish-speaking third party providers and are servicing domestic and regional markets.
In 2010, Chile’s outsourcing industry employed about 20,000 people, less than 0.50 percent of the country’s total workforce. Between 2011 and 2012, according to Mori, investment in IT sector increased by 160 percent, from US$87 million to US$226 million.
The South American country spends nearly 8 percent of its GDP on education sector. Over the past few years, it has been awarding 10,000 scholarships annually to youths willing to learn English language. But most of those who are learning English this way are seeking jobs in the tourism sector rather than BPOs.
“IDB has lent US$10 million to Uruguay to help the country provide English training to its youths. We think this will benefit the country’s BPO industry,” said Pablo Marcelo Garcia, IDB’s Lead Economist in Latin America.
When asked why the IDB sponsored such a study in the first place, he said: “We have conducted such studies in several countries in the region. The real intention is to put the issue on the table.”
He added: “Some countries implement the recommendations and some countries do not.”