Costa Rica emerged on the outsourcing scene with a $300 million investment by Intel in 1996. But it was with the nearshoring wave that this tiny Central American country found its true calling. Since then, it has remained accurate to the literal translation of its name-'Rich Coast', with many companies choosing it as their preferred destination.

So what is it that has attracted names like IBM, Microsoft, Amazon, Western Union and most recently, WNS in 2009 and Amway in 2010 to it?

“A healthy talent pool with over 60,000 graduates each year with English and Spanish language capabilities, proximity to the US and similar time zones, well-established location for BPO services with over 50 shared services and contact services centers and existing opportunities from clients and prospects that require Spanish language capabilities are some of the reasons why we chose to set up our delivery center there in 2009,” says Steve Reynolds, Managing Director, WNS-North America. “Our delivery center in Costa Rica serves global clients with North American operations that require Spanish language capability.”

According to Irving Soto, Director, Investment Promotion, of the country’s investment promotion board CINDE, “Costa Rica has become an important nearshoring destination for companies in the U.S. as well as strategic offshore locations for European companies. We are also seeing an increasing interest by Indian companies that require nearshore access to North America.”
 
The increase in the Hispanic population in the United States (estimated to be over 40 million in 2008), coupled with the Latin American region’s language capabilities, large labor pool, lower costs, and geographic proximity has led U.S. corporations to establish contact centers there. But the availability of graduates equipped with English and technical skills, due to the strong emphasis on education there, allows multiple functions of a company to be outsourced to Costa Rica. “Our Costa Rica center provides the complete suite of WNS services including finance and accounting (F&A), customer care, research and analytics, and domain specific processes in both English and Spanish.” says Reynolds.

However, other countries are fast catching up, says Saugata Sengupta, Senior Analyst at Tholons. “Costa Rica has to face stiff competition from larger countries with similar value proposition like Argentina, Chile and Mexico. The country does not have the large scale to compete with these countries which they are trying to counter by providing excellent support from the government and incentives to the companies looking to establish in their country.”

A small labor pool resulting in difficulties in scaling up operations, inflationary pressures and salaries moving upwards at double-digit rates (between 10 – 15%, according to Neo Advisory’s Latin America Contact Center Landscape White Paper) annually is pointed out as the main hurdle for outsourcing to Costa Rica. According to Sengupta, “The primary factor which Costa Rica should monitor is its small labor pool which is limiting what it can offer to lower-end BPO services. With these BPO services (back-office, contact support and shared services) being in high demand in the world market, Costa Rica must look at addressing its labor pool concerns to better capitalize on market opportunity.”

"We are a relatively young country so our labor force is growing at a faster rate (3%) than the general population (1.9%).” explains Soto. Atul Vashistha, Chairman and Founder, Neo Group and Neo Advisory believes that planning is the solution. He says, “One can do a number of scalable things here over a period of time with planning.” 

A Tholons research points out that a large population and labor force do not necessarily guarantee scalability – the pivotal point now for labor scalability is quality of labor force and thus employability.

According to CINDE, $21 million were allocated in 2009 to English and IT Training in the four main universities and INA, an autonomous national training institute. Costa Rica Multilingual, a comprehensive program to develop bilingual capabilities in the country’s labor market, was also launched.  Besides, a number of language and IT training programs have been started to augment the skilled labor pool.

With regard to infrastructure, Costa Rica has several industrial parks located in the Greater Metropolitan Area. The Free Trade Zone Regime  gives a wide range of benefits and incentives to activities directly related to the export of services and/or products from Costa Rica. However the recent change in the Free Trade Zone System has eliminated subsidies on certain exports.

Presently all the talent pool for outsourcing is attracted to San Jose, other cities have not gained prominence since they have much smaller populations. 

Says Sengupta,“With the multinationals locating in Costa Rica as well as increasing local investments supporting the outsourcing industry, the government has been quick to augment spending on infrastructure. Though much has been done with the development of Costa Rica's infrastructure, further improvement is still needed particularly in cities outside San Jose.”

Costa Rica, despite its small labor pool and rising salary levels, has continued to attract companies on the strength of its quality labor force. But with other countries offering larger labor pools, low cost and similar language skills, whether Costa Rica will be able to maintain its dominant position in the Latin American outsourcing scene remains to be seen.