Sourcing consultants ThinkSolutions thinks so. Its third quarter 2011 list of Best Nearshore Destinations ranked Mexico, Chile and Costa Rica highest, followed closely by Argentina, Brazil and Colombia.
Mexico’s labor costs are relatively high, but get you a skilled, experience and English-proficient workforce. Mexico also got high marks for cultural affinity with the U.S. and its large educated population. ThinkSolutions noted that Mexico scored the highest of all Latin American countries on the 2010 Ease of Doing Business Index, and noted that different regions harbor “various niche skills, so an experienced provider is readily available for almost every kind of service.” It also noted a growing labor pool with 550,000 trained IT professionals.
Labor costs in #2 Chile were on a par with Mexico and #5 Brazil, “but low corporate taxes and a welcoming environment for foreign investors offset some of that cost.” ThinkSolutions also liked that Chile “is among the most politically stable countries in the region” and ranked 21st on the TI Corruptions Perceptions index (just under the U.S. at 20th.) Strong government and private support for R&D and economic development combine with fair trade agreements with the U.S. On the down side, only 8% of its technical graduates speak English, and while it’s in a favorable time zone Chile is at least a 10 hour flight from major U.S. cities.
A tiny labor force didn’t keep Costa Rica from the number three spot, due to its “high comfort level with Western business practices” along with “investment freedom, lower wages, and strong education programs.” Among the other strengths are English proficiency, talented developers, and call center outsourcing. The government offers free technical training in areas such as software development, accounting, and HR.
A skilled workforce, a strong educational system and English skills earned Argentina fourth place. ThinkSolutions noted it has become a tech-hub with companies such as Cisco, America Online, and Google. “Despite this, its IT Protection standards are poor, and its far distance and lack of time zone alignment (two hours ahead of Eastern Time) lessens its appeal as a `Nearshore’ destination, the report said.
Thirty years of outsourcing experience and a strong technology infrastructure earned Brazil the number five spot, along with “an excellent array of IT and BP skills, creative flair, and specialized skills in the gaming industry.” Strong mainframe programming skills (including the world’s second largest pool of COBOL programmers) are a unique strength. However, weak English language skills, and high wage rates and corporate tax burdens increase costs.
Number six Colombia “continues to rise as a BPO contender as the security situation improves,” with high corporate tax rates somewhat offset by government incentives such as a free trade zone in Bogota. Low labor costs for experienced staff and a high ranking on the Ease of Doing Business Index are other pluses. The government is working to improve the country’ weak English skills with mandatory foreign language training in graduate courses.
The work force in Panama (number 7) is small but works a six-day week. Panama boasts a stable infrastructure, high rates of telecomm and Internet penetration, and good IP protection. A strong economy, relative political stability, and the use of the dollar as the national currency make business easier. So do the tax benefits offered in the Colon Duty Free Zone, the second largest in the world.
Eighth ranked Peru continues to grow during the global recession, with high levels of investment freedom combined with low inflation and wage rates. While nearly 30% of the workforce has some form of tertiary schooling, “the 10% gap between the men’s and women’s literacy rates indicates underdevelopment and untapped labor potential,” says ThinkSolutions. A lack of English skills is also an issue, as is a slow and corrupt judicial system that weakens IP Protection.
Ninth-ranked Puerto Rico has strong IP laws and enforcement, low levels of perceived corruption, an impressive technology infrastructure, and the best education system in the region. It’s comparatively little known because of its small population, lack of English skills and what ThinkSolutions called its “cultural misalignment with the U.S.” High corporate tax rates and labor costs don’t help either.
A strong business environment, low labor costs, proximity to the U.S. helped Guatemala to a number ten ranking. While the government has made accounting and English skills mandatory in public schools, weaknesses include a high corporate tax rate, small workforce, and lack of cultural compatibility with the U.S.
Other locations further down the list include El Salvador (11) with low inflation, very high investment freedom, and a reliable transportation and energy infrastructure; Uruguay (12) which is hobbled by a small workforce and infrastructure issues, but whose IT market is maturing, and Honduras (13) which is working to grow its labor pool.
Paraguay (14) has low inflation and labor costs, reasonable tax rates and a welcoming investment environment, but its low English skills make it best suited for Spanish language services. It must also improve “its technological capabilities and infrastructure before it can offer much in terms of business process support or IT operations,” according to ThinkSolutions.
The last five countries (the Dominican Republic, Venezuela, Nicaragua, Bolivia and Ecuador) showed “a steep drop in the ability to support a strong outsourcing industry,” the report said. Risk factors include political instability, lack of education, income gaps that prevent skills development and a lack of cultural affinity with the U.S. are among the hurdles.
In other recent takes on national rankings, the World Economic Forum gave Mexico good marks on a scale weighted for factors such as macroeconomic policy, trust in government and flexible labor markets. Meanwhile, a sourcing governance firm challenged Latin American service providers to globalize, automate and move up-market.
Of course, your mileage may vary for any of these markets. What’s your Nearsourcing favorite, and why?
1 Mexico 6.6
2 Chile 6.3
3 Costa Rica 6.1
4 Argentina 5.9
5 Brazil 5.8
6 Colombia 5.7
7 Panama 5.5
8 Peru 5.3
9 Puerto Rico 5.1
10 Guatemala 5.0
11 El Salvador 5.0
12 Uruguay 4.9
13 Honduras 4.1
14 Paraguay 4.0
15 Dominican Republic 3.6
16 Venezuela 3.5
17 Nicaragua 3.4
18 Bolivia 3.4
19 Ecuador 3.2
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