Q&A: Outsourcing in Chile

With so many choices for outsourcing, should Chile be on your radar?

Outsourcing is a popular option for IT shops looking to cut costs or benefit from the expertise of others. Competition is often fierce, and while India may be the first country you think of when it comes to outsourcing IT, a new candidate is emerging: Chile. To learn about the benefits that country has to offer, we turned to Chile-IT CEO JC Munoz.

Enterprise Strategies: To which hubs have U.S. enterprises traditionally outsourced tasks such as IT support and software development?

JC Munoz: By far, India has been the most popular destination for outsourced IT services.

What other outsourcing locations are emerging? What factors are driving their growth, and how fast is Chile's outsourcing growing?

There is an emergence of nearshore outsourcing, which is typically understood to mean that service centers are closer (geographically) to the customer and ideally within the same time zone. The benefits of nearshore outsourcing include increased (and easier) collaboration amongst teams, lower management costs, and better communication because of similar cultural background. Other aspects that make nearshore solutions easier to maintain include direct flights and improved security.

Chile-based IT companies have recently expanded the outsourcing services they offer. The industry’s natural outsourcing evolution has consisted of large foreign providers with service centers in the country as well as regional and local providers with service centers focused on U.S.-based small and midsize enterprises.

The maturity of Chile, a member of the Organization for Economic Co-operation and Development (OECD), its political and economic stability and growth, strong educational institutions, market openness, a business culture similar to that in the U.S., and a strong focus on the private sector and development of the global services industry generates a prime outsourcing ecosystem. This ecosystem, plus the IT industry (private sector) and government shared goal of developing this global services industry, are powerful factors driving the growth of Chile’s outsourcing industry.

What is driving interest in U.S. firms outsourcing to Chile? What unique benefits does it offer over other hubs, such as India and Brazil?

The ecosystem mentioned earlier makes it more seamless and hassle-free for an American company to start outsourcing in Chile compared to other hubs such as India. In addition to talented engineers produced by Chile’s globally recognized IT institutes and universities, U.S. companies can benefit from Chile’s secure business environment, clear tax and labor laws, and low taxes. Compared to India, the geographic proximity and cultural similarities make it easier to outsource to -- or work with -- a Chile-based company.

One benefit of outsourcing to India is that the workers speak English, so communication is less of a problem. How is Chile positioned in this regard?

The native language in Chile is Spanish, which puts us in a prime position to serve the Spanish-speaking population and business community of the U.S. -- the second largest Spanish-speaking market in the world. Chilean companies that offer outsourcing services to U.S. firms have a bilingual workforce so they can liaise and interact seamlessly with both English and Spanish-speaking customers based in the U.S. Moreover, English is widely taught in Chilean educational institutions at all levels -- from elementary schools to universities. The government is also involved in and committed to fostering the proficiency and certification in English for IT professionals.

One advantage of outsourcing is that costs are reduced. How is Chile priced compared to its competitors?

Cost reduction is a fundamental issue for outsourcing and can be achieved through lower wages and increased productivity. In comparison, Chilean wages are lower than those found within the U.S. but higher than wages in India or China. To thrive competitively, the productivity of our IT workforce should compensate the higher wages Chile has against other outsourcing destinations. This combination of wages and high productivity makes Chile an attractive and affordable outsourcing destination for U.S. firms as demonstrated by the numerous multinational corporations that have installed service centers and operations in Chile, such as Delta Airlines, Experian, Yahoo, JP Morgan, and Citigroup.

What does Chile’s IT industry look like? How many IT companies exist there? What is the state of their workforce compared to competitors?

Chile´s IT Industry is a $3.3 billion industry made up of over 500 companies. What makes Chile’s IT industry stand out even more are its integration capabilities -- Chile’s IT companies are experts at integrating technologies and integrating well with U.S. company culture.

What makes Chile a test lab for many new technology and consumer products? Which technologies is it testing, and where is it leading the way over its competitors?

Chile has been a test market for many new technologies, new products, and new business models. Being a small market with many characteristics similar to the U.S. or other developed countries makes Chile ideal for testing the acceptance of the market for a new product. This encouraged Chilean IT companies to incorporate the newest trends and technology, cementing Chile as one of the world’s most tech-savvy countries. For example, Chile was the first country to have a fully digitalized voice network in the 1980s and in 2010 became the first country to pass Internet neutrality laws. Also, over 90 percent of Chilean citizens filed income taxes online.

Traditionally, U.S. firms have outsourced development and call centers. Can Chile's outsourcing industry support other tasks?

Yes, Chilean IT companies are offering new managed services such as network security, infrastructure management, ERP implementation, and IT management. Chile will gradually focus on developing Knowledge Process Outsourcing (KPO) where the revenue per person is higher and the skill level of Chilean engineers can produce greater benefits.