COUNTRY PROFILE: Uruguay Loosens Immigration to Meet Demand for Talent

In 2004 when Tata Group boss Ratan Tata and then TCS CEO Subramanian Ramadorai started searching for a springboard into Latin America, they were skeptical of Uruguay. One …

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In 2004 when Tata Group boss Ratan Tata and then TCS CEO Subramanian Ramadorai started searching for a springboard into Latin America, they were skeptical of Uruguay. One visit to the country convinced them however, and today the TCS operation there has grown to more than 800 employees, and TCS Latin America is even larger. A late entry into the sourcing game, Uruguay has been making strides in IT services. But its limited labor pool is continually cited as the one obstacle that could derail its success in years to come. Concerns of scalability, decentralized leadership and state control of infrastructure and utilities lead us to believe that Uruguay still needs to define a clear outward focus on international sourcing. The country’s government is trying to do just that, but will it be enough?


 One of the founding members of MERCOSUR, Uruguay with its prime location is regarded as a potential gateway into the Southern Cone. It has often been overlooked by multinational companies focused on its larger neighbours Brazil and Argentina, but not anymore. Montevideo and the country’s Free Trade Zones are attracting a growing list of IT firms looking for low cost skilled professionals in a tax-free environment, and the government is laying down the red carpet for them. Well known players include Accenture, IBM, HP, Towers Watson and Sabre Holdings.

The lack of specific incentives for outsourcing shows the lack of a focus on outsourcing

Some telling stats on Uruguay:

  • Small population of 3.5 million, with 1.3 million in Montevideo where most of the offshore industry is based. Total workforce size of 1.6 million.
  • Ranked 36 in the 2009 AT Kearney Global Services Location Index, and 6th in Latin America.
  • Ease of Doing Business rank is 114 out of 183 countries, with Standard and Poor’ currency risk rating of BB-.
  • Very stable political environment – ranked as the most democratic Latin American country in the Economist’s 2008 Democracy Index, and 23rd out of 180 in Transparency International’s Corruption Perception Index.

Investment climate

 Role of the government and CUTI – The Uruguayan government welcomes international firms, going to so far as to enshrine non-discriminatory rules in federal law. Adopted in 1998, Law 16906 states that: 1) Foreign and national investments are treated alike; 2) Investments are allowed without prior authorization or registration; 3) The government will not prevent the establishment of investment in the country; and 4) Investors may freely transfer abroad their capital and profits from the investment. FDI has been legally declared a national priority and Uruguay has signed investment protection and promotion agreements with 26 countries, including the US, Spain, Germany, France and the UK. Its Bilateral Investment Treaty with the US in particular ensures no restrictions on technology transfers or purchase of foreign currency.

CUTI is another help to companies in Uruguay. “The agency acts not just as a lobby group representing tech companies to the government, but also works to promote Uruguay internationally”, says Javier Peña Capobianco, Head of the National Chamber of Commerce and Services. However companies note the lack of specific incentives for the outsourcing services sector – a definite missing link to the growth of this industry in Uruguay.

Free Trade Zones (FTZs) – Like Costa Rica, Uruguay has a system of twelve FTZs in which companies can locate and be sheltered from taxes. Unlike Costa Rica, they are dedicated mostly to warehousing, with only a few FTZs hosting companies in the services sector. Zonamerica in particular was developed as a technology park close to Montevideo to provide fully wired ‘smart’ buildings for IT companies. It houses over 250 firms including Towers Watson, Sabre and TCS. Two other upcoming parks near Montevideo, Aguada and WTC, are the only other services-oriented FTZs and focus mainly on back office operations.

The FTZs are a good deal for companies. “They’re already set up with the infrastructure and support needed to run an IT operation”, says Fabrizio Opertti from the Integration and Trade Sector of the International Development Bank. “It’s not just tax incentives that you get, but also industry-specific services that allow you to accomplish economies of scale by having clusters of IT companies in the same area”. In terms of staffing in FTZs, the only restriction is that 75% of a firm’s workers must be domestic, and the only additional cost to employers in an FTZ is contributions to social security for those workers.

Lack of coordinated leadership in investment promotion – The disparate focus areas of the FTZs point to a larger deficiency in Uruguay – a streamlined and organized targeting of the services industry. Even in investment promotion, the country has three different organizations with often overlapping agendas – the Uruguayan Chamber of Information Technology (CUTI), the Investment and Export Promotion Institute (Uruguay XXI), and the Chamber of Free Trade Zones of Uruguay. This kind of decentralized leadership and bureaucracy is one explanation for Uruguay’s low rank on the Doing Business Index cited above. The categories of ‘Paying taxes’ and ‘Registering property’ have been highlighted as its worst indicators on that index. Once again, the lack of specific incentives for outsourcing shows the lack of a focus on outsourcing.

State control of infrastructure – Uruguay is one of the few LatAm countries to maintain a government monopoly on telecom networks and energy, and this is surprisingly most favoured by the public. Foreign firms are not impressed however. Although some sectors have slowly started opening up, state control of basic telephone and internet connections remains, which may be a problem for firms not located in an FTZ. “There are no government monopolies in those zones, so they have special internet connections. If you’re not in an FTZ, it could be slow”, admits Capobianco. Mobile telephony and broadband penetration rates in Uruguay in general are very high.

Outward-looking sourcing sector

 An advantage of Uruguay’s small size is that companies are unlikely to see much revenue if they focus on the domestic market – which has led to many local IT firms competing on the international market from the start. “While we can’t compare with some countries in terms of population, Uruguay is the largest exporter per capita of software in Latin America”, says Marcelo Lopez, Director of Business Development at UruIT, a homegrown provider. “What’s more, all the outsourcing is based in Montevideo – all the IT companies are here.”

Technically skilled workforce – The reason that all the action is concentrated in the capital is because of the quality of the labor pool here, which many companies admit has fantastic potential. With four universities that have strong IT programs all based in Montevideo (Including ORT, the largest private university in the country), approximately 11% of all tertiary enrollment is in engineering or IT-related fields. An estimated 20,000 people work in the services industry, with around 4000-6000 currently employed by the software industry in Montevideo, according to Neo Advisory. The literacy rate in Uruguay is 98%, the highest in Latin America.

In terms of wages, the monthly salary for a software programmer would be a little over US$ 1000, including social security contributions and mandatory bonuses. A call center employee’s monthly salary would be approximately $500 in total. Higher level managers in Uruguay are paid an average of $3000 monthly – substantially less than in countries like Brazil or Chile.

English proficiency and bilingual skills in Uruguay are good but not great. According to KPMG, “Although English is not widely spoken in Uruguay, it has a small but well-educated pool of bilingual IT professionals”.

Small population, limited human resources – By far the main obstacle to Uruguay’s success with outsourcing would be the problem of scalability. “It’s true”, says Capobianco. “The number of IT workers will not be enough to satisfy the demand. If we don’t change our educational curriculum and graduate more students in IT, we will have a problem in the future”. The right response is in place however – CUTI and the other organizations are working to train more workers. One notable initiative is a loan program between the government of Uruguay and the International Development Bank to strengthen workforce capabilities in Uruguay. “At present the situation is still workable, but the software sector is nearing full employment”, says Fabrizio Opertti, who is coordinating that program.

Companies are also responding to the need, and they’re finding that it doesn’t take much to hone the talents of an already capable Uruguayan workforce. TCS has started a Regional Training center in Montevideo, which has already trained over 500 professionals, with the target set at 3000 within the next two years. The government also helps companies bring in outside talent, by making immigration requirements less strict. Residency permits in Uruguay can be quickly obtained, and anyone who has entered the country legally can start working even during the application process. “Our population is a limitation”, says Lopez. “Awareness of the IT industry needs to be promoted more, and we need to be more specialized and produce more international certifications.

Direction in coming years

What we’ve seen so far in Uruguay is a country that has the right attitude and is working hard to support foreign investment. But because of the limited labor pool, the government must have a clear strategy of identifying comparative advantages and utilizing the skilled workforce in the areas that will generate the most revenue. “I wouldn’t recommend that Uruguay focus on large scale call centers because it doesn’t have the scale for that. Instead it should focus on certain high value niche areas like software, pharmaceuticals R&D and finance that are not as job intensive”, says Opertti. “It’s a matter of time, but I think Uruguay will continue to be a strong player in the IT field”.