Exploring Chile as a Global Services Platform

Exploring Chile as aGlobal Services Platform

January, 2007

Prepared on behalf of Chile Invest-CORFO (Chilean Economic Development Agency) by A.T. Kearney

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A.T. KearneyA.T. Kearney is a global strategic management consulting firm known for helping clients gain lastingresults through a unique combination of strategic insight and collaborative working style. The firmwas established in 1926 to provide management advice concerning issues on the CEO’s agenda.Today, we serve the largest global clients in all major industries. A.T. Kearney’s offices are located inmajor business centers in 32 countries.

For additional information please contact [email protected] or [email protected]

Chile Invest – CORFOThe Chilean Economic Development Agency (Corporación de Fomento de la Producción, CORFO),established in 1939, is the state organization in charge of promoting economic development.Throughout its long history, CORFO has supported entrepreneurs, business people and innovatorswho need access to new technology and technical and financial assistance in order to succeed in worldmarkets. Promoting joint public-private sector initiatives, 21st Century CORFO fosters improvedmanagement, partnership practices, innovation, and the creation of new businesses—all of which-contribute to the balanced economic development of Chile.

For additional information please contact Constanza Donoso, Investment Executive at [email protected]

1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

2. Latin America as an Offshore Destination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2Language Capabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2Talent and Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4Cost Attractiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

3. Latin America and India: Complementary Offerings . . . . . . . . . . . . . . . . . . . . . . . . 5

4. Ranking of Regional Players in Global Services Location Index . . . . . . . . . . . . . . . 6Latin America and the Caribbean: Moving Ahead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

5. Chile’s Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8Current Activities and Early Successes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9Biotechnology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9Business Process Outsourcing, Knowledge Process Outsourcing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10Contact and Technical Support Centers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10Shared Services Centers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10Software Development and IT Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

6. Quantitative Benchmarking of Chile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11Financial Attractiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13People Skills and Availability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14Population . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14Literacy and Education . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15ITO and BPO Market Size and Certifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17Research and Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17Overall People Skills Ranking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18Infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19Business Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19Macroeconomic Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19Ease of Doing Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21International Trade Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23Labor Rigidity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25Country Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26Quality of Life . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26Overall Business Environment Ranking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28Overall Regional Ranking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

7. Conclusion: Chile as a Global Services Platform . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Appendix: Overview of Alternative Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30Where to Locate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 301. Argentina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 302. Brazil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 313. Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 324. Colombia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 335. Costa Rica . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 336. Jamaica . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 347. Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 348. Panama . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 359. United States (Tier II locations) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3510. Uruguay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

EXPLORING CHILE AS A GLOBAL SERVICES PLATFORM

CORPORACIÓN DE FOMENTO DE LA PRODUCCIÓN

List of Figures

Figure 2.1 Key comparisons between India, Latin America and Eastern Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Figure 4.1 A.T. Kearney’s Global Services Location Index™ 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Figure 6.1 Selection of key metrics from Global Services Location Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Figure 6.2 Average labor cost indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Figure 6.3 Infrastructure cost indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Figure 6.4 Tax burden and currency appreciation indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Figure 6.5 Financial and cost relative rankings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Figure 6.6 Population indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Figure 6.7 Adult literacy rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Figure 6.8 School enrollment and working age cohort percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Figure 6.9 Education quality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Figure 6.10 Estimated size of ITO/BPO experience and skills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Figure 6.11 Research and development indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Figure 6.12 People skills relative rankings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Figure 6.13 Telecommunications infrastructure availability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Figure 6.14 Overall infrastructure quality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Figure 6.15 Region and Chilean macroeconomic indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Figure 6.16 Business environment indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Figure 6.17 Software piracy rates, percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Figure 6.18 Chile’s free trade agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Figure 6.19 Labor market rigidity indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Figure 6.20 Country and political risk indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Figure 6.21 Quality of life and safety indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Figure 6.22 Business environment relative rankings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Figure 6.23 Global Services Location Index, Americas, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29


1. Introduction

As more companies look for closer-to-homesolutions, Latin America is shaping up to be aprime global services export destination for somemultinational corporations. Its new-found eco-nomic stability, proximity to the United States,lower costs, similar time zones, language skillsand cultural affinity, all bode well for this emerg-ing region. In addition to leveraging India andAsia for offshore solutions, more U.S. andEuropean companies are eyeing Latin America asa viable “nearshore” or “offshore” alternative, pri-marily in response to client demands to expandtheir global footprints and not to be dependenton one location. Within Latin America, Chilestands out as having the most stable political andbusiness environment along with a world-classinfrastructure and a skilled workforce. AlthoughChile’s available labor force is limited, the coun-try is making solid efforts to foster internationalattention and capitalize on its reputation byincreasing its investments in offshore services.

Why has Latin America arrived front andcenter in the global services offering discussion?As a “nearshore” destination Latin America offerssignificant value and resources when comparedto Asia—particularly for companies in theUnited States. It has what many U.S. and someEuropean companies want: low cost Spanish-lan-guage capability and a relatively low cost, andskilled bilingual (English-Spanish) workforce.

North American and European companies’interest in Latin America are twofold—it offersan alternative destination for English-based ser-vices and a location from which to serve theirlarge Spanish-speaking clientele. After Mexico, at40 million and growing, the United States has

the largest population of Hispanics in theAmericas. As this group continues to gather eco-nomic strength, it is understandably drawingincreased attention from corporate America.

In addition, Latin America, with costs com-parable to India and the Philippines, offers aclear value proposition to companies seekinglower cost destinations that are closer to theUnited States. Rather than a 20+ hour plane rideto India or China, U.S. executives can enjoy afour-hour flight to Mexico or, at most, an 8- to12-hour overnight flight to Santiago, Chile.Similar time zones make systems batchingprocesses less complicated and agents can workthe same business hours as their U.S. customers.

In addition, Latin America is a large domes-tic consumer market, already offering a healthynumber of skilled resources and a sophisticatedBPO sector that has been serving a variety ofindustries, including financial services, retail andmanufacturing.

The United States and Latin America alsoshare cultural similarities. For instance, enter-tainment, dining and social customs are veryclosely aligned with Western cultures, and immi-grant communities in Latin America share char-acteristics with communities in the UnitedStates, especially those in Argentina, Brazil,Chile and Uruguay. These similarities provide aneasier link to North American and European cor-porate culture for captives, and eases partneringrelationships with outsourcers. Amenities in larg-er cities such as São Paulo, Buenos Aires, MexicoCity and Santiago are comparable to those inNew York, Chicago, Miami, Los Angeles, andsome major cities in Europe, which is an advan-tage when attracting expatriates to the region.Every year, with increased economic stability, the


nearshore advantages of Latin America becomemore compelling. Many multinational compa-nies have expanded their presence and are nowbetter positioned to expand their global foot-prints by settling in Latin America. Chile—as apioneer in demonstrating that economic stabili-ty—is successfully translating its sound businessenvironment into attracting international invest-ment. Yet, for many executives, there are stillmore questions than answers: What makes LatinAmerica so appealing? Which Latin Americancountries provide the most attractive destina-tions? Is the region economically and politicallystable enough to invest in it? How does LatinAmerica compare with Asia? Can both locationsbe leveraged simultaneously?

This paper answers many of these questionsand discusses the advantages of offshoring andnearshoring to Latin America. Special attentionis given to Chile, a top-ranked country in theregion and the world. To understand its overallattractiveness as a global services exporter, Chile’sstrengths and challenges are analyzed and com-pared with locations in the Americas that arecommonly considered along with Chile.

2. Latin America as anOffshore Destination

Latin America is at the center of the offshore dis-cussion primarily because of its language capabil-ities and low costs. Many countries offer Spanishand bilingual capabilities to serve Spanish- andnon-Spanish-speaking customers, while costs inLatin American countries are comparable tocosts in India and the Philippines. LatinAmerica’s appeal is, in large part, attributable to

its proximity to the United States. The averageplane ride from a major U.S. hub to a main des-tination in Latin America is 8 hours, comparedto 21 hours for Asia. Similar time zones makesystems batching processes less complicated andagents can work the same business hours as inthe United States. In addition, and not to beunderestimated, similar cultures allow NorthAmerican companies to retain corporate culturein captive centers, eases business with out-sourcers, and makes it easier for expatriates toadapt to the new environment (see figure 2.1).

A.T. Kearney research indicates that the mostattractive Latin American countries for offshoreand nearshore work are Chile, Brazil, Argentina,Mexico and Costa Rica. Costa Rica is a smallerbut established player in the BPO and shared ser-vices market. Brazil is a top ITO services playerand has the largest call center market in theregion, although its viability as a global exporterof other BPO services is hindered by limitedEnglish-language skills, as well as Brazil’sstronger focus on its large, domestic market

A.T. Kearney’s Global Services LocationIndex™ (GSLI) ranks a total of 50 countries—including those listed above—in terms of theircost attractiveness, business environment andavailability of skills and labor. In the GSLI,Chile, Brazil and Mexico are the three countriesin the region that rank among the top 10 off-shore locations in the world. The rankings areshown in figure 4 on page 9.

Language CapabilitiesServing Spanish-speaking customers is merelythe threshold to a larger window of opportunity,one in which it is possible to also serveEnglish-speaking customers. As demonstrated in


India and the Philippines, a country’s Englishlanguage skills correlate directly to an increase inservice exports. Mexico, Costa Rica andArgentina are capitalizing on their large numberof English speakers by offering bilingual servicesin their BPO and contact centers—and they pro-vide employees with both English and Spanishlanguage capabilities. From an operational stand-point, bilingual centers allow companies todeliver the same processes and service levels totheir entire customer base—and do so from a

single location.Beyond Mexico and Argentina, other coun-

tries with already good outsourcing platformsand telecom infrastructures are strengtheningtheir English-speaking credentials. For example,the Chilean Economic Development Agency(CORFO) has launched a plan to increase itsnumber of English speakers in an effort to cap-ture more business. Chile’s current English-speaking population is comparatively small:it is estimated that only about 2% of Chileans

Figure 2.1Key comparisons between India, Latin America and Eastern Europe

Average annual savings on BPO from the U.S. (%)

Average time-zone difference with U.S. (hrs)

Avg. Latin America

Avg. Latin America

Avg. Latin America

Avg. Latin America

Avg. India

Avg. Eastern Europe

Avg. Eastern Europe

Avg. Eastern Europe

Avg. Eastern Europe

Avg. Asia

2.5

13

720% - 40%

35% - 50%

10% - 25%

Average travel time from major U.S. hubs (hrs)

Avg. Asia

8

21

10

Average travel cost in business class from major U.S. hubs (US$)

Avg. Asia

$2,750

$6,592

$5,428

speak English, and about 1% to 1.5% (that’s150,000 to 200,000 people) speak English andhold professional degrees. Most of the Englishspeaking population is concentrated in Santiagoand is estimated to be from 7% to 8% of thecity’s working population.

Brazil is also making an effort to expand itsEnglish skills. While several shared service cen-ters and regional headquarters of multinationalcorporations have full bilingual staff (especiallyin higher-skilled jobs), the largest contact centershave not yet ventured into English offerings.

Talent and Resources Among the main reasons for choosing a globalservices location is the availability and quality oflabor. In Latin America, capturing both qualitiesrequires focusing on the largest cities. Becausecompanies typically send high-turnover func-tions offshore, such as data entry and call centers,they want to ensure that their desired locationhas a critical mass of available labor. A reliableindicator of labor resources is not only the city’spopulation but also the number of colleges anduniversities, the number of graduates per year,and presence of similar operations in the area.Latin America has at least 11 major cities withtotal populations of 1.5 million or above and alarge number of universities. These cities includeCiudad Juarez, Mexico City, Monterrey andTijuana, in Mexico; Santiago in Chile; San Josein Costa Rica; Buenos Aires and Cordoba inArgentina; São Paulo and Rio de Janeiro inBrazil; and Bogota in Colombia.

In Brazil, São Paulo and Rio de Janeiro arethe largest metropolitan areas, however, in this180 million strong country, size is not an issueand a number of other cities—especially in the

south—also meet the criteria. Furthermore, theservice industries in Latin America are alreadylarge and well established domestically, whichmeans there is a broad and sophisticated pool oftechnical and managerial talent that can be fur-ther leveraged to provide services offshore. Inaddition, because the market for exported ser-vices has not yet become as frenzied as in Asianlocations, attrition remains manageable.

Chile offers a highly skilled workforce, withabout 43% of the population enrolled in tertiaryeducational institutions, behind only Argentina’sand Panama’s enrollment of 65% and 45%,respectively. Furthermore, Chile’s educationalinstitutions include some of the top universitiesin Latin America as well as a number of techni-cal colleges that specialize in technical degrees indisciplines such as IT and life sciences.

Cost Attractiveness Language and technical skills are importantwhen making offshore decisions, but costremains a critical factor for companies lookingfor shared services center locations. Today,Latin America can claim a significant cost advan-tage over Europe and the United States. In fact,for U.S. or European companies that have cho-sen a Latin American location for either out-sourced or captive work, the benefits have rangedfrom 20% to 40% on average. Of the four largesteconomies in the region, Argentina has the low-est costs when it comes to outsourcing or settingup a captive operation. Today, cities such asCordoba, Rosario and the Buenos Aires provincecan even compete with India for some services,but it is still hard to predict if that arbitrage issustainable, given Argentina’s short record ofinstability.


Mexico and Chile, while more expensivethan locations such as Costa Rica and Argentina,provide a cost competitive alternative to theUnited States and Europe, with an arbitrage of15% to 30%. Still, with increasing wage infla-tion in India (about 15% last year in IT services)more eyes are turning to Latin America. This isevidenced by the recent arrival of several Indian-based BPO suppliers in Latin America that areresponding to key clients’ demands to expandtheir global footprint.

3. Latin America and India:Complementary Offerings

Any company looking for locations to serviceglobal needs has many viable alternatives. As off-shore decisions are based on more than just costs,the decision rests on determining the locationthat best meets a company’s strategy. Hence,many companies do not have to decide betweenAsia and Latin America; rather, they are optingfor both. For example, Evalueserve, an invest-ment, data and market research firm with opera-tions in India, recently established operations inChile to provide day-time research support toinvestment banks in the United States.Company officials say that Chile presents anideal platform for their 200-people operation: apredictable business environment with politicalstability, strong finance and business talent, sametime zone as the U.S. market, and competitivecosts with São Paulo and Mexico City.

While Latin America has a promising future,it is still not as mature as India in terms of export-ing business process outsourcing (BPO) or infor-mation technology outsourcing (ITO) services to

the rest of the world. It has, however, had thecapabilities locally for a number of years.Additionally, English language skills in LatinAmerica have not yet permeated the workingclasses as they have in India. The following out-lines a few criteria companies said they use indeciding which functions to send where.

Attrition: One of the major challenges thatIndia, the Philippines and other Asian locationsface is retaining personnel, and especially on thenight shifts. Some call centers report attritionrates in those hot markets ranging from 20% toover 100%, while well established F&A captivecenters report a range of 10% to 30%. In LatinAmerica, attrition is around 10% to 25% foroutsourced call centers, and about 5% for cap-tive/shared service centers. These numbers aredriven by the unique attractiveness that some ofthese new jobs represent, higher unemployment,less competition for talent, and daytime workinghours given the time zone proximity to theUnited States.

Time zone: One of the main advantages inLatin America is the ability to offer real-timeservices, and having the heads of both locationsable to resolve issues in real time. In Asia, due totime differences, managers sometimes have towait until the next day to address an issue. Inaddition, IT systems batching is less an issue inLatin America, since both operations (on- andnearshore) are closed at the same time—atnight. Moreover, being able to be on thenearshore site within the same business day (orearly the next morning without missing workhours while airborne) adds a unique attribute toBusiness Continuity Planning. This factor alsoeliminates the requirement to pay higher wageson night shifts.



Regional stability: Despite recent politicalpendulum shifts in some countries, the regionremains stable without ethnic or civil tensions, ormajor cross-border conflicts. In Asia, many ser-vice locations still run a risk of internal distur-bances and significant cross-border tensions. Inthis context, Chile in particular is ranked as oneof the safest countries to do business in through-out the world, while Uruguay and Costa Ricaalso present favorable business environments.

4. Ranking of RegionalPlayers in Global ServicesLocation Index

A.T. Kearney first developed the Global ServicesLocation Index in 2002. Now in its fourth year ofpublication, this annual Index is a tool to helpcompanies understand and compare the factorsthat make countries attractive as potential loca-tions for IT, BPO and other business services. TheIndex measures the viability of 50 countries as off-shore destinations based on their financial costs,people skills and availability, and business environ-ment, using more than 40 metrics. The results ofthe 2007 index are shown in figure 4.1.

Ten new countries have been added to thisyear’s Index to reflect the ever growing universe ofglobal locations. This year’s new entrants includethe Baltic States and Ukraine in Eastern Europe;Morocco, Senegal, and Mauritius as francophonelocations; Sri Lanka and Pakistan; and finally,Uruguay in South America.

Key findings from the 2007 GSLI include:• Latin America advances in the Index with

Brazil taking the 5th spot, Chile the 7th and

Mexico the 10th.• India and China remain the best offshore

locations, although only through continuous improvements in people skills and business environment

• Thailand and Indonesia challenge traditional regional offshore locations by moving into the top 10 while Singapore and Philippines fall in the rankings

• Less established locations in Central and Eastern Europe are moving ahead. Bulgaria is the top CEE location, followed by Slovakiaand Estonia

• Tier II locations in developing countries all fell in the Index as a result of increased global competition

Latin America and the Caribbean:Moving AheadThis has been an encouraging year for the Index’sLatin American countries. Latin America rein-forces its standing as a region and most countriesare moving forward in the rankings. Brazil movesto 5th place and displaces Chile as the top LatinAmerican destination in spite of increasing com-pensation and real estate costs. An increase in inter-nationally standardized certifications as well as animproved business environment thanks to a rise ininvestor confidence and lower country risk (asassessed by international risk management institu-tions), offset the inflationary pressures. In spite ofadvances in the business environment categoryfrom last year, Brazil still has the lowest score inLatin America on the World Bank’s “Ease of DoingBusiness” metric, indicating that there is still roomfor improvement. Brazil’s potential could be high-er than its current score suggests, given specificreforms of the business environment.


Figure 4.1Rankings in A.T. Kearney’s Global Services Location Index™ 2007

3.2 2.3 1.42.9 2.3 1.4

2.8 1.3 2.03.2 1.2 1.6

2.6 1.8 1.53.3 1.5 1.1

2.7 1.2 1.93.3 1.2 1.3

3.2 1.0 1.62.6 1.5 1.6

1.7 1.5 2.52.8 1.0 1.83.2 1.1 1.33.1 1.0 1.5

2.4 1.0 2.22.4 1.1 2.1

2.6 0.9 2.02.6 1.2 1.8

3.3 1.0 1.22.7 0.9 1.9

0.5 2.7 2.33.0 1.0 1.5

2.9 1.3 1.32.5 1.0 2.0

2.8 1.0 1.63.0 0.9 1.5

3.3 0.9 1.3

2.6 0.8 2.03.2 1.0 1.23.2 1.0 1.1

2.5 1.2 1.62.8 1.0 1.52.9 0.9 1.53.0 0.9 1.4

0.8 2.1 2.32.9 0.9 1.3

2.6 1.4 1.22.0 1.3 1.9

3.2 0.8 1.10.5 2.2 2.4

2.9 0.8 1.40.5 2.2 2.4

1.2 1.7 2.11.5 1.1 2.3

1.6 1.1 2.12.8 1.0 1.1

0.5 2.1 2.32.1 1.3 1.4

0.9 1.7 2.3

Financial

People

Environment

0.4 1.5 2.3Ireland

Australia

TurkeyFrance (Tier II)

UkrainePortugal

New ZealandSpain

UK (Tier II)Panama

Germany (Tier II)Senegal

IsraelRussia

MoroccoCanada

Costa RicaRomaniaJamaica

South AfricaPakistan

Sri LankaLithuania

GhanaTunisia

MauritiusHungary

ArgentinaUruguay

USA (Tier II)UAE

VietnamPolandLatvia

Czech RepublicEstoniaJordan

EgyptSlovakia

SingaporeMexico

BulgariaPhilippines

ChileIndonesia

BrazilThailandMalaysia

ChinaIndia

Source: A.T. Kearney 2007 Global Services Location Index; A.T. Kearney analysis


Chile continues its steady march forward.The Andean country scored 9th place in 2004,8th place in 2005, and this year it reached the7th position. It is the most consistently per-forming Latin American country in the Indexand reinforces its standing as a solid contenderin the global top 10. The main reasons for thisyear’s advancement is that while other coun-tries have suffered from inflationary pressures,Chile’s cost structure has remained more or lessunchanged from last year. It has also improvedits people score largely as an effect of theexpanding ITO/BPO market size and anincrease in international certifications for itsoffshore centers.

Mexico also performed well in the 2007GSLI, reaching the top 10. Uruguay andArgentina are in the middle of the rankings at22nd and 23rd place, respectively. Jamaica hasheld a more or less steady position at 28th place,while Panama is closing in on neighboring CostaRica in the Central America contest. Costa Rica’sdecrease in the GSLI ranking may come as a sur-prise to some, since for years it has been a leaderin BPO investments within this region; however,it continues to struggle with several disadvan-tages, specifically it has a significantly smallerpopulation, higher real estate costs, and theCosta Rica market is becoming increasingly sat-urated.

5. Chile’s Case

Chile presents remarkable political and econom-ic stability and an outstanding telecom infra-structure. Though small in population, Chileranks as the most attractive Spanish speaking

global location in Latin America and 7th in theworld, according to A.T. Kearney’s GSLI (seeprevious section). Although its labor compensa-tion costs are less competitive when compared tosome of its regional peers, Chile is committed toclear investment rules, has a predictable businessenvironment and pro-business labor regulations,and is significantly safer than many of its peers inthe region.

Chile’s main focus is on attracting highervalue added services, an effort widely shared byChile’s authorities. Specifically, the governmentis interested in attracting Knowledge ProcessOutsourcing (KPO), Biotechnology Research &Development, and IT related services, as well asestablishing captive operations, which requiresignificant investments. In this regard, Chile canalready claim a few success stories. Companiesthat have chosen the Andean country for theirback-office operations include Delta Airlines,GE Aircraft Engines, BHP Billiton, andUnilever, which offer support to their globaloperations from Santiago. A few other examplesare briefly described on the next pages.

Chile’s small population is reflected in thelimited size of its labor pool. The Chilean gov-ernment, recognizing this limitation, is investingresources to expand and improve the skills of itsworkforce. Of particular attention to the coun-try’s authorities is to improve English skills anddevelop experts in science and technology fields.In fact, Government sources indicate that thebudget for development in these fields wasexpanded to US$330 million for 2007. Chilerecognizes and is working on improving many ofits other limitations as well, such as acceleratingcompliance of its foreign trade agreement com-mitments in intellectual property protection,


and simplifying value added tax reimbursementprocedures for service exports.

Chile has a range of characteristics that posi-tion it as an attractive location for offshore ser-vices. They include:Cost position• One of the least onerous tax structures in

the region• Compensation costs are competitive with

OECD countries, though they tend to behigher than regional peers—especially in non-professional positions

• Competitive telecommunications and realestate costs

• Low corruption-related costs

People and skills• High literacy rates and tertiary school enroll-

ment• Initiatives underway to build up its limited

pool of labor and English speaking workers• Strong work ethic• Enterprise friendly labor laws• Western cultural affinity • Second highest R&D investment per capita in

the region after Brazil

Business environment• Political and economic stability • Developed infrastructure; among the best in

the region• Similar time zone to the United States—EST

zone for 6 months of the year• Sound institutions and transparency• Strong macroeconomic indicators: low interest

rates, healthy and sustainable GDP growth,healthy reserves and low inflation

• Strong support for investment development

Quality of life• Santiago is the safest major capital city in

Latin America • Wide variety of amenities and entertainment

options• Flights to main hubs worldwide• Ski and seashore within less than two hours

from Santiago• Growing expatriate community

Current Activities and Early SuccessesWhat few people know is that Chile has alreadyachieved significant success in attracting invest-ments across a range of remote services segments.Several multinationals have chosen to locatetheir service centers in Chile, and a number oflocal vendors deliver a wide variety of services tointernational clients. While not an exhaustivelist, some of the most notable success stories are:

Biotechnology• Multinational Biopharma Firm. A top multi-

national pharmaceutical biotechnology firm isperforming clinical trials of a new drug througha contract research outsourcer (CRO) in Chile.The company cites the availability and topquality of investigators, as well as a sufficientpool of patients, the country’s stability, and itssafety as the reasons why Chile was chosen.

• PerOs Systems Technologies, Inc. This firm,based in Canada, established an operation inPuerto Montt, Chile, to manufacture andexport a product that enables oral administra-tion of vaccines and other biocomponents tomarine species. The company chose Chile dueto the sophistication of Chile’s aquicultureindustry, the talent availability and the coun-try’s economic stability.


• Biosigma, S.A. Biosigma. Biosigma is fundedby the Chilean government, CODELCO (thelargest copper mining company in the worldand Chilean based), and Nippon Mining &Metal Co. It develops biotechnology applica-tions for mining using advances of genomics,proteomics, and bioinformatics. One applica-tion increases copper yield from low-gradeores. The company draws from Chile’s devel-oped mining industry and its advancedresearch in biotech fields for its operations.

BPO and KPO• General Electric Aircraft Engines. In 2002,

GE established a KPO operation in Chile togenerate technical manuals for GE’s aircraftengines. Once approved by GE engineers andby the U.S. Federal Aviation Administration,the manuals are exported globally. The centercurrently employs a number of bilingual engi-neers, designers, and aerospace technicians.

• Evalueserve. This global KPO provider, focus-ing on investment, data and market researchwith a presence in India and China, establishedits first Latin American center in Chile. Theoperation will provide day-time and geograph-ical-expertise research support to investmentbanks in the United States. Chile was selecteddue to the combination of country stability,active support from the government, and avail-ability of a highly educated workforce.

• Tata Consulting Services. TCS created a BPOcenter from its acquisition of Comicrom, Chile’slargest BPO firm. TCS offers process outsourc-ing to over 100 clients mainly in the Chileanfinancial services industry. It is a regional BPOplatform for TCS’ global clients looking for out-sourcing services delivered from Latin America.

Contact and Technical Support Centers• Delta Air Lines. Delta established its call cen-

ter operations in 2001 in Santiago. It consoli-dates bilingual reservations and customer ser-vice calls from 19 countries in Latin Americaand Spanish services in the United States. Thecenter has bilingual (English/Spanish) capabil-ities and manages a volume of 70,000 calls permonth. Delta chose Chile due to its political,economic and labor stability, and wide accessto telecommunications.

• Air France|KLM. In 2001, the airline estab-lished a reservations and sales services call cen-ter in Santiago to serve its retail and travelagency customers in Chile. Today, in additionto handling Chilean customers, the center alsohandles inquiries from KLM customers in Peruand Ecuador.

Shared Services Centers• Altec-Santander. Altec started in Chile in

2001 as a shared services operation for theSpanish bank Santander. Today Altec pro-vides IT services—including 24x7 technicalsupport, software development and mainte-nance, and consulting—to banks through-out Latin America. Altec chose Chile due tothe effectiveness of its legal system, compet-itive labor costs, steady flow of Spanish-skilled IT personnel, and strong telecominfrastructure.

• Unilever. In 2002, Unilever established arenowned captive service center for accountingback-office operations in Santiago. It providesservices to several countries in Latin America,except Brazil due to its language and Brazilianservice import tax barriers. Unilever chose Chilebased on its accounting expertise, political,


economic and labor stability, and strong tele-com infrastructure.

Software Development and IT Services• Synopsys. Synopsys is the global leader in

developing engineering design automationsoftware for applications in integrated circuits.Clients include Intel, AMD, Toshiba, Fujitsuand Cisco. In 2006, it gained Latin Americanpresence with its operation in Chile. The com-pany developed a presence in Chile due to thecountry’s stability, qualified engineering gradu-ates, salaries (stability), and the desirable qual-ity of life in a country that attracts expatriates.

• Sonda. Established in 1994, Sonda is theChilean market leader of IT services. Its offer-ings include IT outsourcing, software develop-ment and maintenance, systems integration,business and specialized applications. Sondawas founded in Chile and now, with 4,500employees, supports operations throughoutLatin America.

• Software AG. A leader in XML software and e-government solutions, Software AG firstestablished a service center in Santiago and,more recently, a software factory in Valparaiso.The latter develops and exports a range ofproducts, including content management soft-ware, and help desk solutions for IT call cen-ters. The centers have English and Spanishcapabilities and plan to hire a number of bilin-gual engineers, analysts and programmers.

6. Quantitative Benchmarking of Chile

To better understand Chile’s offshore attractive-ness, an assessment of Chile’s relative strengthsand weaknesses was developed by benchmark-ing Chile versus key competitors on each majorfactor that companies consider when choosingoffshore locations.

As mentioned in Section 4, A. T. Kearney’sGlobal Services Location Index evaluates 50countries as potential locations for the mostcommon remote services, including IT servicesand support, contact centers, and back-officesupport. Each country’s score is comprised of aweighted combination of relative scores on 41individual metrics, which are grouped into threecategories: financial attractiveness, people skillsand availability, and business environment. Firstdeveloped in 2001, the Index is widely regardedas the most robust and accurate indicator of therelative attractiveness of locations for offshoreservices. Figure 6.1 on page 12 shows a selectionof metrics used for this benchmarking analysis.

A comprehensive set of data was collectedand analyzed to understand the relative positionof Chile when compared to other regional off-shore services locations in Latin America. Usingthese metrics, Chile’s performance was comparedto 10 other countries in the region—those thatare typically considered alongside Chile by com-panies seeking offshore or nearshore services.

The 10 most often compared markets are: • Argentina—Lead alternative for Spanish and

English services. Lower costs than a number ofpeers in Latin America, though with uncertainpolitical and economic environment.

• Brazil—Lead in ICT services and emerging


Figure 6.1Key metrics in Global Services Location Index

• Security of intellectual property

• Software piracy rates

• Business operations • Labor market rigidity, regulatory burden, corruption perception• Time and cost to start a business• Hours actually worked, quality of life, safety index

• Country infrastructure • Overall infrastructure quality; quality of telecom, internet, electricity• Network readiness, number of Internet hosts

• Research and development • Research and development spending• Scientific and technical journal article output

• Educational skills and language

• Scores on standardized education and language tests• Secondary school enrollment and adult literacy rate

• Labor force availability • Size of total workforce and tertiary educated workforce

• Tax and regulatory • Relative tax burden and exchange rate movements

• Infrastructure • Average cost of infrastructure (rent, electricity, telecom)

• Business and political environment ratings• Macroeconomic measures (GDP, inflation, FDI)

• Country environment (economic and political)

Business Environment(30%)

• Estimated IT and BPO market size and growth• Quality certification of local contact center and IT operations• Quality ratings of local management schools and science/math education

• Cumulative IT and BPO experience and skills

People Skills & Availability(30%)

• Average wages• Median compensation costs for relevant positions (call center representatives

and IT programmers)

• CompensationFinancial Costs(40%)

Metrics UsedCountry Characteristics(% of Total)Category

alternative to India for software development.Does not compete in Spanish services.

• Canada—Attractive near-shore location forU.S. companies with similar stability and busi-ness environment than the U.S. Strong ITindustry. A secondary competitor for Chile.

• Colombia—Recently emerging alternative forglobal services. With growing voice and datacapabilities, it is expected to become a strongplayer for Spanish services.

• Costa Rica—An important location fornearshoring from the United States, and is arelevant player for call centers, BPO and

shared services centers in English and Spanish.• Jamaica—Not seen as a direct competitor.

Only a player in providing contact center ser-vices to U.S. and U.K. companies.

• Mexico—Lead for Spanish and English ser-vices. Attracts large volume of U.S. work,mainly BPO and contact centers.

• Panama—Seeking to build on its proximity tothe United States, relative stability and reputa-tion as a financial center to offer shared servicecenters. Not a large player yet.

• United States (Tier II cities)—Despite thehigh costs, U.S. Tier II cities continue to be


preferred locations for many remote servicesactivities, and ranks 23rd in the GSLI.

• Uruguay—Early favorite due to stability andattractive costs, with similar characteristics toChile. Uruguay offers lower costs than Chilebut has a limited labor pool that is consideredby some to be close to saturated.

Financial Attractiveness In terms of financial attractiveness, Chile’s costsare lower than other offshore locations, but tend

to be high in Latin America. Average compensa-tion costs, while significantly lower than theUnited States and Canada, are high in the LatinAmerican context. This statement is true espe-cially for lower-end jobs, such as call center rep-resentatives. However, for IT programmersMexico and Brazil tend to have higher compen-sation levels than Chile (see figure 6.2).

Regarding costs of infrastructure, Chile’s rel-ative costs tend to be better in comparison to itsregional neighbors, overall placing Chile in the

Figure 6.2Average labor cost indicators

Average call center rep.compensation*(US$ thousands, 2006)

Average IT advanced programmer compensation*(US$ thousands, 2006)

EIU average wages(US$, 2006)

Sout

hA

mer

ica

Chile

Argentina

Brazil

Colombia

Uruguay

Mexico

Costa Rica

Panama

Jamaica

USA (Tier II)

Canada

$6,552

$5,268

$5,028

$6,408

$5,137

$3,936

$3,864

$5,217

$2,952

$41,520

$35,160

$11 - $13

$8 - $10

$7.5 - $10

$8 - $10

$8 - $10

$10 - $12

$8 - $10

$6.5 - $8.5

$6.5 - $8.5

$33 - $35

$40 - $42

$25 - $27

$25 - $27

$25 - $27

$16 - $19

$15 - $18

$19 - $21

$19 - $21

$18 - $20

$22 - $25

$70- $74

$70 - $74

Mex

ico

and

Cent

ralA

mer

ica

Nor

thA

mer

ica

*Compensation includes fully loaded base wages with fringes, taxes, and bonusSource: Economic Intelligence Unit; Mercer HR Consulting; A.T. Kearney analysis


Figure 6.3Infrastructure cost indicators

Electricity cost, commercial (US$/Kwh, 2006)

Average rent, metro areas (US$/sq. m, 2006)

Chile

Argentina

Brazil

Colombia

Uruguay

Mexico

Costa Rica

Panama

Jamaica

USA (Tier II)

Canada

$151 - $167

$125 - $139

$198 - $218

$140 - $155

$112 - $123

$251 - $277

$214 - $236

$162 - $179

$312 - $344

$125 - $138

$148 - $163

0.057

0.033

0.047

0.072

0.055

0.101

0.069

0.099

0.130

0.055

0.049

Source: Colliers, CB Richard Ellis; International Energy Agency; A.T. Kearney analysis

middle of the group for this key cost category (seefigure 6.3).

Chile’s tax rates are currently perceived byexecutives as the best among key competitors.However, the relative appreciation of the Chileanpeso against the U.S. dollar in the last year (due tohistorical high prices of copper and other exportcommodities) does not benefit export-orientedservice industries within Chile (see figure 6.4).

When all financial factors are taken intoaccount, Chile ranks significantly higher thanthe North American alternatives, thereforeemphasizing the existence of a favorable costarbitrage. However, Chile is disadvantaged rela-tive to other offshore locations in Central and

South America due to its higher compensationcosts (see figure 6.5 on page 16). Still, Chile ranksjust slightly higher than Brazil and Mexico, thetwo largest economies in the region; whileArgentina, Costa Rica and Uruguay, the mainalternative countries that can offer Spanish-speaking services, all present more favorable costcompetitiveness.

People Skills and Availability

PopulationAlthough Chile is smaller when compared toArgentina or Mexico, its young workforce—ages15 to 39, which is a proxy for those typically


employed by IT/BPO global service centers—islarger than peers in Central America andUruguay and can cater to several offshore sectors(see figure 6.6 on page 16).

Literacy and EducationIndependent of its size, Chile enjoys a higher rateof literacy when compared to other key LatinAmerican countries with larger populations, name-ly Brazil and Mexico (see figure 6.7 on page 17).

Furthermore, Chile has a high percentage ofsecondary school enrollment and the third besttertiary school enrollment in the region behindArgentina and Panama (see figure 6.8 on page 17).This is a considerable asset to the Andean coun-try, as high enrollment is an early indicator of alarger, well-educated workforce.

The perception of the key components ofChile’s education system is average to strong.While math and science programs are perceived

* The total tax rate measures the amount of taxes payable by the business in the second year of operation, expressed as share of commercial profits. **The overall tax burden on an enterprise, including all associated costs (tax rates plus administrative and time costs,

penalties, etc.), is estimated as share of net revenues (1=0-4%, 2=5-15%, 3=16-25%, 7=81-100%) Source: Total Tax Rate: Doing Business 2007, World Bank; Executive Perception of Tax Burden: Global Competitiveness Report, World Economic Forum 2006; Currency appreciation: OANDA.com

Figure 6.4Tax burden and currency appreciation indicators

Executive perception oftax burden(Scale 0 to 7)**

Currency appreciation vs. $US 2005-2006 change (%)

Total tax rate 2006(As share of commercial profits)*

Chile

Argentina

Brazil

Colombia

Uruguay

Mexico

Costa Rica

Panama

Jamaica

USA (Tier II)

Canada

26.3

116.8

71.7

82.8

27.6

37.1

83.0

52.4

52.3

46.0

43.0

3.2

4.5

4.2

4.6

3.4

3.9

3.7

3.0

4.4

3.7

3.6

-8.7%

-0.1%

-1.7%

-4.6%

10.1%

-5.6%

Depreciation Appreciation

3.4%

-2.7%

1.4%

6.5%

N/A

close to average, Chile’s management schools arethought to be the best in Latin America andonly slightly behind institutions in Canada.Furthermore, Chile’s scores on internationallycomparable tests of English are comparable topeer countries.

Although TOEFL scores are typically a veryaccurate measure of the English speaking capa-bility of test takers, they are usually not reflectiveof the number of English speakers in a country.Therefor, it is often difficult to obtain hard fig-ures on the number of English speakers percountry. That said, many global service expertsassess that among key competitors, Mexico,Costa Rica and Argentina are among the leaderswhen it comes to English skills availability. Chileand Brazil, although regarded as having welleducated populations, can focus on furtherincreasing the English skills of their populationsin order to become as competitive as their peersin this regard (see figure 6.9 on page 18).


Figure 6.6Population indicators

Total population and ages 15-39 segment,* 2006(estimated, thousands)

Population

Population 15 - 39*

16,134

39,922 43,593

4,075 3,191

33,099

6,30015,340

20,520

188,078

90,410

1,520

43,400

107,450

1,820 1,390 1,200

16,300

298,444

149,300

3,432 2,758

Chile Argentina Brazil Colombia Uruguay Mexico CostaRica

Panama Jamaica United States

Canada

Figure 6.5Financial and cost relative rankings

Index rankings, 2007

Uruguay

Panama

Jamaica

Costa Rica

Argentina

Chile

Brazil

Mexico

Canada

USA (Tier II)

6.6 0.50.4

0.4

0.6

0.3

0.3

0.4

0.4

0.4

0.6

0.3

0.5

0.4

0.6

0.2

0.5

0.50.7

0.6

6.3

6.3

6.4

6.4

5.6

6.0

5.7

0.7

0.6

Compensation cost

Infrastructure cost

Tax & regulatory cost

Source: A.T. Kearney 2007 Global Services Location Index, A.T. Kearney analysis

* Population ages 15 - 39 used as a proxy of the workforce targeted by IT/BPO employers in a country. Source: Total Population: CIA World Factbook, 2006; Age 15 - 39 Population Fraction: U.S. Census Bureau 2005; A.T. Kearney analysis

ITO and BPO Market Size and CertificationsThe ITO/BPO market in Chile is estimated atnearly US$2.3 billion, which is larger as a per-cent of GDP than Argentina’s (see figure 6.10 onpage 18). In addition, technical certification lev-els are higher in absolute numbers than its largerpeers in Latin America.

Research and DevelopmentIncreasing R&D spend became a national prior-ity when the past administration declared that by2010 Chile must reach an investment level of atleast 1.5% of GDP in R&D, and that half ofthat should come from the private sector. Tomeet this goal, the Chilean government beganfunding research through a new tax on profits of


Figure 6.7Adult literacy rate

Chile

Argentina

Brazil

Colombia

Uruguay

Mexico

Costa Rica

Panama

Jamaica

USA (Tier II)

Canada

96%

97%

86%

93%

92%

96%

93%

99%

99%

98%

88%

Source: CIA World Factbook

Figure 6.8School enrollment and working age cohort percentage

Tertiary school enrollment(% of relevant age group, 2004)

Percentage of population between 15-39 (2004)

Secondary school enrollment(% of relevant age group, 2004)

Chile

Argentina

Brazil

Colombia

Uruguay

Mexico

Costa Rica

Panama

Jamaica

USA (Tier II)

Canada

88%

86%

102%

71%

108%

79%

70%

70%

84%

95%

N/A

43% 39%

39%

44%

47%

37%

43%

42%

41%

43%

35%

34%

64%

22%

27%

39%

23%

25%

45%

19%

82%

59%

Source: UNESCO; U.S. Census Bureau


the mining industry (the beneficiary of currentcommodity prices). Additionally, the countryreceived a US$100 million grant from the WorldBank to set up the Science and TechnologyBicentennial Program to create research teamsand promote collaborative research between uni-versities and the private sector, and betweenChilean and non-Chilean researchers.

In reality, Chile’s academic output and R&Dspend are low compared to other Latin Americancountries. However, when normalizing academicarticle output by the country’s population, and

R&D spend by the country’s GDP, Chile ranksfirst in academic output and second in R&Dspend in the region (see figure 6.11 on page 20).

Overall People Skills RankingWhen all the factors are combined, Chile out-performs several regional competitors, though ittrails Brazil, Mexico and Argentina in terms ofpeople skills and availability in the 2007 GlobalServices Location Index. This placement is main-ly due to the size and availability of Chile’s work-force (see figure 6.12 on page 21).

Figure 6.9Education quality

Executive perception of quality of math and science education (Scale 1-7, 2005)*

Executive perception of quality of management schools(Scale 1-7, 2005)*

Mean score on TOEFL exam(2004)

Chile

Argentina

Brazil

Colombia

Uruguay

Mexico

Costa Rica

Panama

Jamaica

USA (Tier II)

Canada

236

245

230

221

244

230

233

223

Native English Speaking



3.2 5.5

5.1

4.5

4.6

4.2

4.7

5.1

3.3

4.4

6.6

6.0

3.8

2.9

3.8

3.5

3.0

4.0

2.9

2.9

4.5

5.3

*Scale legend: 1=schools lag far behind most other countries, 7=schools areamong the best in the world Source: Education Testing Service “Test of English as a Foreign Language”; Global Competitiveness Report, World Economic Forum


InfrastructureIn terms of “network readiness” Chile rankshighest in Latin America and 29th globally. Thenext closest Latin American contender is Brazil,which ranked 52nd globally. This is a keyattribute that both highlights Chile’s investmentin building a world-class infrastructure, andentices global service providers seeking a loca-tion. Likewise, the number of internet hosts per10,000 inhabitants only trails large LatinAmerican competitors such as Argentina andBrazil (see figure 6.13 on page 22).

In other specific metrics—including quality ofcompetition in the ISP sector, quality of the phoneinfrastructure, quality of the electricity supply, and,most important, quality of overall infrastructure—Chile is again the leader of Latin America. In fact,Chile’s scores in key infrastructure categories areon par with scores from the United States andCanada (see figure 6.14 on page 22).

Business Environment Macroeconomic IndicatorsAs noted previously, among the factors that have

Figure 6.10Estimated size of IT/BPO experience and skills

Number of firms with CMM/CMMI certification(2005-2006)

Estimated IT/BPO market size(US$ millions, 2004-2005)

Chile

Argentina

Brazil

Colombia

Uruguay

Mexico

Costa Rica

Panama

Jamaica

USA (Tier II)

Canada

$2,100 – $2,400

$3,100 – $3,400

$13,600 – $14,300

N/A

$300 – $360

$8,000 – $8,400

$780 – $830

$440 – $490

$140 – $180

$326,000 – $334,000

$33,500 – $35,500

39

27

71

N/A

Less or equal to 10

Less or equal to 10

44

2,633

103

0

0

Source: Domestic IT/BPO market size from Gartner; exports from IMF Balance of Payment Statistics; A.T. Kearney analysis.CMM and CMMI certification from Carnegie Mellon Software Engineering Institute


increased Chile’s offshore potential and put it ona global stage, is the country’s economic stability.Chile has demonstrated consistent GDP growthover the past five years and is projected to con-tinue growing at a rate of approximately 5% peryear. Foreign direct investment has also beensteady in the past years and is projected toincrease up to US$10 billion in 2007.Meanwhile, inflation has been held constant atan average of around 3%, with no large fluctua-tions to highlight.

Comparing Chile’s economy with its LatinAmerica peers shows Chile’s GDP per capita is

Figure 6.11bResearch and development indicators

Chile R&D investment as percent of GDP

2000 2005 2010 Goal

0.56%0.70%

1.50%

Figure 6.11Research and development indicators

R&D spending (annual spending, US$ thousands, 2002-2003)

Scientific and technical journal articles (number of articles, 2003)

Chile

Argentina

Brazil

Colombia

Uruguay

Mexico

Costa Rica

Panama

Jamaica

USA (Tier II)

Canada

$1,500

$3,086

$8,684

$337

$194

$3,747

$84

$211,233

$24,803

N/A

N/A

93.0

77.3

46.2

Populationper one million

As a %of GDP

7.7

56.5

34.9

20.6

707.8

749.4

N/A

N/A

Chile

Argentina

Brazil

Colombia

Uruguay

Mexico

Costa Rica

Panama

Jamaica

USA (Tier II)

Canada

$981

$1,826

$13,487

$450

$69

$3,605

$131

$291,765

$19,399

$70

$7

0.61%

0.41%

0.98%

0.17%

0.26%

0.40%

0.39%

2.67%

2.00%

0.34%

0.07%

Source: National Science Foundation, UNESCO

Source: Science and Development Network (July 2005)


Figure 6.12People skills relative rankings

Index rankings, 2007

USA (Tier II)

Canada

Brazil

Mexico

Argentina

Chile

Uruguay

Jamaica

Costa Rica

Panama

IT/BPO industry size/quality

Labor force availability

Educational skills

Language skills

Attrition risk

4.0 2.0

0.3 1.3 1.5 0.5

1.3

0.8

0.4 1.0 1.2 0.5

1.0 1.2 0.3

1.0 1.2 0.3

1.2 1.5 0.5

3.4

2.2

1.8

1.3

1.2 .01

.03

.02

.03

.03

1.1

0.7 1.5

1.2

1.1 0.4

0.2

0.7

1.0

0.7

1.2 0.6

1.0 1.2 0.4

0.4

0.3

0.4

0.3


second only to Argentina in Latin America.Further comparisons show that Chile has one ofthe highest sustained GDP growth rates in LatinAmerica, and has managed to maintain inflationrates as the second lowest in the region, trailingonly Panama. In terms of foreign direct invest-ment, Chile outranks all the evaluated peers. TheChilean peso is a stable currency that has appre-ciated versus the U.S. dollar in the past twoyears, on par with other strong currencies aroundthe world (see figure 6.15 on page 24).

Ease of Doing Business Moreover, Chile’s business environment is adifferentiating factor when evaluating its regu-latory burden, corruption perception, and timeand cost to start a business, since in all metricsChile is superior to its Latin American peersand comparable to OECD countries (see figure6.16 on page 25).

Still, one lingering issue within LatinAmerica is the mediocre performance in dealingwith software piracy and information securityissues when compared to OECD countries (seefigure 6.17 on page 26).


Figure 6.13Telecommunications infrastructure availability

Internet hosts(2006, Per 10,000 inhabitants)

Rank in networked readiness index(2005, Rank from 1 to 115, lower is better)

Chile

Argentina

Brazil

Colombia

Uruguay

Mexico

Costa Rica

Panama

Jamaica

USA (Tier II)

Canada

314

404

346

133

425

319

31

22

5

6,538

1,1886

1

54

66

69

55

65

62

52

71

29

Figure 6.14Overall infrastructure quality

Executive perception of quality of competitionin the ISP Sector (Scale 1-7, 2005)**

Executive perception of overall infrastructure quality(Scale 1-7, 2005)*

Chile

Argentina

Brazil

Colombia

Uruguay

Mexico

Costa Rica

Panama

Jamaica

USA (Tier II)

Canada

5.5

4.8

5.1

4.1

3.9

3.9

2.0

4.2

4.4

6.3

5.76.1

6.5

3.6

3.6

2.6

3.5

3.8

2.9

2.8

3.6

4.9

Source: World Economic Forum; CIA World Factbook; A.T. Kearney analysis

* Perception of general infrastructure in the country is 1= poorly developed and insufficient, 7= among the best in the world** Perception of sufficient competition among Internet service providers (ISP) to ensure high quality, infrequent interruptions, and low price: 1= no, 7= yes, equal to the best in the worldSource: World Economic Forum; CIA World Factbook; A.T. Kearney analysis


Figure 6.14bOverall infrastructure quality

Executive perception of quality of electricitysupply (Scale 1-7, 2005)**

Executive Perception of quality of phone infrastructure(Scale 1-7, 2005)*

Chile

Argentina

Brazil

Colombia

Uruguay

Mexico

Costa Rica

Panama

Jamaica

USA (Tier II)

Canada

5.5

4.3

4.7

5.0

5.4

3.8

5.5

4.8

4.5

6.6

6.56.6

6.7

5.2

5.6

3.2

5.7

6.4

5.8

6.2

5.8

6.7

0

*Perception that new telephone lines for a business are: 1= scarce and difficult to obtain, 7= widely available and highly reliable** Perception that the quality of electricity supply in the country in terms of interruptions and lack of voltage fluctuations is: 1=worse than in most other countries, 7=meets the

highest standards in the worldSource: Global Competitiveness Report 2006, World Economic Forum

International Trade AgreementsBeyond economic stability, Chile also has been aleader in Latin America for establishing tradeagreements with other key countries and regions.Chile currently has trade agreements in force with28 countries—including the United States, NewZealand and South Korea—and was a pioneer inobtaining such agreements with China (see figure6.18 on page 26). Chile has already signed and isawaiting parliamentary approvals of agreementswith India and Panama. Further, the Andeancountry is in trade negotiations with four othercountries, including Japan and Australia. • Agreements in Force—Chile currently has

Free Trade Agreements (FTAs) in force withCanada (1997), China (2006), Mexico (1999),South Korea (2004), USA (2004), CentralAmerica (Costa Rica, El Salvador, Guatemala,

Honduras and Nicaragua-2002), and theEuropean Free Trade Association or EFTA(which includes Switzerland, Norway, Iceland,and Liechtenstein-2004). Chile also has aComplementation Agreement with Mercosur(Argentina, Brazil, Paraguay and Uruguay-1996) which mandates duty elimination for atleast three quarters of tariff lines by 2004 andfor all tariff lines by 2014. Other complemen-tation agreements are in place with Bolivia,Colombia, Ecuador, Peru and Venezuela.

Chile has Association Agreements with theEuropean Union and the P4 in 2002 and 2005,respectively. On the former, most of the provi-sions of the agreement have been implemented,including an FTA in goods and services cover-ing many sectors, notably industrial, fisheries,and agricultural goods. It also provides for the


Figure 6.15Region and Chilean macroeconomic indicators

FDI as % of GDP (bars)Total FDI, US$ billions (line)(2005)

GDP per capita(US$ thousands, 2005)

Chile

Arg

entin

a

Bra

zil

Colo

mbi

a

Uru

guay

Mex

ico

Cost

aRi

ca

Pana

ma

Jam

aica

USA

Cana

da

$11.9

$6.7

$14.6

$8.6 $7.7$10.0 $10.0 $9.5

$11.1

$42.0$34.0

Chile

Arg

entin

a

Bra

zil

Colo

mbi

a

Uru

guay

Mex

ico

Cost

aRi

ca

Pana

ma

Jam

aica

USA

Cana

da

3.4

0.8 1.0

3.02.1 1.7 2.1 2.9

5.9

0.9

3.1

6.7 4.715.2

0.718.1

0.9 1.0 0.7

109.8

33.8

10.4

Inflation (%/Year Average, 2005)GDP Growth (5-Year CAGR %, 2000-2005)

Chile

Arg

entin

a

Bra

zil

Colo

mbi

a

Uru

guay

Mex

ico

Cost

aRi

ca

Pana

ma

Jam

aica

USA

Cana

da

6.7%

3.9%

5.0%4.6%

6.2%

3.4%4.1%

6.6% 6.7%

4.9% 4.7%

Chile

Arg

entin

a

Bra

zil

Colo

mbi

a

Uru

guay

Mex

ico

Cost

aRi

ca

Pana

ma

Jam

aica

USA

Cana

da

3.1%

15.3%

9.6%

6.9%5.1% 4.7% 4.0%

13.8%

2.9% 3.4%2.2%

Appreciation vs. US$(Positive number = appreciation)

GDP per capita(US$ thousands, 2005)

$4.5

2000 2001 2002 2003 2004 2005 2006* 2007* 2008*

$3.8

$3.6

$3.4 $2.5

$2.2

$3.9

$2.8

$6.2

$1.1

$6.4

$3.1

$5.0

$3.5

$5.7

$2.9

$5.4

$3.4

GDP GrowthInflation

-6.0

-19.1

-9.5

0.1

11.69.6

2000 2001 2002 2003 2004 2005

* ProjectedSource: Economist Intelligence Unit; A.T. Kearney analysis


Figure 6.16Business environment indicators

Time to Start a Business(Number of days, 2006)

Regulatory Burden(Index 1-5, 2005)

Chile

Arg

entin

a

Bra

zil

Colo

mbi

a

Uru

guay

Mex

ico

Cost

aRi

ca

Pana

ma

Jam

aica

USA

Cana

da

0

5

10

15

20

25

30

3.6

2.62.42.0

2.8 2.92.5 2.6

2.9

3.6 3.4

Chile

Arg

entin

a

Bra

zil

Colo

mbi

a

Uru

guay

Mex

ico

Cost

aRi

ca

Pana

ma

Jam

aica

USA

Cana

da

27 32

152

44 4327

77

19 8 5 3

Cost to Start a Business(% of average worker's income, 2006)

Corruption Perception Index(Index 1 -10, 2006)

Chile

Arg

entin

a

Bra

zil

Colo

mbi

a

Uru

guay

Mex

ico

Cost

aRi

ca

Pana

ma

Jam

aica

USA

Cana

da

7.3

3.72.9 3.3 3.9

6.4

3.34.1

3.1

7.38.5

Chile

Arg

entin

a

Bra

zil

Colo

mbi

a

Uru

guay

Mex

ico

Cost

aRi

ca

Pana

ma

Jam

aica

USA

Cana

da

9.8% 9.4%12.1%

9.9%

19.8%

183.3%

14.2%

23.5% 23.9%

0.7% 0.9%

Sources: World Bank Doing Business, Heritage Foundation Index of Economic Freedom, Kaufmann, Kray and Mastruzzi “Governance Indicators 1996-2002” World Bank Policy Research Working Paper, Transparency International

liberalization of investment and capital move-ments. The latter, the Trans-Pacific StrategicEconomic Partnership Agreement, or P4,between Chile, Brunei, Singapore and NewZealand is also in force.

• Signed Free Trade Agreements—Chile signedan FTA with Panama in June of 2006, andsigned a limited scope agreement with India inMarch 2006. Both agreements are awaitingparliamentary approval.

• Free Trade Agreements Currently inNegotiation—Chile is currently in negotia-tions with several countries, including Japan,

Vietnam, Australia and Thailand. The Chile-Japan Free Trade Agreement is expected to besigned and implemented in 2007. As of thefourth quarter of 2006, conversations hadbegun regarding an FTA between Chile andAustralia, negotiations between Chile andVietnam were expected to begin soon, andChile and Thailand have agreed to conduct ajoint feasibility study in discussions surround-ing a potential Free Trade Agreement.

Labor RigidityFlexibility in working conditions in Chile is a

clear asset, as labor market rigidity is the low-est in the region aside from Jamaica.Furthermore, this high level of flexibility hasnot hindered the average number of hoursworked per week as this metric for Chile is onpar with other Latin American countries (seefigure 6.19).

Country RiskAs a result of its high level of economic stability,Chile is rated to have the lowest country andpolitical risk in Latin America. It should benoted that both of these metrics are significantlybetter than other Latin American peers and onpar with the scores of OECD countries, includ-ing the U.S. and Canada (see figure 6.20).


Figure 6.17Software piracy rates, percentage

Chile

Argentina

Brazil

Colombia

Uruguay

Mexico

Costa Rica

Panama

Jamaica

USA (Tier II)

Canada

66%

77%

64%

n/a

65%

66%

71%

21%

33%

70%

82%

Figure 6.18Chile’s free trade agreements

Free Trade Agreements• China• Canada• USA• Mexico• South Korea• Central America – Costa Rica – El Salvador – Guatemala – Honduras – Nicaragua

Association Agreements• European Union• P4 – Singapore – Brunei – New Zealand

Complementation Agreements• Mercosur – Argentina – Brazil – Uruguay – Paraguay

• Bolivia• Colombia• Ecuador• Peru• Venezuela

AgreementsSigned• Panama

Agreements UnderNegotiation• Japan• Vietnam• Australia• Thailand

Agreements in forceAgreements signed, not yet in forceAgreements under negotiation

Source: Business Software Alliance

Source: Chilean Ministry of Foreign Affairs, 2006


Figure 6.19Labor market rigidity indicators

Hours actually worked (per week, 2005)Labor market rigidity (100 = most rigid, 2006)

Chile

Argentina

Brazil

Colombia

Uruguay

Mexico

Costa Rica

Panama

Jamaica

USA (Tier II)

Canada

24

41

42

27

31

38

32

56

4

0

4

42.1

41.5

41.9

44.2

40.3

45.1

45.1

45.1

n/a

43.6

31.7

Figure 6.20Country and political risk indicators

Political environment (10 = good environment, 2006)Business risk (100 = high risk, lower is better)

Chile

Argentina

Brazil

Colombia

Uruguay

Mexico

Costa Rica

Panama

Jamaica

USA (Tier II)

Canada

21

54

48

53

40

41

40

40

50

22

20

7.80

5.80

6.40

n/a

6.10

5.90

6.85

6.35

5.85

7.90

8.10

Source: Doing Business 2007, World Bank; International Labour Organization

Source: Economist Intelligence Unit, AON, A.T. Kearney analysis


Figure 6.21Quality of life and safety indicators*

Safety index(1 = very bad, 5 = very good, 2005)

Quality of life(Indexed, 100 = New York, 2005)

Chile

Argentina

Brazil

Colombia

Uruguay

Mexico

Costa Rica

Panama

Jamaica

USA (Tier II)

Canada

85

86

76

63

87

81

77

82

n/a

100

100

5

2 – 3

1 – 3

1 – 3

3 – 4

1 – 5

4

3 – 4

n/a

5

5

0 1 2 3 4 5

*Data represents average of top cities in each countrySource: America Economía

Quality of LifeBeyond its economic and political attributes,Chile is considered to have a high quality of lifeand an outstanding safety index for the region(see figure 6.21). This is an especially importantfactor for multinational companies and interna-tional vendors who want to send expatriates to adesirable offshore location.

Overall Business Environment RankingCombining all of the above metrics, it is not sur-prising that Chile scores high on business envi-ronment (see figure 6.22). Chile is the highest

ranked country in Latin America and is in thetop third of the Index worldwide.

Overall Regional RankingCombining all three of the GSLI categories:financial, people skills, and business environ-ment metrics, Chile ranks 7th overall in theGlobal Services Location Index, 2nd in LatinAmerica, and the 1st Spanish-speaking countryglobally. Brazil, along with five countries in Asia,rank above Chile. In 2006, Brazil edged outChile overall due to its high people score—duelargely to Brazil’s larger population—and


Figure 6.22Business environment relative rankingsIndex rankings, 2007

Canada

USA (Tier II)

Chile

Mexico

Uruguay

Jamaica

Brazil

Panama

Costa Rica

Argentina

4.4 1.8

1.9

1.6

1.2

1.4

1.3

1.3

1.3

0.9

0.4

0.5

1.0

0.9

1.3

4.4

4.1

3.3

2.9

2.4

2.9

2.6

2.7

2.3

Economic/political environment

Infrastructure Quality

Cultural exposure

IP Security

0.6

0.80.6

0.4

0.4

0.60.3

0.3

0.20.4

0.40.3

0.50.4

0.30.3

Figure 6.23Global Services Location Index Americas, 2007

Brazil

Chile

Mexico

USA (Tier II)

Uruguay

Argentina

Jamaica

Canada

Costa Rica

Panama

2.7 1.51.8

1.2

1.5

2.7

1.0

1.3

1.0

0.9

1.9

1.6

2.3

1.5

1.3

1.5

1.4

2.32.1

0.8

2.6

2.7

0.5

3.0

2.9

2.8

3.0

0.8

2.9

Financial

People

Environment

1.4



improved metrics on its business environment(see figure 6.23). Scores for financial metrics arecomparable between the two countries, althoughChile still has a sizeable advantage in terms ofbusiness environment.

7. Conclusion: Chile as aGlobal Services Platform

In recent years, we have witnessed a growing inter-est among multinational companies to combine

operations worldwide and expand their globalfootprints to include Latin America. Hence, topcountries in the region have a unique opportunityto expand their service exports platforms.

Chile, a top choice in Latin America, appearsto be ready to take the next step toward finally

achieving the potential for which it has longprepared. It is a clear leader within Latin Americato accomplish what no major economy in theregion has so far accomplished: longstandingeconomic and political stability. In addition to


presenting an attractive cost arbitrage pictureagainst the United States and Europe, Chile alsooffers a world class infrastructure that allows anytechnology-enabled service provider to setupoperations there. And perhaps more important,it has gained the confidence of internationalgoverning boards and academics as a countrywith the stability and environment comparableto its more economically developed peers. Inaddition, Chile could leverage the trade agree-ments it has secured with the world’s largesteconomies to flourish on service exports as it hason goods.

The Chilean government continues to workon making Chile more attractive. It is investingin expanding its English-skilled labor pool toenable the country to offer scalable operationsthat can serve regions beyond Latin America. Itis tailoring its intellectual property laws andenforcement mechanisms to further attractR&D activities of key players in hot industriessuch as pharmaceuticals, biotechnology andinformation technology.

The next three years will determine whichLatin American countries have been most suc-cessful in becoming service export platforms. Ata faster pace than in previous years, local andforeign suppliers will continue to expandthroughout Latin America. Large multinationalswill continue looking for locations in LatinAmerica that are best suited to be hubs for theirregional operations and serve as platforms forregional shared services. Chile, will most cer-tainly be a key contender.

Appendix: Overview ofAlternative Countries

Where to LocateGrowing competition among countries, regionsand cities is encouraging many to take a hardlook at all the offshore alternatives. Companieshave to consider costs, language capabilities, edu-cational systems, infrastructure and other funda-mental drivers of competitiveness. With morecompetition among countries this ultimatelyraises productivity and prosperity in all locations.And it means that companies are all the morelikely to find the ideal solution for each one oftheir functional needs, somewhere in the world.

Deciding where to locate operations is acomplex task that requires determining whichcountries are best equipped to meet a company’sspecific needs. As the range of options continuesto expand, companies must deal with an ever-wider variety of locations with diverse profilesand capabilities. At the same time, it becomesboth harder and more important to make aninformed decision on location options. Theopportunities to leverage new talent pools so toimprove business performance have never beengreater. At the same time, concerns over attri-tion, wage inflation, fraud and labor shortages,particularly in the most popular locations, illus-trate that no location is perfect. In the same loca-tions where some have prospered, others havebeen disappointed.

1. Argentina Ever since the deep crisis that engulfed Argentinain 2001 the country’s GDP has been growing atmore than 8 percent per year, on average. Aidedby a sustainable exchange rate of $3 Argentine


pesos per U.S. dollar since early 2002 and gov-ernment-controlled inflation, the country issuddenly in a position to compete for export ser-vices. If these conditions persist, Argentina isexpected to experience the highest growth ratefrom 2004-2009 in call center volume in LatinAmerica, given the large arbitrage the countryprovides. However, the risk of inflation ringslarge in Argentina, given the fact that salarieshave been increasing in the past two years andthat all indications point to salaries continuingto rise in the coming years.

Today, a number of Argentina’s largest cap-tive centers have moved beyond offering call cen-ter services to offer additional BPO services,including translations, collections and order ful-fillment. For example, IBM’s state of the artTechnological Campus in the Province ofBuenos Aires is a six-acre facility that providesdata, BPO, contact, imaging, and integrated ITsolutions to customers in the United States andother regions. Exxon has also built significantcapabilities to serve its internal back-office needsaround HR and F&A.

The country has been able to capitalize on itslarge English-speaking population, concentratedmostly in Buenos Aires and Cordoba, thanks toa creative agreement between the government,some key universities, and a couple of large con-tact centers. The country still enjoys the highestrate of annual enrollment for tertiary educationin the region (56 percent). Promoted by the gov-ernment’s Investment Promotion Agency, someof Argentina’s largest universities offer anexchange program for flexible employment.

Argentina’s ever-changing political landscapeis a deterrent to investors who prefer a more pre-dictable and stable environment, a quality that is

difficult to guarantee in the medium to longterm. But, as most political analysts agree, thecurrent president has a strong chance of winninghis second term in 2007, and most likely willcontinue with the current monetary policy,maintaining the current exchange rate thatmakes goods and services affordable to mostdeveloped markets. Further, ADI, Argentina’sInvestment Development agency, is offering fis-cal benefits to promote foreign investment, whilemore incentives for service exports are expectedto fully endorse the trend. Notwithstanding,experts agree that there is still a long road ahead.

2. Brazil Brazil, the largest economy in Latin America, isalready a mature service market, where con-sumers and companies are not only used to hav-ing access to customer-care services, but alsoaccustomed to high quality service. A prominentexample of industry maturity is InformationTechnology. Brazil has proven to host some ofthe world’s most competitive IT shops, and isbecoming a world player in the ITO arena. Largeand achieved Brazil-based ITO players likePolitec, Stefanini, Datasul, DBA, CPM, Itautec,Promon and Tivit are of equal size to many keyinternational competitors and are expandingtheir capabilities beyond Brazil with evidencedsuccesses. The recent formation of Brasscom,Brazilian Association of Software and ServiceExport Companies, is in fact an initiative thatconfirms Brazil’s (both public and private sec-tors) strategic intent to play more aggressivelythe offshoring game. A recent study by A.T.Kearney assisted Brasscom in setting up theagenda to make Brazil a key player on the globaloffshoring arena in the coming years, mainly


capitalizing on its large size and its established,sophisticated market.

Brazil also has the largest call center industryin Latin America, but it is not yet a strong com-petitor for operations in English and Spanish,nor for English BPO—mainly due to languagebarriers predominant in lower paying jobs, rigidlabor laws and strong focus on domestic market.Although Portuguese language services areworld-class, its largest contact centers requireseveral months to recruit and train even a smallpool of English-speaking agents. Brazil’s largesize, however, can still keep its local call centersbusy and growing with domestic work, thoughvendors are starting to knock doors outsideBrazil more aggressively.

Brazil is in a good position to leverage itscompetitive advantage in IT outsourcing andfurther develop its BPO offerings. With a largepopulation and strong technical skills, particu-larly in the IT, engineering, financial and phar-maceutical sectors, Brazil scores well in the peo-ple skills category of A.T. Kearney’s GlobalServices Location Index. Increasing graduationrates and company quality certification rates willfurther bolster these ratings. Already, large num-bers of multinationals, including IBM, HSBC,GM, and Nestlé have taken advantage of thesequalities and established major global IT and/orshared services centers in Brazil. Notably, mosthave opted for captive centers, highlighting thatBrazil has vast potential to further develop itsBPO supply base.

Sao Paulo presents the best potential for off-shoring services given the higher cultural diversityand foreign language potential. Issues related tosafety in Sao Paulo and Rio de Janeiro are as sim-ilar as some other big cities in emerging countries.

Taking the benefit of Brazil's geographic extensionthere are cities (mainly in the south and northeastof Brazil) also locations worth evaluating.

Finally, Brazil still suffers from one of themost rigid labor markets in the world, heavybureaucracy, and slow implementation of public-private partnerships needed to address infrastruc-ture bottlenecks. Still, most believe that Brazil isin a unique position to increase the export of ser-vices in the industries in which it has masteredpractices, such as IT and Call Centers, as well asincreasing the number of already successfulshared services centers.

3. Canada The geographic and cultural proximity to theUnited States was not strong enough to stopCanada’s slip to the 36th place in this year’sIndex. Canada’s currency appreciation graduallyeroded the labor arbitrage that existed in previ-ous years. Today, labor costs are comparable toU.S. levels. Still, Canada presents the advantagesof being a near-shore location for U.S. compa-nies, having similar time zones and a sound reg-ulatory environment. The Canadian IT industryemploys 500,000 people, mainly in Ontario andQuebec. Remote locations in the AtlanticProvinces and the Western Plains still presentlower compensation and real estate costs. Inaddition, local governments offer tax incentivesto attract companies to areas with high unem-ployment. Nova Scotia has seen the call-centerindustry blossom, as have cities such asEdmonton and Calgary, but now these cities arefacing tough competition from Central andSouth America, as well as the Philippines. Themain threat to the Canadian offshoring industrycontinues to be the exchange rate risk: as we


observed in 2006, when the Canadian dollarappreciates against the U.S. dollar, cost savingsquickly evaporate. In spite of this, Canada andIreland continue to export IT and other businessservices as much or more than India or any of theother emerging offshore locations.

4. ColombiaDespite its poor reputation stemming from drugfinanced guerrillas in the 1990s, Colombia stillattracts some investors and is betting on fully cap-italizing on the neutral Spanish of its centralregion. Colombia has recently experienced growthin its contact center industry, with large interna-tional and domestic firms, such as Atento, Siteland Contact Center Americas, establishing opera-tions in the country. Average size of these firms is2000 agent positions (APs), making Colombia aconsiderable player in this field. Bogotá is a largemetropolis with a healthy pool of young Englishspeakers. Some Colombian service providers haveseen demand for sophisticated services—such asmedical and legal advice—and a growing numberof young IT professionals are in demand by themain ITO firms in the country.

When it comes to labor costs, Colombia canprove to be an attractive location when comparedto other Latin American countries. For example,the annual salary for a call center agent is esti-mated at US$8,000, comparable to Argentina’s.Despite all these factors, Colombia has not yetbeen able to attract as many multinational com-panies as other countries in Latin America, themain reason being the negative publicity thecountry has received for a number of years aboutdrug cartels and guerrillas operating there. Eventhough these cartels do not represent a threat tothose living in urban areas such as Bogotá, U.S.

multinational companies are still reluctant toestablish operations in Colombia, apprehensiveabout jeopardizing the safety of potential expats.But outsourcing to Colombia does not necessari-ly mean sending expatriates there—although thesupply base still needs to develop. In fact, crimerates in Bogotá are below São Paulo’s and MexicoCity’s. As the market is still developing, thosewilling to make a move to Colombia might ben-efit from an early mover competitive advantage.

5. Costa RicaA small country with a population of only 4million, Costa Rica has become an importantlocation for nearshoring from the United States,especially for call centers and shared servicescenters. Geographically well situated in CentralAmerica and between the two oceans, CostaRica can be reached more easily from most U.S.hubs in less time and cost than its SouthAmerican counterparts.

Costa Rica has a small but skilled workforce.Its social democracy has instilled many socialpolicies, such as universal public education,health care, and a pension system. The adult lit-eracy rate is 95.7 percent and the human devel-opment index is 83.2. A majority of the popula-tion lives in urban environments and the largestcity in Costa Rica is San Jose. However, the pres-ence of multinational companies, which employa majority of the country’s available workforce,could deter companies that do not want to com-pete for scarce resources, especially whererenowned multinationals are well established andtend to attract not only the best and brightestbut also the general workforce.

Several success stories can be told about thisprime nearshore location. In 1997, Intel estab-

lished a large chip manufacturing plant in SanJose that sparked the nearshoring expansion.Another remarkable operation that captured theattention of outsourcers worldwide was the firstcaptive set up of P&G’s Finance, Accounting,HR and IT back office, and the subsequent suc-cessful spin-off to HP and IBM of several ofthese functions. By 2003, 65% of Costa Rica'sGDP was composed of services, which includecaptive and outsourcing call centers, captiveshared services centers and BPO providers.Notable examples are: Sykes, Qualfon andPeople Support, as call center providers; SupraTelecom, Fujitsu, UPS, People Soft, and WesternUnion, as captive call centers; P&G, Maersk,Chiquita Brands, Equifax, Dole, and DakotaImaging, as captive shared services centers.

Today, large multinational BPO service pro-viders—such as IBM and HP—are expandingtheir operations for Latin America and the UnitedStates using their hubs in Costa Rica as platforms.

6. JamaicaJamaica and the other English-speaking islands ofthe Caribbean have also enjoyed increasing successas contact center locations that serve U.S. andU.K. markets. A significant drawback has been theislands’ aging telecom and electricity infrastruc-tures. However, plans for additional fiber opticconnections to North America are in the worksand multinational utility companies are investingin the power network. However, Jamaica’s limitedconsumer base and labor pool, and lack of Spanishskills make it a less attractive destination thanmany of its Latin American peers.

7. MexicoMexico, the second largest economy in Latin

America, has the second largest call center indus-try in the region—accounting for roughly 25%of the total agent positions (APs) in LatinAmerica—and an enviable track record in BPOin the northern states. Companies of the likes ofGenpact and ACS have significant BPO opera-tions in northern states that serve the UnitedStates, while Softtek and Neoris are growingplayers in ITO that also started in the north.Mexico’s proximity to the US, together with itslow-cost pool of workers, has increased the inter-est of U.S.-based firms to near-shore theirSpanish (and in several cases English) operationsto Mexico in recent years.

Mexico’s economy has proven to be stableover the past eight years, with low inflation rates,sustainable GDP growth and overall strength.Despite the political tension during the 2006presidential elections, Mexico will likely contin-ue with this positive trend given its proximity tothe US market and its developed global servicemarkets.

Mexico’s call-center market is expected to seea 13% compounded annual growth rate from2004-2009, signaling a strong position to attractfurther offshore work, beyond call centers. Infact, Mexico presents one of the most developedBPO markets in the region with over 3,000 out-sourced work stations dedicated to Finance andAccounting for the US market. In terms of ITservice offerings, Mexico still lags when com-pared to India, as these services tend to be moreexpensive, specialized, and scarce.

Government support to investors is struc-tured by state, which has been beneficial to someinvestors, as different states compete for invest-ment and are willing to disburse large sums tosubsidize capital expenditures. The Mexican


Government recognizes that the approach, how-ever, has been disorganized and that regulatoryframeworks are deficient. As a result, the govern-ment, advised by the World Bank, A.T. Kearneyand other economic development agencies, isactively working on improving Mexico’s attrac-tiveness as and ITO/BPO platform. If well lever-aged, the country’s appealing location, relativestability, English skills and specialized laboravailability may attract significant volume of ser-vices in the near future.

8. PanamaPanama is seeking to build on its relative stabilityand reputation as a financial center. It is usingsome of its former U.S. military facilities tobecome another location for shared services serv-ing the U.S. market. Dell, for example, is run-ning a 1,000-seat call center on the grounds of aformer U.S. Air Force base. Still, low rental costsand wages are partially offset by high telecomand energy costs and relatively rigid labor laws.

9. United States (Tier II locations)From call centers in the “accent-neutral” plainsto revitalization efforts in the inner cities, to ITand financial centers in the Sunbelt, the UnitedStates continues to be a preferred location formany remote services activities. Many functionscontinue to move to areas where traditionalmanufacturing and resource-based industrieshave declined—where the labor supply is abun-dant and relatively affordable. Others have takenonshoring a step further by adopting “home-shoring,” a concept in which employees connectto company networks but work from theirhomes, responding to customer needs, transcrib-ing medical notes, or performing other adminis-

trative tasks. This virtual service center approachreduces real estate and other fixed costs.

Applying the weightings used in the GlobalServices Location Index, U.S. second-tier cities(such as San Antonio, Texas) still rank 21st inthis year’s Index, ahead of well-known offshorelocations such Poland and Ireland. This is due toa high-quality skill base, strong infrastructureand positive business environment. But the costdisadvantage was the main cause for the slipfrom 11th to 21st place. The United States alsotops the people skills and availability componentof the Index. And for functions that require cer-tain domain knowledge, accent or cultural famil-iarity, U.S. regions will remain a top choice.

10. UruguayNew to the Index, Uruguay ranked 22nd in theworld, ahead of key players such as Argentina,Canada and Costa Rica. Uruguay has beenattracting the attention of foreign investorsmainly due to its stable economic and politicalenvironment, and highly educated but low-costworkforce. Attracted by its strong financial sec-tor, companies such as TCS have settled inUruguay and plan to offer high-end analytics toinvestment banks in the United States, in addi-tion to the technology offerings. Certain ameni-ties—such as Zonamerica business and technol-ogy park—are attracting companies in the callcenter and BPO markets. Still, given its sizelimitations, international companies prefer smalloperations for their higher-end services. Still,given Uruguay’s labor pool limitations—the totalpopulation of the country is only 3.4 million andprojects low population growth rates—interna-tional players have so far only sought small oper-ations for higher-end services.


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Exploring Chile as a Global Services Platform

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