Over the last four years, the Colombian Government has focused its attention on strengthening a group of industries that they have identified as Sectors of Productive Transformation. These sectors were selected following an elaborate analysis by the Ministry of Commerce and Industry and McKinsey and Company. Two of the eight sectors that they identified as having the potential to transform the country are the Business Process Outsourcing (BPO) Sector and the IT sector.
In order to accelerate the development of these sectors, the government has designed a twenty-year plan that includes:
- New legislation permitting the creation of Single Enterprise Free Trade Zones for these types of businesses, giving them special income tax structures and tax exemptions for importing equipment and materials related to their operation
- The creation of legal stability contracts, providing companies with insurance on the benefits of Single Enterprise Free Trade zones in case of policy reversals by new governments or changes made to the current legislation
- Increased visibility of the country at international levels through a government agency, Proexport Colombia, which is in charge of promoting investments, tourism and exports internationally.
As I’ve discussed in some of my recent blogs, these efforts are starting to payoff, as exemplified by the arrival of major international players like Convergys with its call center in Bogota and Hewlett Packard with its Global Services Center in Medellin (one of only five in the world). Finally, the international IT and Off shoring Services Consultant Gartner has recently published their December report in which they have identified Colombia as one of the leading countries suitable for the allocation of off shoring services, further emphasizing the success of these developing sectors. (See complete report below)
Analysis of Colombia as an Offshore Services Location
Frances Karamouzis, Allie Young
This report (see Note 1) analyzes Colombia's suitability for offshore outsourcing, based on 10 criteria: language, government support, labor pool, infrastructure, educational system, cost, political and economic environment, cultural compatibility, global and legal maturity, and data and intellectual property security and privacy. Sourcing managers can use this report to judge whether Colombia might be a good location for their organization's captive or outsourced offshore IT and business process services.
Key Findings
Colombia has launched a marketing campaign through Proexport, the Colombian government's trade bureau, to raise awareness of Colombia as a destination for offshore services and to capture a select portion of the business process outsourcing (BPO) and IT outsourcing (ITO) export services market.
Colombia offers market access to the U.S. and other countries for specific types of application services but is primarily focused on BPO work where Spanish-language skills are a business requirement.
A small but growing number of multinational corporations (MNCs) in the high-tech and manufacturing sectors have successfully established Colombia as a location for call center and transaction BPO work, and some indigenous Colombian service providers are gaining scale to support other Latin American organizations.
Few service providers have yet exploited Colombia as a major commercial global delivery hub for near shore delivery to the U.S.
Recommendations
Investigate Colombia for internal shared services, BPO, contact centers and captive centers, particularly when Spanish-language skills and proximity to U.S. buyers and a similar time zone are key requirements.
Seek opportunities in an emerging country such as Colombia to benefit from less competition for IT talent/resources, and preferential treatment and/or exclusivity regarding real estate or other subsidies
ANALYSIS
Table 1 provides a summary of Gartner's rating of Colombia, based on our 10 criteria. Figure 1 shows Colombia's location and time zone difference compared with selected cities.
Table 1. Colombia: Outsourcing Rating - Source: Gartner (November 2010)
| Criterion | Rating |
| Language | Fair |
| Government Support | Fair |
| Labor Pool | Fair |
| Infrastructure | Fair |
| Educational System | Fair |
| Cost | Good |
| Political and Economic Environment | Good |
| Cultural Compatibility | Good |
| Global and Legal Maturity | Fair |
| Data and Intellectual Property Security and Privacy | Fair |
Language
The official language of Colombia is Spanish. English is the second most-spoken language in Colombia.
1. As the trade exchange between Colombia and the U.S. continues to grow, the use of the English language in Colombia increases each year. (Exports from Colombia have tripled between 2002 and 2009.
2. There are 9,895 English-certified professionals across all Colombian cities with different levels of proficiency (Basic High, Intermediate and Advance.
3. The national government has undertaken additional initiatives to boost English-language proficiency with programs such as I-Speak.
4.Promoted by the Colombian Ministry of Industry, Trade and Tourism.
Analysis: Colombia's focus today is to capitalize on the Spanish-speaking market for BPO; in the future, it will target the English-speaking market for application services. For English-specific IT services, there is still significant growth needed to garner the appropriate level of English- speaking labor to lead application services work.
Gartner rating: Fair Government Support
According to Colombia's Ministry of Information and Communications Technologies, Colombia's free-trade zone policy is competitive, allowing for 15% income tax, no import duties, and vendors may sell in the local market (in addition to exporting).
5. In "The Global Competitiveness Report, 2009-2010," Colombia is ranked No. 80 (out of 133) for government efficiency (down nine places from 2009). Its rankings also declined for transparency of government policymaking, public trust of politicians, ethics and corruption, and property rights.
6. While foreign direct investment (FDI) terms have improved in the past decade, FDI is currently at 4% of the overall GDP, so FDI terms need to improve further to attract greater investment.
7. Analysis: The Colombian government has made significant strides in the past several years, but still needs to increase investments and fight corruption issues to increase its status as a trusted government. Additional government-subsidized marketing efforts are needed to raise awareness and increase the visibility of Colombia, and targeted investments in the IT sector will be needed to make Colombia a more attractive country for IT investment.
Gartner rating: Fair Labor Pool
As of 2009, Colombia had 74,000 people employed in the following IT services sectors: ITO (12,500), BPO (60,000) and knowledge process outsourcing (KPO) (1,500) (this represented 0.3% of the total workforce of Colombia).
8. Colombia is one of the leaders with the most flexible labor policies in Latin America. In 2010, Colombia rated 23.7 on a scale from 0 to 100, where 0 was the most flexible, which placed it ahead of other Latin American locations.
9. According to the Colombian Ministry of Education, between 2001 and 2008, more than 97,000 students graduated from universities and technical schools in Colombia.
Publication Date: 9 December 2010/ID Number: G00209136
Analysis: Colombia has made major employment strides in structuring a solid foundation for the growth of the BPO and IT services industry. Labor laws, and the low presence of labor unions, combined with longer shift options, offer flexibility and make it easy for prospective vendors or organizations seeking captive center options to deal with HR issues. The availability of talent is steadily growing. However, it still constitutes a very small percentage of the total workforce and is spread across three primary locations in Colombia (Bogota, Cali and Medellin).
Gartner rating: Fair Infrastructure
According to a 2009 IMD study, Colombia is the Latin American country with the largest investment in information and communication technology (ICT) infrastructure as a percentage of its GDP. Almost 11% of Colombian GDP (equivalent to $25 billion) is planned under the 2010 three-year investment plan for infrastructure alone.
10. According to the World Economic Forum's Networked Readiness Index, 2009 to 2010, Colombia ranked No. 60 out of 133 countries.
One indicator of infrastructure capability and ability to scale is the growth of local telecommunications operators. Between 2005 and 2008, the revenues of local Colombian telecom operators almost doubled.
11. The main sources of revenue included: fixed telephony, long distance, mobile, and Internet access.
Analysis: Colombia has focused on making consistent investments in telecommunications infrastructure in the past several years, and the rate of increase of the use of broadband and mobile services has been dramatic. The country's overall ability to manage this growth has been commendable. The recent investment proposed for infrastructure development is significant (a double-digit percentage of its GDP). If these proposals are executed, the time to implement them will still be substantial.
Gartner rating: Fair Educational System
Colombia's educational rankings have declined from previous years. "The Global Competitiveness Report, 2009-2010" ranked Colombia No. 71 for higher education and training and No. 72 for health and primary education out of 133 countries.
12 Colombia has 189 universities, of which 74 offer masters degrees and 34 institutions grant Ph.D.s. There are 19 universities that grant International Baccalaureate certifications.
13. The graduates (approximately 37,500 engineers) from these institutions serve as the vital fuel of talent for the industry.
Analysis: The education system in Colombia is in need of: investment; reform of policies and focus; and strategic alignment with the main commercial sector of BPO and IT services. It needs to develop competitiveness among its students with regard to technical and functional skills, as well as English-speaking competency for global delivery model requirements.
Gartner rating: Fair Cost
The average salary of a software engineer/developer/programmer in Colombia ranges from $12,660 to $29,013, according to PayScale.
14. The operational cost in Colombia is competitive (compared with other Latin American countries), as Colombia offers: flexible structures and work shifts can be scheduled over a greater range of hours; competitive broadband cost; and the lowest severance pay in Latin America.
15 Analysis: Colombia's overall cost structure for sourcing (as defined by a combination of salaries, telecom, real estate and other operational costs) is competitive compared with other countries in Latin America. Government policies have focused on creating an easier and friendlier climate with regard to labor laws, use of temporary contractors and staff severance issues that often plague neighboring countries such as Brazil. Additionally, the government has structured a program that provides financial relief related to the required social payments per worker (which amount to 30% of staff salaries).
16 Rating: Good Political and Economic Environment
Kidnapping and violent crime have declined drastically and are now confined mainly to rural areas, where the state lacks control due to the presence of guerrillas and drug cartels.
17. In the "2010 Global Peace Index," Colombia was ranked No. 138 out of 144 countries (where 1 equals the most peaceful country).
18. The World Bank ranked Colombia No. 5 out of 183 countries for protecting investors. This makes Colombia the second-highest-ranked country in Gartner's 30-country study of offshore destinations.
In the past few years, Colombia has experienced a marked improvement in its macroeconomic performance. It has moved up 15 positions on the macroeconomic stability parameter from its 2009 ranking of No. 88 (out of 134 countries), to No. 72 (out of 133).
19. The significant economic downturn of the past 18 months has negatively affected the Colombian economy. According to IHS Global Insight, in 2010, Colombia's GDP growth increased to 4.6% and it is expected to remain at 4.0% or higher through 2014.
Analysis: In the past 10 years, perceptions of, and trust in, the political and economic environment in Colombia have improved considerably. The attractiveness of the business climate continues to improve, given GDP growth and the resiliency of Colombia's economic performance. However, the government needs to continue to address corruption, and improve its overall efficiency, in order to become a more trusted business partner and destination for sourcing.
Rating: Good Cultural Compatibility
Colombia ranks No. 4 in the IMD Global Competitiveness study of Latin America for having a culture open to foreign ideas.
According to the Administrative Department of Security (DAS), the number of international visitors to Colombia has almost doubled since 2002. Approximately 1.45 million foreigners visited Colombia in 2008 and, in 2009, there was a 17.2% increase. This continues to build awareness of other cultures.
Several MNCs have established BPO or IT services centers in Colombia; while these centers mainly serve Latin America, this exposure to MNC practices advances Colombia's experience and global business awareness.
Analysis: Like many Latin American countries, physical proximity and U.S. time zone alignment give Colombia a natural compatibility with U.S. buyers, as trade and business exchange grows between countries. Further, the growth economies in Latin America, including Colombia, are promising for MNC expansion. Thus, while Colombia does not have a distinct advantage over other Latin American locations, it is beginning to capitalize on its proximity to the U.S. as a relatively untapped offshore services market that holds "early entrant" opportunities.
Rating: Good Global and Legal Maturity
The World Bank ranks Colombia No. 37 out of 183 countries for ease of doing business, making it first among Latin American countries, and No. 5 overall in the countries evaluated in Gartner's top-30 country list for 2010.
Colombia is ranked No. 40 out of 104 countries on the Personal Freedom parameter.
20. According to the World Democracy Audit for 2009, Colombia's democracy ranking declined to No. 86, from No. 67 in 2008; similarly, its corruption ranking declined to No. 57, from No. 54 in 2008; press freedom remained constant, at No. 88 in both years.
In 2010, approximately 108 legal stability contracts were either signed or approved in an effort to strengthen and attract investment projects.
21. Analysis: Colombia has many areas of weakness in terms of its image with regard to stability and democratic practices. Improving international relations through investment agreements and contracts with existing and new partner countries worldwide — along with growing relations with the U.S. in terms of investment, trade and aid — will improve the global image of Colombia.
Rating: Fair Data and Intellectual Property Security and Privacy
According to "The Global Competitiveness Report, 2009-2010," by the World Economic Forum, Colombia has made small strides in this area, moving from No. 74 to No. 69 (out of 133 countries). A focus on this analysis related to data and intellectual property categories reveals that it still ranks in the lower third of countries. From an overall pool of 133 countries, Colombia ranked No. 83 for property rights, No. 94 for intellectual property protection and No. 85 for legal framework.
Colombia has been able to reduce software piracy in the past several years, ranking it among the lowest of the top six economies in Latin America. However, software piracy still accounted for 55% of all software in the country in 2009.
22. Colombia is improving its efforts to combat infringement of intellectual property rights through enforcement actions, but much more needs to be done to remove Colombia from the U.S. Watch List 2010. San Andresito in Colombia is featured in the Notorious Markets List of the "2010 Special 301 Report."
23. Analysis: Colombia has made important strides, as demonstrated by its rankings compared with those of other Latin American countries. However, more work needs to be done. Other Latin American countries have attracted a larger number of established vendors and captive centers with focused attention on intellectual property, allowing them to build trust among buyers of BPO and IT services that overcome macrocountry statistics. Colombia has not achieved this yet.
Rating: Fair
RECOMMENDED READING
Some documents may not be available as part of your current Gartner subscription.
"Gartner's 30 Leading Locations for Offshore Services"
"Tutorial for Defining Key Offshore Services and Global Delivery Terms"
"A Successful Outsourcing Strategy Requires a Clear View of Future Market Disruption"
"Ten Competencies and Key Activities for Mastering Multisourcing"
"How to Achieve Efficient and Effective Multisourcing"
"Global Delivery Model Market Competitiveness Cube Provides Insights into IT Services Providers' Direction"
Evidence
1 "Colombia education system," www.virtualcampuses.eu/index.php/Colombia.
2 Departamento Administrativo Nacional de Estadística (DANE).
3 Common European Framework of Reference for Languages (CEFR).
4 For details of this English-language proficiency progam, see www.ispeak.gov.co.
5 Colombia's Ministry of Information and Communications Technologies (May 2010 report submitted to Gartner).
6 "The Global Competitiveness Report, 2009-2010." 7 Colombia Fact Sheet, The 2009 Legatum Prosperity Index, 23 November 2009.
8 Colombia's Ministry of Information and Communications Technologies (May 2010 report submitted to Gartner).
9 "Doing Business, 2010," the World Bank. 10 Colombia: a center of opportunities," Posse Herrera & Ruiz, March 2010.
11 Colombia's Ministry of Information and Communications Technologies (May 2010 report submitted to Gartner).
12 "The Global Competitiveness Report, 2009-2010," the World Economic Forum. The report reveals that Colombia has dropped 12 positions for the quality of its educational system, 10 positions for the quality of the management of its schools and seven positions for the quality of math and science education since the 2008 to 2009 report, which reflects the poor performance of Colombia's educational system.
13 "Colombia Outsourcing Landscape," Tholons, 10 June 2010.
14 PayScale, June 2010.
15 "2010 Quality of Life Index," "International Living." Other Latin American countries have shifts that are shorter by one to three hours.
16 Colombia's Ministry of Information and Communications Technologies (May 2010 report submitted to Gartner).
17 "Colombia, Risk Overview," Factiva, 13 May 2010, reproduced in "Colombia — The Transformation of a Country," Libertad y Orden, 19 May 2010.
18 "2010 Global Peace Index," the Institute for Economics and Peace.
19 "The World Factbook," the Central Intelligence Agency.
20 "Global Competitiveness Report, 2009-2010," the World Economic Forum.
21 Invest in Colombia, presentation, 6 May 2010.
22 "Software Piracy," TradeTalk, "Latin Business Chronicle," 20 September 2010, www.latinbusinesschronicle.com/app/article.aspx?id=4496.
23 "2010 Special 301 Report," United States Trade Representative, 2010.
Note 1 Objective, Methodology and Limitations
Objective
This report is part of Gartner's annual analysis of 30 leading offshore locations, which began in 2007. Organizations seeking an outsourcing arrangement, or those wanting to set up a captive center, should use these reports to evaluate a country's current suitability for offshore service work.
Each report includes key data points and insight to provide a brief, high-level perspective, so organizations can easily compare potential locations. Because each organization will have a different view of which factors are the most important for its needs, the reports aren't intended to rank each country and don't include an overall rating for each country.
Methodology
We applied a rigorous and repeatable methodology to assess each country's state. This involved:
Identifying 10 categories that organizations should consider when looking at a potential location for offshore or nearshore IT or business process services.
Applying the insight, knowledge and experience of Gartner analysts, as well as consulting credible secondary sources, to evaluate the countries against these categories. Rating each category on a 5-point scale, with 1 being poor and 5 being excellent, to provide an at-a-glance view of the status of that country.
Performing a comparative analysis at a regional and global level to ensure balance in the assessments.
Limitations
These reports assess each country's current status. They will not reflect the benefits of investments some countries are making to improve an area of weakness or enhance current strengths, where these investments have not yet visibly come to fruition. For example, investments in English-language education will take some time to demonstrate improvements in the workplace.
Although organizations could apply these reports to applications, business processes or infrastructure, the reports don't address this level of granularity. If organizations were to apply these reports to one specific service line, they may need to adjust some of the ratings (for example, the availability of specific skills in the labor pool).
This research is part of a set of related research pieces. See "Gartner's 30 Leading Locations for Offshore Services, 2010-2011" for an overview.
Publication Date: 9 December 2010/ID Number: G00209136
© 2010 Gartner, Inc. and/or its Affiliates. All Rights Reserved.
