Guatemala and Cost Competitiveness

By Jeff Pappas, Executive VP, Arledge Partners Real Estate Group

Central America has become a hotbed for call center investment as US basedJeffreyPappas contact centers continue their aggressive search to find the most cost competitive Spanish/English bilingual support for their clients. In English speaking countries, Central America is considered a region of the North American continent. Politically, it usually comprises seven countries – Belize, Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica, and Panama.

Though Guatemala is a developing country with the largest population in Central America of around 14 million inhabitants, the country still faces many social problems and is among the 10 poorest countries in Latin America. The distribution of income is unequally high with approximately 29% of the population living below the poverty line.
Still Guatemala has its advantages. Here are some facts:

  • The professional workforce speaks English relatively fluently. Interestingly, per year, approximately 25,000 Guatemalans in the USA lose their Visa and return to the country.
  • Guatemala may have the most stable democracy in the region, with free elections and a lack of ties to countries less protective of privacy rights.
  • The country has a strategic geographical location in the Northern part of Central America: Guatemala is only 2 hours from the USA.
  • Guatemala has some of the most competitive cost in the region with the average customer support representative earning approximately $700 – $800 USD per month (including the country mandated benefits).

Considering the Weaknesses
These conditions create a compelling scenario. But alone, they are not enough to build a reliable call center industry. Why?

We can look for the answers to this question mainly in two areas. First, the Guatemala education system is rife with issues. The main cause if lack of money. The lack of money leads to less qualified teachers and inadequate class rooms. The private schools may not be too affected by this issue, but these schools are attended by such a minuscule portion of the population, that most contact centers will not be able to afford the private school graduate.

Also, English is not taught in the public school system. So basically, a student that wants to better his odds at locating a “white collar” job in a contact center (and can’t afford a private school) will drop out and enter the workforce as soon as possible.

This is one reason that Guatemala has the lowest literacy rate in the Central America. Lastly, to support the current growth pace, local contact centers need to hire more bilingual staff. As a result, the Guatemalan workforce must produce at least 1,000 bilingual workers per month. As of today, the country is well below that figure.

Shortage of Investment
Second, the economy is largely depended on the traditional export sector, with approximately 50% of the labor force in agriculture. Also, Guatemala has a relatively large expatriate community in the United States, as the country is the largest recipient in Central America.

This will slow down in 2010 as export demand from US and other Central American markets drop and foreign investment slows amid the global slowdown. The lack of foreign investment, along with continued lack of financial assistance from the government leads to the continued image of a poor country with minimal growth capabilities.

While the Guatemalan government may be aware of these issues, US investors, like myself, still have concerns with safety and high crime. Interestingly enough, I visited a local McDonalds in the business core of Guatemala City recently and was escorted in by a very friendly “armed” guard. Apparently, the Big Mac’s are quite valuable in Guatemala.

While there are many reasons to consider Central America for offshore call center operations, such as stable economies, young and “semi” qualified labor force supply, neutral English agents and strategic location in the region, Guatemala is still hindered by high crime rates, illiteracy and low levels of education, and an inadequate capital market. While today Guatemala may have the advantage of a low labor costs – the cost of doing business will always increase – then what? Maybe that should be the next question.

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Jeff Pappas is the Executive Vice President of Arledge Partners Real Estate Group, located in Dallas, Texas. Arledge Partners focuses on site selection, incentive negotiations and real estate identification and acquisition for the contact services/BPO industry.