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Why Chile Is Becoming an Offshore Destination

Andre Schenkel, the director and senior vice president of Citigroup’s Chile Technology Services Center, got a call from the harbormaster of the Panama Canal at 2:00 a.m. on a Saturday morning. He couldn’t log onto the Citigroup accounting system, which produces the required bills of lading for ships to go through the canal. A long queue was forming at the locks.

The Citigroup team fixed the application and world commerce continued.

Today, companies are offshoring to other places in the world besides Asia to diversify their risk. Schenkel says Citigroup opened its Chilean captive — the financial services company now has seven worldwide — because “we needed to balance the resource distribution.” Arun Subramony, chief operating officer of GenShare, says his company announced a joint venture with GE in September “because it’s a matter of policy to diversify our services and reduce our numbers in India.”

Why Chile?

Four years ago the Chilean government conducted a study to determine how to expand its economy. Global services was one of five focus areas it selected, according to Carlos Alvarez, executive vice president and CEO of CORFO, the Chilean economic development agency.

Offshoring to Chile has these benefits, he points out:

  • It’s in the same time zone as New York City
  • The country has signed numerous free trade agreements, including NAFTA
  • It has a low corporate tax burden of 17 percent
  • Chile has an open immigration policy. He says it’s “easy” to get a work permit; the employee just has to live in the country.
  • There is a stable political environment with a popular president

Suppliers in Chile add other reasons why they like doing business there. Labor costs are attractive. Mario Godoy Zanni, CEO of Equifax Chile, says he can hire an employee with 10 years of IT experience for $5,600 a month. Entry-level positions for “fresh grads with fresh knowledge about the newest technologies” hire in at $2,100 a month.

Rodrigo Sandoval of Synopsys Chile, which simulates semiconductor fabrication to help companies design chips, says his engineers are “half as expensive as engineers in Silicon Valley. (Synopsys is based in Mountain View, California). He says there is plenty of educated talent available. “We got 1,000 resumes to fill our 30 slots,” he says. And when Google Brazil needed talent, its recruiters contacted several Synopsys engineers..Even though the salary was better in some cases, they all stayed, he reports.

Mohit Srivastava, country manager, Evalueserve, says Chile has a good pool of qualified engineering talent. “We are easily able to hire bi-lingual quantitative research analysts to serve our investment banking clients in the United States,” he says. And his attrition rate is just seven percent.

He says the country’s immigration policy “is a big advantage.” His staff hails from more than 20 different countries. Shenkel adds foreign nationals comprise 30 percent of his staff.

Srivastava says one of his competitors in Argentina hired an Indian national. It took him almost a year to get his work permit. “Here, you can get work permits within a week. This helps us respond effectively to our client needs to start new projects and ramp up quickly,” the Evalueserve executive reports.

Srivastava likes the business transparency in Chile. Everyone pays their taxes online. In general, there are no hidden costs.

Schenkel notes Chile is an attractive place to visit. “If we invite someone in Europe or the United States to work in Chile, they usually respond, ‘You bet! There’s a beach.'” The eagerness typically disappears when he mentions the other captive locations, he adds with a smile.

He adds Santiago is “extremely safe by South American standards.” It’s a livable city. Citigroup has clients in New York that spend two hours on a train to get to work. “I have a seven-minute walk,” Schenkel notes. Srivastava reports his staff can rent a beautiful apartment on the coast overlooking the Pacific Ocean for between $500-$700 a month.

Chile is known for its innovation, adds Juan Carlos Munoz, executive director of ACTI, the country’s IT industry association. “We are a test market for new technologies,” he says. He points out many telecommunications companies came to Chile to test their latest technologies because of the country’s “extensive” network of fiber optics cable.

A negative for Chile is the small number of English speakers. The country has 42,000 English speakers in the country’s national register; Alvarez says the agency and the private sector are working on solutions. Last year CORFO gave 1,000 scholarships to employees who want to study English. This year the number doubled to 2,000. In 2008 Chile also began to provide English language education grants for IT workers. The pilot program was a success and by 2010, 3,000 people with IT backgrounds will receive English language training.

Schenkel says Citigroup has a fixed contract with a language instruction provider to help its employees improve their English. At Equifax Chile, everyone is forbidden to speak Spanish on Wednesdays; only English is allowed. In order to improve English language skills, the employees of this project agreed to fine each other 1,000 pesos if anyone spoke a word in Spanish, according to Godoy.

Equifax: the American captive

In 1994, Atlanta, Georgia-based Equifax bought a Chilean credit reporting company. In 2008, Equifax conducted a study where to open an offshore captive center to provide services to Canada, Latin America, the UK, and the United States. The study narrowed the list to four places: Argentina, Brazil, Chile, and India. It selected Chile.

Godoy says the American company selected Santiago because of the “safety of the city and country, political and economic stability, and the knowledge of its young professionals.” Santiago also is a magnetic place for Americans, he adds. “There’s always someone from Atlanta visiting.”

This division’s clients are banks and credit companies. The home office uses this center to create fraud detection programs and run risk models for credit decisions. Because “fraud is constantly changing and the criminals are becoming more creative,” the CEO says the home office charged the captive with staying one step ahead by being innovative.

It currently has 22 staffers; it expects to employ 80 by 2011, according Godoy.

Evalueserve: the near-shore KPO center

After opening delivery centers in Gurgaon, India, in 2000 and Shanghai, China, in 2005, Evalueserve, a KPO provider, opened its third delivery center in Valparaiso, Chile, in December 2006. The knowledge process outsourcer has added 60 professionals each year. Currently, 160 people work in the Chilean office, which operates rent free in a building owned by CORFO. “We hope to have 500 employees by 2014,” says Srivastava.

Evalueserve provides research and analytics services to Fortune 500 companies as well as small and medium enterprises across industry verticals. “Being able to operate in the same time zone as our clients in North America results in real-time collaboration and higher productivity and innovation,” says Srivastava.

Genshare: the local start-up

Currently GE is serving its divisions in 87 countries with its order-to-cash sourcing platform from India. Now GE, with its JV partner UST Global, plan to use this platform as the basis for a new services company. The two American companies decided they didn’t want to set up another GE captive. Instead, they wanted to start a new supplier.

And they didn’t want to domicile it in India. Subramony says the partners looked at seven countries in Latin America before selecting Chile. “The younger generation here is confident. They are able to speak peer to peer,” he says.

The venture, called Genshare, already has 30 people working to deliver the platform as software as a service (SaaS). They are currently in India learning the particulars. The next wave of hiring will be in February. Subramony hopes to have over 1,000 in five years.

He says the company plans to test the waters locally before expanding globally. “We want to be a pioneer for IT services in Chile,” says the general manager.

ABB: the purely local supplier

Seventy percent of Chile’s revenues come from natural resources, especially copper. ABB is a two-year-old supplier that remotely monitors copper mills, just like IT suppliers remotely monitor IT infrastructure.

Currently, ABB monitors seven mills 1500 kilometers from its headquarters in Santiago. “We would have to fly two hours and then drive another four to get to the mine,” says Emilio Vega, product manager, automation product division. “But we can remotely troubleshoot from our homes. It seems mill failures happen in the middle of the night.”

The supplier connects its computers to the computers operating the mills’ crucial rotating drums. It can tell if the machine’s temperature is rising or if a virus is infecting the computer controls. Keeping the machines running is crucial because the mill owner loses $200,000 per hour when the drum isn’t working, says Vega. “The real savings is getting the system running,” he explains.

ABB’s first offering is troubleshooting. But it also collects and analyzes data so “we can propose improvements to the mill owners,” says Vega.

The supplier’s early successes are allowing it to branch out to pulp and paper factories in the southern end of Chile. It’s also having conversations with a factory in Switzerland.

Last year, Chilean outsourcing suppliers earned $843 million. He hopes the number will top $1 billion by the end of 2010.

Lessons from the Outsourcing Journal:

  • Companies wanting to diversity their offshoring are finding Chile is a good candidate.
  • Companies are offshoring to Chile because of:
    1. Attractive labor rates
    2. Easy immigration policy
    3. Same time zone as New York City
    4. Low corporate taxes
    5. Ease of doing business in a transparent environment
    6. Safety
    7. Attractive quality of life
    8. Economic and political stability
    9. A highly skilled labor pool
    10. Telecommunications infrastructure


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