Oct. 06 ’07: Instead of grooving to Saturday night fever, Costa Rica was eagerly waiting for the results of the country’s first-ever referendum on Central America Free Trade Agreement (CAFTA) with the U.S.A. to be announced the next day. And by the end of the day on Sunday, President Oscar Arias declared the fate of the $21.5 billion Costa Rican economy. The result of the referendum showed that the majority is in the favor of CAFTA.
Of the Central American countries — El Salvador, Guatemala, Honduras, Nicaragua and the Dominican Republic — Costa Rica is the only one that had a long discussion on this agreement, with the others having agreed to the terms over the last two years. The agreement is expected to eliminate almost all trade barriers, such as tariffs and quotas, between the U.S.A. and the Central American countries over the next 10 years.
“This agreement will create a host of opportunities for [IT services] providers like us,” says John T. Rose, President and CEO, Fujitsu Consulting, an IT-consulting and integration arm of $43.2 billion worth Fujitsu, with 800 employees in its Costa Rica center. “Economies actually go into transformations when they accept free trade and such positive transformation is always good news for the business community,” adds Ron Mitchell, EVP, Marketing and Communications, Fujitsu Consulting.
“There are pockets of capabilities being developed, which may emerge in the next 5 years as different countries attempt to focus on being competitive not just on BPO but also on the ITO front.” - Kyle Moody, Managing Consultant, IT Consulting Practice, PA Consulting Group
IT Versus BPO
CAFTA is just one example that reflects the growing internationalization of the Central American countries. In fact, most of Latin America, being led by Brazil, Mexico and Costa Rica, is fast on the track to servicing the world through contact centers, and more recently by offering IT services such as application development and maintenance, testing, IT infrastructure, support and consulting, and system integration.
Interestingly, the government of Brazil has set itself an ambitious goal: To export IT services worth $10 billion by 2010. Meanwhile, in an attempt to attract international IT companies, Mexico has reduced corporate tax from 33 to 30 percent, which is expected to fall to 28 percent by early 2008, according to Gartner.
“There are pockets of capabilities being developed, which may emerge on the horizon over the next five years as different countries attempt to focus on being competitive not just on the BPO front but also on the more lucrative IT Outsourcing (ITO) services, including applications development and maintenance,” says Kyle Moody, Managing Consultant, IT Consulting Practice, PA Consulting Group.
Most of these countries are developing strong associations of IT companies, and are trying to lobby for flexible regulations, tax exemptions, funding and support on education and infrastructure. Brazil has Brasscom while Mexico has Mexico IT, and Costa Rica has CINDE.
| CHILE |
| Grads: 65,000 |
| Tech grads: 14,482 |
| Lang.s supported (call centers): English, Portuguese, Spanish |
| *Emerging outsourcing cities: Santiago |
IT providers: Accenture,
Atos Origin, EDS, IBM, Microsoft, Oracle, SAP, Sun Microsystems, TCS |
| Call centers in 2008: 38,000 |
| Call-center agents in 2008: 1,048 |
Chile, too, is catching up. Corporación de Fomento de la Producción (CORFO), an economic development agency, though set up six years ago, had lain low; but it is now becoming fairly active. One of the agency’s key programs is to develop the local IT-service industry by implementing programs to take care of regulations and IT education; to enable ISO and CMM certifications for IT service providers; to enable local companies to export and look for foreign companies to develop joint ventures; to set up a co-funding program and tax exemptions (35 percent) for R&D centers.
“Chilean growth is expected to come from the export of technological services, such as software development and maintenance, aimed at the U.S.A. and European markets,” says Raul Ciudad, President, The Chilean Association of Information Technology Companies (ACTI). “It has been estimated that Chile’s outsourcing sector could reach $5 billion in exports within the next five to eight years. To do this, about 100,000 new jobs should be generated.”
