COUNTRY PROFILE: The Transformation of Colombia

By Juan Fernando Diaz, NSAM Contributor Over the last few decades negative publicity about disruptive rebels, drug cartels and high crime rates has slowed investment in Colombia. However, in …

By Juan Fernando Diaz, NSAM Contributor

Over the last few decades negative publicity about disruptive rebels, drug cartels and high crime rates has slowed investment in Colombia. However, in recent years during Alvaro Uribe’s presidential  term,  security and crime  rates  have  improved  significantly and Colombia is fast becoming a major success story in the sphere of Latin American outsourcing.

Today, countries such as Brazil and Mexico are considered more dangerous and more risky. This has allowed Colombia to get back  in business and regain forward momentum. Colombia’s prospects are rising rapidly – and Uribe himself has an important role to play in proving to the world his commitment to meaningful transparency and the rule of law. This is particularly important given the recent wiretapping scandal that threatened to undermine Uribe’s credibility.

Recent figures on Colombia’s rising stature:
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Outsourcing Upside

So what about Outsourcing in Colombia?  In  the last few years outsourcing has seen a huge development and now plays an important role in the country’s economy, obtaining significant revenue  figures. The sector has grown 42%  in BPO and  just over 12%  in  IT services  in  the last three years. BPO services achieved revenues of US$ 430 million in 2004 and IT services reached  revenue  of  US$  650 million  in  2004  (almost  doubled  compared  to  2003)  and projection  made  by  Business  Software  Alliance  (BSA)  predicts  revenues  of  US$  1,153 million in 2009.

Well  known  global BPO  service  providers  such  as  IBM, EDS  (HP Enterprise Services) and Accenture,  have  already placed  operations  in  Colombia.  Also  European  suppliers,  such  as Transcom, Emergia and Unísono, have entered the market. Unísono alone invested in 2008 US$ 3 million in setting up a free trade zone in Bogotá where they provide BPO, telemarketing and consultancy services.

But not only the  big  players  play  an  important role in the Colombian market,  also a wide variety of  local  suppliers  such as InterSoft, Gattaca, Colgrabar, among others, are growing within the sector and are highly qualified to deliver outsourcing services.

What Does Colombia Have to Offer?

Colombia is geographically well located, allowing easy and fast access to US based customers and to other Latin American countries. Similar time zones to the US also provides great advantages  in managing and monitoring operations. Some of  the key advantages are listed below:

Costs: Colombia offers a significant cost  reduction  to European and US based companies. According to Alsbridge Research, Colombia is the location with the most favourable cost benefits in the region. A BPO/call centre agent costs on average US$ 447/month (5.292 US$/year) and IT service and development agent an average of US$ 11.500/year. Other key cost such as  real estate and communications are nearly  the lowest compare to other main  locations  within  the  region. Also the privatization of  utilities companies  has  allowed  a  significant  cost  reduction and  an  increase in the quality  of  the services.

Inflation is another benefit Colombia offers. Inflation is a key factor in the projection of cost in your business case. Colombia, unlike other offshoring  locations  in places such as Asia, has managed  to control inflation and additional control mechanisms were put  in place  in 1999 to ensure there is no big fluctuation in the indicator. This allows having a more realistic cost estimate in the long term.

Cultural  Similarity: North  America has a history of assimilating Latin American citizens. A large number of Colombians migrated to the US and Europe to acquire higher educational degrees and job opportunities. They traveled to these countries to avoid the local economic crisis and high unemployment rates the country suffered in the late 90’s. Many native born professionals have now returned and have brought with them not only greater skills and experience, but a high degree of cross-cultural awareness which plays a key role in business  relationships. These  cultural  similarities  help improve the business strategy and communication between the retained organization and the outsourcer.

Talent pool: With  a  total  population  of  45 million, Colombia  has 18 million  people with  an average  age  of  27  years,  the  largest  after  Brazil  and  Mexico.  According  to  the  World Competitiveness Report (2005), they have the second best skilled group in mathematics and science education. This makes Colombia popular and  full of potential  for  the  IT  sector and has allowed  it  to grow  in  the software market up to the point of becoming one of  the largest
sectors  in  Latin  America.  It  has  over  3000 software development  companies  and  has  an average of 17,000 professional graduates a  year  in  technology and engineering. There are many  universities  within the main  cities  and  the  constant  economic  crisis  Colombia  has suffered over the last  decades has made the working market extremely competitive.

Professional graduates are getting masters and post graduates degrees just after completing their college courses just to maintain their competitive position within their sector. This has not only  improved  the  labor  skills,  but  has made  universities  and  other  education  facilities invest  in new high quality programs. Today, Colombia has 26 schools registered in SAT  “Resourcing Test” which  allows  them  to  enter  universities  in  the US,  19  schools  that provide graduates with International Baccalaureate Organization (IBO) that allows access to the best universities worldwide and three universities  ranked  in the  top 30 universities  in Latin America.

In  terms of  language  skills, Colombia holds a good  level of English speakers and posses a neutral  accent  that  allows  them to assimilate  other  Spanish  accents,  ideal for call center services.

Government support: President Alvaro Uribe announced last May in VI Congreso Andino de Call Centers, Contact Centers y CRM, held in Bogotá, that Colombian government is working to encourage  further development of BPO and ITO services in the country. They recognize this will provide a strategic approach to deal with the impact of the global financial crisis. Even though  the  Government’s  support  specific to the BPO/ITO sector is not very clear yet,  is something to keep an eye open for. However, today there are already  several  investments incentives in place that are attracting foreign investors, such as:

  • Free trade zones with 50% off income tax and sales in the local market.
  • Tax  incentives  to encourage  investments  in IT,  through law 788 of 2002. This  law establishes a 10-year  income  tax exemption  to  companies  that  invest  in  software development with high Colombian content, made and patented in the country.
  • 3 to 20 years legal stability contracts with the Colombian Government for investments staring at US$1.5 million.
  • Income Tax Deductible Expenses (100%  of  the  amount  paid  for  industry  and commerce, signs and billboards, and property taxes during  the fiscal year, as long as these are directly related to the taxpayer’s economic activity; 25% of the tax paid on  financial  transactions may  be  deducted,  regardless  of  their  relationship  to  the taxpayer’s economic activity)

Gaining Confidence

As US companies review sourcing opportunities in Latin America, consider  the number of  local and foreign BPO suppliers operating  in Colombia and  the significant growth  the sector has had  in  the  last couple of years. Evidence shows how the country  is gaining  the confidence of  foreign companies not only  to  invest  in, but through pursuit of shared services and joint ownership programs. With a good  combination  of  low cost, talent pool and government  support,  Colombia  shows  a promising future as a service delivery location.

Juan is a Senior Consultant with  Alsbridge PLC, an outsourcing and shared servcies center global advisory firm.

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