Why is HP Cutting Back in Costa Rica, and Sending Jobs Back to India?

By Narayan Ammachchi

HP is gearing up to relocate a part of its global services center in Costa Rica to the Indian city of Bangalore, leaving 400 people jobless. The U.S. tech giant has not explained what caused its decision, but analysts believe rising wages and dwindling English-speaking workforce in the Central American country has long been a concern for the Silicon Valley company.

HP is the second foreign outsourcer to scale down operation in Costa Rica in the past three months. In January, Teletech laid off 160 call center employees and moved its English call centers to Asia, according to sources. (A Teletech spokesperson was unable to confirm the number of cuts when reached by Nearshore Americas this morning.)

HP was given several opportunities to respond to our request for an interview, but failed to respond.

HP’s decision has taken many by surprise, since only a few years ago the firm named Costa Rica a strategic location for expanding its footprint in the Latin American region. Moreover, HP is Costa Rica’s second biggest employer after Walmart. The U.S. company has operations in Argentina, Brazil, Chile and Mexico, but Costa Rica and Colombia are the only countries in Latin America where HP has its global services center. The other centers of the company are in Bulgaria, India, Malaysia, Philippines and China.

CINDE, the lead inward investment agency for Costa Rica was quick to point out that the move has to be considered in proportion to the rest of HP’s commitment to Costa Rica. “HP is moving only a small portion of its operation, the call centers that are serving English-speaking markets will be relocated to Bangalore. Company’s all other units, including engineering and design center, will continue their operation,” CINDE, said in a written response to Nearshore Americas.

Scaling down operation in Costa Rica was in fact part of a broader restructuring plan announced by CEO Meg Whitman in May last year, reported the Spanish paper quoting HP’s Human Resource Manager María Luisa González as saying. CINDE said the US company would retain its other service centers catering to Spanish and Portuguese markets.

HP’s Costa Rica History

Hewlett-Packard moved into Costa Rica in early 2003,  just over a hundred staffers. Eight years later, the headcount rose to 6500 employees. In 2008, the company set up its first Latin American R&D center in Costa Rica, which currently employs 70 engineers dedicated to the development of new technology. The company’s other R&D centers are in the U.S., Canada, Singapore, India, and Taiwan. (HP also opened a center in Medellin last year).

More than anything else, HP focused on working closely with government agencies in Costa Rica. The company often advised universities on what sort of skills tech entrepreneurs look for in an employer and how to build a skilled labor force in tech. University professors were frequent visitors HP’s facilities.

Like other foreign firms, HP was attracted to Costa Rica because of a stable political environment, steady economy and high quality talent pool.  But in recent years some have started to question whether Costa Rica can support the wide number of tech firms – totaling about 120 currently. Just recently, Bangalore-based outsourcing giant Infosys opened a delivery center in San Jose.

HP’s Dwindling Fortunes

“When it comes HP, it is not only the English language skill that matters. HP is now trying to provide more sophisticated BPO service that involves less employee turnover,” says CN Kumar, an independent outsourcing analyst in Bangalore, adding that the relocation may help HP save considerably on labor costs. Kumar pointed out that when CEO Meg Whitman took charge, she emphasized the need to consolidate operations of global service centers.

According to a Bloomberg report, profit is in decline in HP’s information-technology services division and the restructuring program is designed to return the company back into ‘positive growth’. PC consumers switching to tablets have dealt a severe blow to HP and the company is apparently struggling to manage dwindling IT services contracts and also focus on growing demand for cloud computing services.

Things are not exactly pretty in Bangalore either. The Indian outsourcing capital has lost more than 70,000 call center jobs to Philippines over the past few years, according to Global Delivery Report. The country’s major voice-based service providers, like Adithya Biral Minacs, are aggressively relocating their call centers to the Southeast Asian country.

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“It is important to highlight that HP continues to run a key operation in the country,” stated CINDE’s Director General Gabriela Llobet, dispelling rumors about possible plans to shift its R&D center to Bangalore also.

She went on saying the laid-off employees ‘could possibly be relocated’ in HP´s other units in the country. Moreover, she believes the employees may not find difficulty in finding new jobs as there is a high demand for English-speaking people in the country.