Business Process Outsourcing Latin America Scorecard by lqz95924

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									              Business Process Outsourcing
                         Latin America Scorecard


    Inter-American Development Bank
     With Columbia University’s School of International and Public Affairs




May 2010
This report was prepared by the following graduate students at Columbia University’s School of
International and Public Affairs under the supervision of Professor Merit E. Janow:



Darcie D’Augusta                                    Alex Giron
Master of International Affairs, Class of 2010      Master of International Affairs, Class of 2010
International Finance and Economic Policy           International Finance and Economic Policy
Columbia University                                 Columbia University
Email: dld2127@columbia.edu                         Email: ag2803@columbia.edu

Vladimir Glasinovic                                 John Hreno
Master of International Affairs, Class of 2011      Master of Public Administration, Class of 2011
Economic and Political Development                  Economic and Political Development
Columbia University                                 Columbia University
Email: vng2103@columbia.edu                         Email: jah2198@columbia.edu

Diane Marciniak                                     Constance Spearnak
Master of International Affairs, Class of 2011      Master of International Affairs, Class of 2011
Economic and Political Development                  International Finance & Economic Policy
Columbia University                                 Columbia University
Email: djm2179@columbia.edu                         Email: cds2136@columbia.edu

Alejandro Zamorano-Cadavid
Master of International Affairs, Class of 2010
International Energy Management & Policy
Columbia University
Email: az2211@columbia.edu




                BPO Latin America Scorecard        2     Inter-American Development Bank
Table of Contents
Industry Abbreviations.................................................................................................................................. 4
Glossary of Industry Terms ........................................................................................................................... 5

Executive Summary.............................................................................................................................................. 7
Introduction and Background ....................................................................................................................... 12
Context ........................................................................................................................................................ 12
Industry Overview ....................................................................................................................................... 12
Scope and Objective ................................................................................................................................... 13

Methodology ........................................................................................................................................................ 15
Key drivers for Latin America ....................................................................................................................... 28
Macroeconomic Stability ............................................................................................................................ 29
Physical and Technological Infrastructure .................................................................................................. 32
Legal and Business Environment ................................................................................................................ 36
Investment Ease and Incentives ................................................................................................................. 41
Operating Costs........................................................................................................................................... 44
Human Capital............................................................................................................................................. 47

Regional Conclusion .......................................................................................................................................... 50
Argentina..................................................................................................................................................... 54
Brazil............................................................................................................................................................ 56
Chile ............................................................................................................................................................ 58
Colombia ..................................................................................................................................................... 61
Dominican Republic .................................................................................................................................... 66
Ecuador ....................................................................................................................................................... 69
El Salvador ................................................................................................................................................... 72
Honduras ..................................................................................................................................................... 74
Mexico......................................................................................................................................................... 76
Peru ............................................................................................................................................................. 80
Uruguay ....................................................................................................................................................... 82
Venezuela.................................................................................................................................................... 84

Appendix ............................................................................................................................................................... 87
Bibliography....................................................................................................................................................... 125




                          BPO Latin America Scorecard                                3         Inter-American Development Bank
Industry Abbreviations
BPO   Business Process Outsourcing

FDI   Foreign Direct Investment

IDB   Inter-American Development Bank

ITO   Information Technology Outsourcing

KPO   Knowledge Process Outsourcing

LAC   Latin America and the Caribbean

O/O   Offshoring and Outsourcing




             BPO Latin America Scorecard   4   Inter-American Development Bank
Glossary of Industry Terms
Contact Center refers to a company phone center or customer service center that provides outsourced
services such us help desk, customer support, technical support, lead generation, emergency response,
telephone answering services, inbound response and outbound telemarketing.

Finance & Accounting encompasses a broad range of services that deal with the management of money.
Organizations outsourcing services in this industry include banks, credit card companies, insurance
companies, consumer finance companies, stock brokerages, investment funds and some government
sponsored enterprises. Outsourced services in these organizations are of a wide range and include
services such as accounts payable/receivable, compliance management, customer service, financial
reporting, risk management, general accounting, procurement, investor relations, payroll, tax
management, fund management, and financial analytics.

Human Resources refers to services in the department and support systems responsible for personnel
sourcing and hiring, applicant tracking, skills development and tracking, and compliance with associated
government regulations. Service Providers provide a range of HR services, such as the delivery of
training and development, internal and external recruitment, performance management, health and
safety and occupational health.

Outsourcing refers to the practice of subcontracting business processes by an organization to a
specialized third-party service provider. This is done in order to optimize cost, free resources and
improve operations for the outsourced processes. It further helps the client organization to concentrate
on its core competencies and optimize business process operations.

Offshoring refers to the relocation of a business process by an organization from one country to another
to derive the benefits of cost arbitrage, availability of talent pool and delivery capabilities of the offshore
nation.




                 BPO Latin America Scorecard           5     Inter-American Development Bank
BPO Latin America Scorecard   6   Inter-American Development Bank
Executive Summary

The outsourcing/offshoring industry (O/O) is becoming one of the most significant drivers of trade and
foreign direct investment (FDI) in Latin America and the Caribbean (LAC), representing a significant
opportunity for job creation, technological spillovers, innovation, and export diversification in the
region. Business Process Outsourcing (BPO), specifically, is one of the fastest growing sectors of O/O and
one in which LAC may have an advantage for attracting investors from US companies. The purpose of
this scorecard is to present a common and comprehensive framework to assess and compare the
political, economic, and social advantages for the provision of BPO services in LAC countries.

Fourteen countries are assessed, scored, and then ranked against each other using a series of key
indicators with a specific focus on measurements pertaining to BPO services. The six key indicators are
Macroeconomic Stability, Physical and Technological Infrastructure, Legal and Business Environment,
Investment Ease and Incentives, Operating Costs, and Human Capital.

The group of 14 LAC countries had a very small
range in the overall scores, with the lowest score                LAC Scorecard Rankings
being 2.77 (Venezuela) and the highest score              Rank     Overall   Country
being 4.30 (Chile). According to the scoring scale,        1        4.30     Chile
this equates to a range of “Poor”/”Fair” through
                                                           2        3.95     Mexico
“Good” for overall scores. Twelve of the countries
were in the 3-4 or “Fair” range. Based on this             3        3.85     Panama
analysis, the region as a whole must make                  4        3.80     Uruguay
improvements before BPO investors will seriously           5        3.80     Argentina
consider LAC as a major destination.
                                                       6       3.77      Costa Rica
Delving further into the data, Macroeconomic           7       3.64      Peru
Stability and Legal and Business Environment are
                                                       8       3.63      Colombia
the indicators where the region consistently does
not score well, with no countries scoring above        9       3.63      Brazil
the “Fair” range in the former and only one           10       3.63      El Salvador
country – Chile – scoring above “Fair” in the         11       3.38      Ecuador
latter. The recent history of the region as well as
the continued income inequality and rising            12       3.29      Honduras
unemployment not only affect the scores for           13       3.26      Dominican Republic
Macroeconomic Stability, but also affect the          14       2.77      Venezuela, RB
sentiment and perspective with which investors Table 1: Overall Rankings
will be viewing the region. The low scores in Legal
and Business Environment are largely the result of a lack of confidence in the government’s ability to
enforce the rule of law and the large number of inefficiencies, perceived and actual, of operating a
business in the region. Although a legitimate argument can be made that the region is on the way to
improving these areas of concern, the progress must be proven before the lower ranking countries will
be targeted for BPO services.




                BPO Latin America Scorecard           7        Inter-American Development Bank
        This situation is similar for the region in regard to the Physical and Technological Infrastructure
        indicator. The turmoil and lack of infrastructure development in recent history has proved detrimental
        to many country scores for this indicator. A few countries scored in the “Good” range, including
        Argentina, Chile, and Panama, and appear to have turned the corner in regard to their overall
        infrastructure. But, as a whole, the region’s lack of energy reliability and a stable technological industry
        is discouraging to investors without proven investment and policy changes.

        The only indicator that shows as a clear strength for the region is Operating Costs, where the range is
        3.57 to 5.25 or “Fair” to “Very Good.” Although in recent years there has been a shift from focusing
        exclusively on costs to incorporating quality and contribution to improving processes when considering
        O/O sites, costs are still an important factor. In addition, some countries in the region have already
        taken the initiative to improve additional cost incentives for investment, as is evidenced by the higher
        scores achieved in the Investment Ease and Incentives indicator by El Salvador (4.80), Panama (4.69),
        and Chile (4.51).

        Human Capital is an area where LAC has a significant potential advantage. The region, in general, has
        higher education standards than many emerging markets, though the region also does not have a
        specific niche of educational quality. In some countries, such as China and India, many curriculums and
        schools are based on targeted industries that the country is attracting or has already attracted. This cuts
        down on training and improves the labor force’s industry-specific skills. While LAC does not have this
        type of targeted education, the general quality and higher enrollment rates equate to a labor force that
        has the skills for basic BPO jobs. Emphasizing this factor and improving education in services-related
        skills or technical skills will greatly improve prospects of attracting BPO investors. A skilled labor force
        combined with low operating costs and investment incentives equate to a very strong argument for
        investors.

                                                       Overall Scorecard
                                                         Physical and       Legal and    Investment
                                       Macroeconomic                                                   Operating       Human
                             Overall                    Technological        Business      Ease and
                                          Stability                                                      Costs         Capital
                                                        Infrastructure     Environment    Incentives
Argentina                     3.80         3.29              4.24             3.30          2.99          4.51          4.74
Brazil                        3.63         3.40              3.47             2.95          3.54          3.91          4.43
Chile                         4.30         3.86              4.25             4.40          4.51          4.71          4.06
Colombia                      3.63         3.46              2.59             3.34          3.74          4.62          3.74
Costa Rica                    3.77         3.03              2.94             3.95          3.99          4.55          3.74
Dominican Republic            3.26         2.89              2.31             3.14          3.15          5.25          2.74
Ecuador                       3.38         2.57              3.36             3.07          3.31          5.00          3.16
El Salvador                   3.63         3.10              3.47             3.62          4.80          4.32          2.42
Honduras                      3.29         3.11              2.66             3.22          4.00          4.16          2.46
Mexico                        3.95         3.46              3.41             3.66          3.60          5.11          4.38
Panama                        3.85         3.07              4.02             3.65          4.69          4.52          3.21
Peru                          3.64         3.14              2.93             3.33          3.56          5.09          3.69
Uruguay                       3.80         2.83              3.38             3.86          4.02          4.53          3.93
Venezuela, RB                 2.77         2.45              3.14             2.55          1.43          3.57          3.80
Table 2: Overall Scorecard




                             BPO Latin America Scorecard       8    Inter-American Development Bank
 This scorecard is primarily concerned with indicators that would assist in comparing countries within
 the region. Therefore, any elements outside this scope were excluded. When analyzing the region as
 a whole, the proximity to the US, time-zones, and Spanish skills are all valuable assets for LAC. These
 factors make the region particularly attractive for BPO services that intend to accommodate the
 growing Hispanic community in the US. In addition, the western US, where the population of
 Hispanics in the US is greatest, tends to be the hardest time-zone to staff for in other O/O
 destinations. LAC overcomes this problem by being in the same or a similar time-zone which
 prevents any depletion of the available labor force that might happen by requiring odd working
 hours. Therefore, given that all LAC countries share these positive attributes, they were not used as
 a measure of comparison.


Countries achieving top scores in the region scored consistently well across all indicators. Chile is the
only country scoring in the “Good” range and is separated from the next highest country by 0.35. This is
a result of Chile’s “Good” scores across all indicators save for Macroeconomic Stability (3.86). Chile is the
leader in three of the six assessed indicators: Macroeconomic Stability, Physical and Technological
Infrastructure, and Legal and Business Environment. Chile benefits from already having an outsourcing
presence in the country and being perceived as stable in most indicators. Chile’s legal incentives and
country stability show investors the risk is not high. The country also has a highly educated population
with the skills for BPO services and the incentives for starting BPO operations, which are the decision-
making factors. As a smaller country succeeding in attracting foreign investors, Chile is an example for
many of the LAC countries to follow.

Mexico, ranked 2 with a 3.95, is the highest ranked larger country. Similar to Chile, Mexico already has
an established outsourcing industry and, in general, a stable regime with a reliable legal system. The
major strengths for Mexico are the very low operating costs and the human capital. The country benefits
from a very large workforce that has at least the minimum skills and education necessary to work in
BPO.

After Mexico, most countries in the scorecard have one or two areas where the score shows a clear
advantage and one or two areas that need significant improvement with the remaining indicators in the
middle of the “Fair” range. In trying to attract BPO investors, these countries will have to rely on
emphasizing the advantages of the country while demonstrating proven effort to improve the lagging
areas. For five of these countries, one of the more significant lagging areas is in infrastructure
(Colombia, Costa Rica, Dominican Republic, Honduras, and Peru). Four other countries need to improve
on macroeconomic stability (Ecuador, Panama, Uruguay, and Venezuela).




                BPO Latin America Scorecard           9     Inter-American Development Bank
This middle range of countries is composed of larger economies with well-established industries (Brazil
and Argentina) as well as smaller countries with growing potential (Colombia) or with already
established niche markets (Costa Rica). The larger countries in this range of the rankings tend to have
discouraging scores in one or two areas of importance for investing in BPO that directly relate to
government policy and enforcement, such as the legal and business environment in Brazil or investment
incentives in Argentina. Concerns with smaller countries like Costa Rica are that even with an educated
workforce, eventually the skilled laborers will all be employed simply due to the size of the population.
For these countries, establishing a specific niche and excelling in that area could be a way to ensure the
consistent presence of a BPO industry. A country like Costa Rica could also benefit from improvements
to infrastructure that would both attract more willing investors as well as improve the living situation in
the country overall.

Analysis within this document also highlights the potential of countries that appear to be making policy
decisions and investments in society to attract foreign investors. Colombia, Peru, and Uruguay are
examples of countries that are not at the top of the rankings in many of the indicators but are showing
signs of improvement within each indicator. These countries could move up the rankings in coming
years as they begin to achieve the apparent potential they have.

Countries on the lower end of the rankings, such as Honduras and the Dominican Republic, scored
poorly in most indicators with the exception of operating costs. These countries tend to have smaller,
uneducated populations with problematic macro measurements. The lack of stability coupled with the
lack of a skilled workforce discourages investors from considering the country as a destination, despite
the low operating costs. The nature of BPO services requires more factors to be present than simply low
costs and thus these countries will be unable to compete for investors without significant changes.

The lowest country in the rankings, Venezuela with a 2.77, would seem like an anomaly given the
country’s size and higher levels of education. Venezuela’s poor rating is a result of significant concern
regarding the country’s stability as well as the reliability of the legal and business environment. Investors
will be wary of bringing BPO services to a country if they do not believe the rule of law will protect the
business and if they believe the integrity of business proceedings may be compromised. The current
regime and recent history of Venezuela presents this type of situation, which will discourage US
companies despite the sizable educated population.

The methodology for calculating the scores
consists of a tiered analysis providing             Overall -
varying degrees of specificity. There are                                      Country Scored 1-6
                                                   Highest Tier
four tiers: the overall score, the level one
indicators, the level two sub-indicators,                               Six Key Indicators Scored 1-6 (e.g.
and the level three data measurements.              Level One
                                                                                  Human Capital)
The highest tier is the aggregate weighted
score of the six aforementioned key                                      Sub-indicators Scored 1-6 (e.g.
indicators. The next tier’s scores,                 Level Two
                                                                          Workforce Skills/Education)
consisting of the level one indicators, are
compiled by weighting the second tier,                                  Converted Scores of 1-6 for Data
level two sub-indicator scores. These level                             Measurements (e.g. Literacy Rate)
two sub-indicators represent specific areas       Level Three -
pertinent to operations and decision-              Lowest Tier
                                                                    Raw Data Measurement (e.g. Actual
making for BPO investors. The level two                                       Literacy Rate)
sub-indicator scores are aggregates of the
                                                Figure 1: Methodology

                BPO Latin America Scorecard           10     Inter-American Development Bank
level three data measurements that have been converted to scores of 1 through 6. The level three data
measurements are the specific pieces of information that contribute to a country’s performance or
status in the level two sub-indicators. With each tier down, the analysis becomes more specific in
detailing those areas of excellence and those needing improvement within each country. Scores for all
tiers are based on a continuous scale of 1 through 6, with the lower end denoting very poor and the
higher end denoting excellent. Individual weighting systems and calculations are created for each
indicator and sub-indicator such that metrics identified as particularly important to BPO are represented
more heavily and coincide properly with the 1 through 6 scale.

In an effort to contextualize the results found in the scorecard, detailed country reports are included at
the end of this document. Countries are analyzed horizontally along indicators and vertically across each
of the tiers. Emerging from these country analyses is a general snapshot of the present and potential
BPO environment in region. There are also sections analyzing in more depth each individual indicator
and the how countries performed within each indicator.




                BPO Latin America Scorecard         11     Inter-American Development Bank

								
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