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:
- In 2009, Bogotá was ranked by AméricaEconomia magazine as the 6th (out of 50) top cities to do business in Latin America
- Doing Business 2009 (World Bank) ranked Colombia as the 2nd best “Business Friendly” in Latin America (Chile being the first).
- Foreign investments has increased by 400% since 2002 and Banco de La Repúblic registered the highest record of foreign investment in 2008 (US$ 10,564 millions).
- During the last 5 year the economy has grown over 4% every year.
- BusinessWeek rated in 2007 Colombia as the most extreme emerging market
- Merrill Lynch ranked Colombia in 2008 as “Country with the lowest risk in the world in times of crisis”
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)
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.