CAFTA Opens the Door to Nicaragua

By Ricardo Castillo, NSAM Contributing Editor

Chris Marlett, the CEO of MDB Capital Investment Group, of Santa Monica, California, knew very little about outsourcing in 2007, when he was putting the finishing touches on his dream beach home in the Pacific Ocean of Nicaragua.

PatentVest founder Chris Marlett bought the former US Embassy In Managua and transformed it into a shared services data center site.
PatentVest founder Chris Marlett bought the former US Embassy In Managua and transformed it into a shared services data center site.

The Central American Free Trade Agreement (CAFTA) had just been ratified, and the region was already a dynamic platform for direct access to the United States market. Foreign direct investment flowed into Central America from Europe, Asia, the U.S., and even from South America and Mexico. But Nicaragua’s emerging BPO sector was attracting an increasing number of multinationals seeking to lower operational costs and optimize production performance by outsourcing here instead of India or the Philippines. Nicaragua became a contender among its peers as labor costs in neighboring Costa Rica and El Salvador – until now the region’s main outsourcing hubs – had risen amid a shortage of qualified English-speakers.


PATENTVEST GOES FROM 10 TO 70 WORKERS

Marlett had just founded PatentVest, a California-based business that does the groundwork for companies seeking patent intelligence. The start-up experienced persistent, growing turnover rates of data entry operators due to the time consuming and often boring nature of the work. “I decided to experiment outsourcing in Nicaragua to see if I could improve my retention rate while receiving the high quality of research the work demanded,” Marlett, who is half Nicaraguan, said in a recent interview.

The bet paid off. He rented an office in Managua and personally hired 10 people who, “to my astonishment, got more data organized in their first three months on the job than the California team did in 12 months.” Added Marlett: “when we decided to pay by the amount of information processed, many of them didn’t want to go home.” Since then, Marlett has about 70 people working directly for PatentVest and MDB.

MOVING UP TO KPO
Marlett´s experience, first as his own customer, and now as a service provider, reflects the evolution of Nicaragua’s BPO sector. Since the initial telemarketing and call center offerings, it grew into more sophisticated Knowledge process outsourcing (KPO) services. More often, companies like Patentvest offer US firms the ability to perform knowledge-related and information-related work, with skilled architects, analysts, and other highly trained professional, who provide expertise in the processes and often make many low level business decisions. “We are already doing that with our MDB BPO workers, with salaries of $25K to $30 thousand compared to the 125K that we would pay in the US,” he said.

SCOOPING UP THE AMERICAN EMBASSY

Besides competitive labor force costs, the recent improvements in the country’s data and bandwidth networking infrastructure have also attracted global enterprise organizations, say investment officers at ProNicaragua, the government´s investment promotions agency. The country also offers Contact Centers and BPOs up to a 100 percent tax exemption on imported supplies, raw materials, and machinery while operating under the Free Trade Zone Regime (see box below).

After his initial success, Marlett bought in 2008 the old American Embassy in Managua. He saw an opportunity to open a facility with the redundancy and security necessary to operate a world class outsourcing facility, and a world-class Level 3 data center facility in the otherwise nondescript Cold War-era building located in a suburb of Nicaragua’s capital. “There were no facilities that were up to snuff by U.S. outsourcing complex standards.”

The ongoing renovation is repurposing its old “bunker” that was used by the US Embassy for communications and safety location of last resort into an ultra-secure tier 3 public datacenter. Like few locations in the city, the bunker’s safety comes from its one-meter thick concrete walls, and over 1 megawatt of backup power, it also has direct access to three power grids and to all the nearby fiber network providers.

REPLICATING US DATA CENTER TREND
Like in the US, many companies, especially those doing regional business are no longer building their own datacenters and are beginning to use offsite datacenters to minimize capital investment in redundant locations.

“My sense is that shared services, which is also a very big trend in the US, should prove more valuable in Nicaragua because IT talent is hard to find in Managua, so sharing highly qualified talent and software services within the datacenter should be very attractive to local businesses.”

MDB´s plans for the facility include a central cafeteria, fitness facility and swimming pool, the embassy complex is now serving about 600 employees from its first and largest tenant, SITEL, a Tennessee-based global business outsourcing provider.

RECOGNIZING THE RISKS
But moving some research and business processes to other countries, even when they are quite cheap and very close rather than very cheap and far away, still bears great risks and a learning curve. “Some of our staff in the US saw our Managua operations as a threat to their jobs and many people weren’t supportive,” said Marlett. In addition, the financial crisis slowed Marlett´s outsourcing operation, mainly because MDB Capital Group is an investment banking firm.

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Contracts with a few very large outsourcing companies were cancelled, forcing Marlett to switch gears and start what he calls an outsourcing incubator operation. PatentVest leases its facilities providing employee leasing services, for a flat fee per employee, to small companies that would never outsource on their own, “or are too small to outsource with someone like Sitel.”  Without any marketing efforts, Marlett landed four clients, among them a news agency called News USA and gotmyfares.com, a web based travel agency.

“All they have to do is make the decision on whom to hire, and how best to assign their work, HHRR monitoring, contracts, computers, furniture and office space is handled by PatentVest. “Our clients just make a quick trip to select, train, and assign duties to their employees, while they stay in the comfort of our onsite apartments,” said Marlett.

When asked about ROI, Marlett admits it is difficult for him to define or measure it yet, because “this sort of started out as a hobby. We continue to reinvest all revenue back into growing our operations.”

And now, in a sense, while the BPO business survives the world financial crisis, he seems to have gone full circle, to a new investment in the Pacific Ocean shores that lured him in the first place: “We are looking at building a very unique beachside housing community that has never been done to my knowledge in Latin America.  If we can pull it off, it will be something Nicaragua will be very proud of…stay tuned.”

Nicaragua BPO Snapshot:

Currently, there are about 13 companies in the business process outsourcing industry employing more than 1400 professionals. World-class global companies include eTelecare Global Solutions and Sitel. The latter expanded its operations in 2009.

Competitive advantages Nicaragua offers to BPO service providers include:

  • A workforce with good English skills and a good understanding of American business because many grew up in the United States when their parents left the country in the 1980s.
  • The English-speaking population of the country´s Caribbean Coast has not been tapped as a human resource potential.
  • The country´s business hours match the US Central Time Zone.
  • A 100% tax exemption under its Free Trade Zone Regime.
  • Abundant labor force with low turnover.

In addition, Nicaragua’s telecom system has almost 4,000 kilometers of a fiber optics backbone whose capillary reach extends to remote and scarcely populated villages in rural areas. On top of the backbone runs an IP Centric network, which integrates Cisco Systems’ IP/MPLS and the broadband multi-media mobile telecommunications standard (UMTS/HSDPA) platform.