McKinsey Quarterly Showcases Colombia’s BPO Sector as a Model for Emerging Countries

In a recent article in McKinsey Quarterly, McKinsey & Company’s business journal, the publication highlights Colombia’s success in helping its business process outsourcing (BPO) sector become more globally competitive in a case study titled, “Colombia’s lesson in economic development.” As part of the country’s Productive Transformation Program begun in 2007, Colombia aims to assist not only traditional commodity-based industries, but also value-added sectors, such as BPO.

For the BPO industry, the program promoted the formation of public-private partnerships, as well as government reforms and initiatives that will help the sector go head-to-head with other countries looking to service Spanish-speaking markets, such as Colombia’s domestic market, Spain, Hispanic consumers in the U.S. and multinational companies operating in Latin America.

After studying various countries with comparative opportunities and examples, McKinsey concluded that Colombia offered lower costs for business processing outsourcing than other Latin American countries and could thus “serve the U.S. Hispanic market and multinationals in the region competitively.” These analyses also revealed that BPO could potentially account for roughly 300,000 jobs in the country before 2020.

McKinsey says that initial results from the Productive Transformation Program for the BPO seem to show that system is working and could serve as a model for other emerging markets, thanks in part to some of the steps that have been taken in Colombia with regard to this sector. McKinsey Quarterly reports several examples, such as:

* Developing the country’s human resources: Colombia has worked with the BPO industry to create a national registry for certified speakers of the English language (www.ispeak.gov.co) to make it easier for companies to find qualified employees; and the city of Bogotá, in partnership with several companies, has created a program to finance English-language education for call center employees.

* Reforming Colombia’s taxes and regulation: In May 2010, the country eliminated the value-added tax on BPO service exporters, getting rid of a disincentive to create offshoring services in Colombia. The country is also expected to approve a new data protection bill that would align Colombian law with stricter European and U.S. data security requirements, making the country a more attractive BPO destination. Colombia also adopted International Financial Reporting Standards, an important step; because financial accounting is one of the processes developed countries are offshoring.

* Promoting the industry within the country: Colombian executives in the sector have established a local chapter of the International Association of Outsourcing Professionals—the first in Latin America—which will help managers stay connected to their peers abroad and keep up-to-date on global trends.

* Increasing BPO infrastructure: Local governments are developing two free-trade zones near Bogotá and Medellín, specializing in BPO. State-of-the-art infrastructure and services will be available to companies that settle there. In addition, the government has already granted free trade–zone status to three new BPO facilities, and three others are under consideration.