Chile aims to be a key supplier of IT and related services to the U.S. market, but its key challenge is that it does not have the large number of trained people required to compete with the large software and services operations in India and the Philippines.
The country is now planning to grow its outsourcing business to the U.S., by focusing on high-value work, and also by partnering with other Latin American countries that have larger populations and skilled staff.
For a country like Chile with a small population and market, the U.S. is an obvious target market for IT services, said Juan Carlos Munoz, CEO of Chile-IT, a trade organization of Chilean outsourcing companies that aims to promote Chile's services business in the U.S.
Chile has a population of about 16.6 million people, and the number of staff working in the country on IT services for global markets is smaller than the number of staff in a single large Indian outsourcing company.
In 2008, for example, Chile's global services revenue was about US$840 million, and the industry employed about 20,000 people, according to a study by research firm IDC for CORFO, the Chilean economic development agency.
Over 50 percent of this revenue, however, came from Latin America, with the U.S. accounting for 21 percent. The larger part of the revenue also came through foreign companies operating in Chile, rather than from the more numerous local companies, IDC said.
Over half of the country's global services revenue came from engineering services, application software development, and research and development (R&D) services, according to IDC.
Chile's intention is however not to compete with India and the Philippines in volume businesses like software development and other services, but to focus on high value-added services, said Carlos Bustos, global services director of NovaRed. "You can't get the people required for that kind of work in probably the whole of Latin America," he said.
Getting good quality technical staff in Chile is not a problem for NovaRed in Santiago, which offers managed security services mainly to customers in Latin America.
The work that NovaRed does is niche and specialized, and doesn't require a large number of people, Bustos said. The company's main facility in Chile employs 150 people, but the company has also set up a services center in Argentina with 40 staff, to address the local market and to take advantage of local staff. This strategy of expanding in the region to hire staff may continue if business from the U.S. picks up, Bustos said.
Customers in the U.S. get services from NovaRed in the same time zone, rather than from staff working on a night shift at higher rates at an Indian outsourcer, Bustos said.
Analysts think Chile can play an important role in the outsourcing business. "Chile is one of top five popular destinations in Latin America for near-shore and offshore work," said Avinash Vashistha, chairman and CEO of Tholons, an advisory firm for global outsourcing and investments. Despite the small population of the country, Chile has good quality talent for niche work in specialized domains, he added.
Chile has a sophisticated talent pool with pockets of strength in IT applications, IT infrastructure and industry-specific IT implementations, said Anand Ramesh, research director at Everest Research Institute. The country also has top quality infrastructure like roads, telecommunications, and electricity, but it is among the more expensive locations in Latin America, so it is not the place a customer would choose to dramatically cut costs, Ramesh added.
For a large buyer looking to build a global portfolio, Chile's role would most likely be that of a small-scale location with a specialization on higher-value knowledge services or IT activities, Ramesh said. It is unlikely to be the place where the biggest offshoring adopters, like the large U.S. banks, have a thousand or few thousand people doing their work, he added.
Chile has also invested significantly in training staff to speak in English, said Peter Leatherbee, marketing manager at Excelsys, a product company in Santiago that is focused on online banking for small and medium size banks.
Chile's highly educated staff are typically also well trained in English, said Manuel Ravago, research director at Tholons. As the country's services industry is more likely to hire highly educated people, getting people who know English is not a problem in this segment of employees, he added.
India or the Philippines may be cheaper than Chile and similar countries in delivering services, but they may not necessarily be the most capable in delivering specific services, Ravago said. Countries around the world are developing specializations, and Eastern Europe for example is fast emerging as hotbed for clinical research outsourcing, Ravago said. One of the unique advantages of Chile has been its ability to provide niche services or focus on specific industries, he added.
Besides investing in building talent in Chile, the country's outsourcers also plan to tap staff from other countries, Munoz of Chile-IT said. The policies in the country have been liberalized to allow companies to hire workers from abroad. NovaRed's facility in Chile has a mix of locals and people from Argentina and other countries, Bustos said.
As business picks up, Chile, which is politically stable and has a growing economy, also plans to position itself as a conduit or hub for the delivery of services from Latin America to the U.S and other key markets, Munoz said.
"We will by this model be able to leverage our own resources, as well as those of our neighboring countries," Munoz added.
Chile-IT expects that other Latin American outsourcing companies will partner with Chile to address the U.S. market. Likewise, U.S. companies will look to Chile as a partner to get access to services not only from Chile but from the rest of Latin America, Munoz said.
Chilean IT services companies are already setting up operations in other countries in Latin America to benefit from the skilled staff available in these countries, and to offer services to customers, Bustos said. Chilean IT companies will set up operations in these other countries or contract the work to companies there, Munoz said. "We will deliver the high-end services from Chile, while some of the other volume work can be done from other countries that have larger populations and staff," he added.
The challenge for Chile is to build its business in the U.S. market where some of its companies are not well known. Local Chilean companies are adopting a variety of strategies. NovaRed for example has partnered with system integrators in the U.S. to market its services to customers there, Bustos said. "We complement the services offered by the system integrators," he added.
Although all its revenue comes currently from Latin America, NovaRed expects its one-year-old strategy to start getting it revenues from the U.S. market soon, Bustos said.
Chile-IT is helping local companies gain visibility in the U.S. market by helping them open offices and do business in the U.S., Munoz said.
Having multinational IT companies set up subsidiaries in Chile has also helped the country gain credibility as an IT location, Leatherbee said.
European IT services company Capgemini and India's Tata Consultancy Services have operations in Chile.
Chile is also likely to be attractive to U.S. customers who are looking to diversify the locations they currently source services from, Busto said.
This story, "Chile Aims for the High-End of Offshore Outsourcing" was originally published by IDG News Service .