Although traditionally drawn to Latin America’s megacities, investors can increasingly find better value destinations by looking beyond the region’s over-saturated primary markets. Secondary markets often offer cheaper labor and real estate, high levels of talent but with less competition, more navigable cities, and more welcoming authorities.
“A lot of big companies always want to go to places like Mexico City, Bogota or Sao Paulo, but there are other secondary markets where companies can still be close to their markets, their employees will have a great quality of life and they’ll be the shining star of the local scene,” explains Scott Figler, who heads the northern Latin American research division at Jones Lang LaSalle.
“For example, any company that comes to Bogota is just going to be one out of thousands of big companies there, but if you go to say Bucaramanga then the local government is going to roll out the red carpet for you and you’ll make a lot of good press,” Figler tells Nearshore Americas.
We teamed up with Figler and developed what we consider to be the eight strongest cities for outsourcing investment in Latin America. The cities include:
La Plata, Argentina
Just 50 miles from Buenos Aires and home to almost 900,000 inhabitants, La Plata is one of the most important yet overlooked cities in Argentina. The city is the birthplace of leading IT and software developer Globant, while Accenture and an array of smaller tech firms also have offices there. Aside from its proximity to the Argentine capital, lower costs and high standard of living, La Plata’s principal selling point is the quantity and quality of talent on offer.
“With over 35 institutions of higher education and a population of over 150,000 students, La Plata is the Boston of Latin America,” Nearshore Americas’ Emily Stewart writes. “La Plata’s universities attract students from throughout the country and region, churning out talent in a wide range of industries – not only in IT and engineering but also in the arts, humanities and other disciplines. This, in effect, renders its community one that in many ways resembles that of Silicon Valley: a conglomerate of creativity and technology.”
“Rents in Sao Paulo and Rio de Janeiro are in line with some of the most expensive cities in the world like London, New York and Singapore,” Figler notes. A more affordable alternative to Brazil’s megacities, the southern city of Florianopolis is consistently rated one of the best places to live in Latin America. It is also home to an increasing number of IT and software development firms which have experienced strong growth and become a focal point of the city’s economy over the last decade.
“Florianopolis is called the “Silicon Valley of Brazil” and it’s kind of similar to San Francisco weather wise, people are building condos left and right, it’s a great city to surf in, it has a very educated population and it’s a city where you can go to university and get a job afterwards,” Figler adds.
Valparaiso/Viña del Mar, Chile
Located just 50 miles west of Santiago on the Pacific Ocean, the adjoined cities of Valparaiso and Viña del Mar are centered around one of the biggest ports in South America. Investors are attracted by the robust local economy, well educated talent pool, and high quality of life.
“These are two different cities but they’re right next to each other and the whole metropolitan area has a population of about 1.5 million people,” Figler says. “There are a few things going for it: it’s a popular tourist city and they have one of the main ports where goods come in on the way to Santiago, and they have a few big universities. So there’s a lot going on it terms of the logistical sector and education, and they have a growing economy and a growing middle class.”
“One advantage for a foreign company 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,” said Nicolo Gligo, a Chilean consultant to foreign companies, in a past interview with Nearshore Americas on Valparaiso’s knowledge process outsourcing sector.
The largest city and port on Colombia’s northern Caribbean coastline, Barranquilla is best known as the hometown of world famous pop star Shakira. But it is also becoming a hotspot for contact and data centers because of its cheap and reliable communications infrastructure.
“All the investors that are coming to Colombia right now are going to Bogota and they’re going to Barranquilla,” Figler says. “A lot of the telecoms infrastructure and fiber-optic cables come into Latin America through Barranquilla. So it gets a lot of interest from companies that do call centers or data centers because they need 24-hour, round-the clock, high-capacity electrical facilities. And they need redundancy – they need to know that if the power cuts out then they can very easily connect to an electrical line. So from that perspective Barranquilla gives you low-cost access to high-capacity electrical infrastructure.”
“Colombia is a big country, it’s very mountainous and it can be hard to get around,” Figler notes. Cali’s major advantage, he says, is that it is the only major colonial city that’s anywhere near the Pacific Ocean.
“There’s only one road that connects the Pacific to the rest of the big cities and that road goes through Cali,” Figler explains. “So if trade picks up with China, other Asian countries or the west coast of the United States, those goods are going to go through Cali. So we’re seeing a lot of growth in the logistical sector and government services, and we’re seeing a growing middle class.”
Cities such as Cali and Medellin are much more economical options that the Colombian capital of Bogota, Figler adds. “The best offices in Bogota go for up to $7,000 USD per square meter, which is on par with New York. On average in Bogota it would go from $5,500 to $6,000 per square meter but in a city like Medellin you’re looking at $3,000 per square meter for some of the top offices and residential estate. In Cali you’re looking at about $2,500 per square meter.”
Nestled in the Andes mountains, Medellin was once the infamous home of Colombian drug kingpin Pablo Escobar, but today it is lauded as a model for modern economic development. “Medellin is Colombia’s second biggest city and it’s a very interesting place. It had a bad reputation because of the drug trade, but everyone who goes to Medellin is blown away with it, they love the weather and the culture and they’re left with a fantastic impression,” Figler says.
“It has a very fast growing real estate market, there’s a bunch of new buildings going up over the next few years. They’re developing a big tech cluster downtown where Hewlett Packard just leased out 5,000 square meters and they have this interesting incubator idea where they’re built this massive building and they’re bringing in companies that have less than 10 employees. So on one floor you’ll have like 15 tech startups and the idea is just to get people knocking ideas off of each other,” Figler adds. “There’s also going to be a free trade zone specializing in the service industry built in the next two or three years. That’s going to be out in the mountains, on the way to the airport.”
San Jose, Costa Rica
The capital of Costa Rica, San Jose is one of the safest and least violent cities in Central America. The city has the best education level in Central America and one of the highest in all of Latin America, but its principal attraction is the number of free trade agreements that provide tax incentives for high value-added activities such as manufacturing, services, and scientific research.
“San Jose is interesting because they’re very aggressive with their policies to attract business and investment. They have a lot of free trade areas. Over half of the office space in San Jose is located inside free trade areas, there’s no other city on earth like that,” Figler says.
“Intel, for example, has one of its biggest plants in the world in San Jose. It’s interesting from a commercial real estate point of view because if you’re a company like Intel you can have your manufacturing operation right next to your administrative office, all in this one industrial park that has free trade benefits. So it makes it really convenient for a lot of companies.”
Peru’s second most populous city after Lima, Arequipa is strategically located near the borders with Chile and Bolivia. This is significant, Figler says, because “Peru is signing a lot of agreements with Chile, Colombia and Mexico through the Pacific Alliance, so there’s going to be more cross-border economic flows and it’s likely that Arequipa will see more activity going to and from Chile.”
Peru’s IT services industry is still at a very early stage, but since opening a consulate in Bangalore, the government’s aim has been for the two to become twin-cities for IT, with Arequipa eventually becoming to Peru “what Bangalore is to India.”