Posted on 11 May 2011.
This Latin American country is becoming a great outsourcing destination. Here’s why…
Colombia: “The only risk is the risk of staying”
If you’ve recently seen CNN news in English or “Español”, or you’ve flown to Colombia, that`s probably a TV advertising tagline that you’ve already seen. It’s part of an effective strategy the Colombian government is promoting the nation worldwide, to help people realize how the country has changed. And it has.
Colombia is a hot dynamic economy, so hot that back in 2007 the cover of BusinessWeek magazine labeled this South American nation as one of the “Most Extreme” markets on Earth1.
Last year Michael Geoghegan, former CEO of HSBC, in his speech to the American Chamber of Commerce in Hong Kong, said: “The new BRICs are Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa (CIVETS). They are countries with major populations, dynamic, diverse economies, political stability and each of them has a brilliant future. Any company with global ambitions will have to take immediate action in these markets.”
Colombia is the only Latin America country in that CIVETS new club — a club with great economic potential (see graph below).
Last September, the cover of The Economist magazine depicted a map of the Latin America region “down-up” with this provocative title: “Nobody’s backyard, The rise of Latin America”. According to the article “marketing people are beginning to talk about a “Latin American decade”.
If the region can keep up the growth of the past few years, it will double its income per person by 2025, to an average of $22,000 a year at purchasing – power parity, Half a dozen Latin American countries may have achieved developed-country status, with an income equivalent to Spain´s today.
By the end of the first 10 years of the new millennium, Colombia´s GDP per capita head has doubled, actually almost tripled, annual Foreign Direct Investment net inflows have multiplied by four and Colombian exports have tripled. This great economic progress has made a social impact as well. Colombia poverty rate was reduced from 53 percent to 30.4 percent and Affiliates to health services grew from almost 24 million to more than 41 million.
During the same period, international visitors to Colombia doubled. While tourism in the world fell 4 percent, in Colombia it increased 10.2 percent in 2009, of which 23 percent are U.S. citizens (see table below).
COLOMBIA: MAIN INDICATORS
When it comes to outsourcing, Colombia also is enhancing its role in the Latin America Region and the outsourcing world. The country offers business opportunities and the chance to share success stories to the global business community.
Key multinational companies have chosen Colombia as their country of choice to set up BPO and IT services operations. IBM, Citi, SAP, Unisys, Sutherland, Teleperformance, Siemens, Sitel, Microsoft, General Electric, Avanza, Terremark, Convergys, and Indra are but a few. Genpact is going to open operations on the second semester of 2011.And even with its existing presence in Colombia, HP chose the country to develop one of its New Global Service Centers, designed to operate as the hub of multi-functional operations such as technology, business office and sales support in Medellin.
Colombia is now part of 2011 Gartner`s “30 Leading Locations for Offshore Services”. This indicates the progress the country is making, as well as the challenges ahead to stay on the list.
Different factors help Colombia serve as an attractive destination for outsourcing. A Public – Private Partnership to strengthen and build the BPO&IT “world class sectors”. For instance, the Chamber of BPO&IT at ANDI ( National Business Association of Colombia) leads the creation of the Colombia IAOP Chapter. The Chamber is co-organizing with IAOP and the support of the Proexport the Latin America Outsourcing Summit in Cartagena, May 26&27.
Geographic location with multiple direct daily flights to major cities in the U.S. and other parts of Latin America, including a time zone shared with the U.S. east coast, are drivers.
Human talent and scalability are important, too. According to the IMD World Competitiveness report, Colombia has the second most qualified labor available in the region and offers the best quality education in science and mathematics. It also has the best Labor Market Flexibility Index in Latin America and, according to the World Bank, it is the third most “Business Friendly” country in Latin America and top reformer in the region. It also ranked among the top countries for investor protection.
Moreover, Colombia’s credit rating recently was boosted to investment grade by Standard & Poor’s. The increase puts Colombia’s rating in line with that of Brazil and Peru. S&P’s decision will attract a new class of investors to Colombia, lowering government borrowing costs, spurring investment and supporting economic growth in Latin America’s fourth-largest petroleum producer.
In addition to this, the country offers an export platform: 11 free trade agreements (FTA) with 48 countries allowing preferential access to over 1,500 million consumers. In 2011, Colombia will negotiate 18 international investment agreements (IIA) and 16 double taxation agreements (DTA).
The country now offers great incentives to promote industry, such as a 125 percent income tax deduction for investments in scientific and technological developments and a 200 percent income tax deduction for salaries and social benefits paid to handicapped employees. It also offers one of the most competitive Free Trade Zones (FTZ) in Latin America, with a 15 percent income tax and a VAT exemption for goods sold from Colombia to the FTZ, among other benefits. Colombia currently has 91 Free Trade Zones.
Colombia offers scale and alternatives. With major cities such as Bogota, Medellin, Cali, Barranquilla, Ibague, Bucaramanga, Manizales and Pereira, multiple options are available for buyers and suppliers. Thirty cities have a population of 100,000 or more and Bogota produces 67,000 graduates every year, of which, 17,000 are technical graduates. Some of these cities are part of the 600 cities a recent report made by The McKinsey Institute identified that will contribute half of the world’s economic growth by 2025. At present, the combined workforce of IT and BPO industry in Bogota exceeds 50,000.
So, it’s not just an advertising slogan. Colombia truly is a great outsourcing destination and the only risk is the risk of staying.