Nearshore Call Center Locations Rapidly Mature as the Call Center Industry Continues to Grow

The popularity of nearshore call center locations continues to increase as companies are seeking alternatives to the Philippines, India and other offshore locations. However, the site selection process can be very challenging in the region due to significant differences in labor scalability, wage inflation, bilingual skills, business climate, business continuity, economic incentives and real estate availability across all of the different markets in Latin America and the Caribbean.

To help guide you throughout the nearshore site selection process, I wanted to provide some of the lessons learned by our team of global call center site selection experts when you are trying to set up a nearshore call center.

Cities to consider in the site selection process
There are a number of Central American, South American and Caribbean cities that are viable options for companies looking to set up a new call center. Mature cities such as San Jose (Costa Rica) and Panama City (Panama) have been at the forefront of the nearshore movement, which has caused wages to be higher than other locations in the region. Other cities, such as Guatemala City (Guatemala), San Salvador (El Salvador), and Managua (Nicaragua) have been maturing very quickly while maintaining lower-wage structures.

Meanwhile, there are still some emerging markets in places such as Tegucigalpa (Honduras), Belize City (Belize) and Georgetown (Guyana) that have been quietly hitting the radar of call center companies. The following table compares several of the key cities in the region:

Companies that have expanded in the region
The region continues to attract some major call center projects from companies across the world. These corporations range from brand name in-house call centers like Amazon to third-party call center business outsourcing providers such as Alorica, Convergys and Sykes. The following table identifies where some of these companies have chosen to locate:

Key advantages of nearshore call center locations
The Latin America and Caribbean region continues to be a leading destination for call center and shared service center operations. Some of the key reasons include the following:

1. Labor costs are low. You will typically find labor to be 50% to 75% lower than wages in the United States. For example, a bilingual call center worker earns between $2.50 and $5 per hour depending on the city in which you locate. The comparable employee would cost $10 to $12 per hour in the United States. However, the employee benefit load will range from 40% to 50% as compared to 30% t0 35% in the United States.      
2. English speaking skills can be excellent. Access to English speaking labor is one of the main factors for the regions success. In Central America, English skills will vary greatly; however, the Caribbean offers English as the primary language in most of the islands. You can also find a lot of European languages throughout the region.
3. Skillsets of employees can be very good in certain geographies. There are a handful of cities that have the capability to perform higher-end activities such as software development and shared service functions such as finance and accounting. San Jose (Costa Rica) is probably the leading advanced location that has been very successful in attracting a diverse group of companies including HP, IBM, Oracle and P&G.
4. Proximity to the United States is desirable. The ability to get direct, short flights from major hubs in the United States has become a very important factor as companies realize the time and expense required to run a nearshore geography versus an offshore location like India or the Philippines. Some of the best entry points to the Caribbean are Miami, Atlanta and Charlotte while Central America is most accessible via Dallas, Houston and Miami.  

Challenges facing the nearshore destinations
Doing business in a Third World country can be challenging. There are many roadblocks that companies will face as they try to expand into nearshore geographies. These challenges may be isolated to one country or city; however, they can present significant challenges when trying to get call centers launched. Some of the challenges include the following:

1. Minimal scalability of labor markets. Due to the low population levels in most of the cities within Central America and the Caribbean, it can be very difficult to find a mass of workers with the required skillsets. You must carefully evaluate the long-term availability of workers and be prepared in the event that your facilities will not be scaled up to the level of other geographies with larger population levels.
2. Call center saturation is increasing rapidly. Most of the tier 1 markets have been really picked over. Some of the larger BPOs and captives are already well established which creates a lot of challenges when entering the market. The critical saturation rate in the U.S. to avoid is between 3% and 5% while in nearshore locations we are seeing it closer to 10% if you are lucky enough to identify all of your competition.
3. Wage inflation is high. Wage inflation is a critical factor that will quickly diminish the savings of locating to nearshore and offshore geographies. The annual wage inflation rate will range from 5% to 10% in most nearshore locations.
4. Geopolitical risks pose challenges. Corruption and crime continue to be a problem in Central America. You will need to be prepared to deal with corruption within the local governments and by the various suppliers in order to get up and running in many of these locations. In addition, drug smuggling is prevalent in the region, which can also influence crime and corruption.
5. Weather risks can be significant. The recent onslaught of hurricanes has drawn a lot of attention to the risks of being located in many of the nearshore locations. These natural disasters can shut a site down for months so it is critical to have a disaster recovery plan. 
6. Capital intensive to set up an operation. The cost to open facilities within the region can be very costly, with little support from landlords or the governments to help offset the startup expenses. Even though real estate costs are similar to the United States, there typically will not be any tenant improvements provided and the governments typically don’t provide economic incentives to offset those costs.
7. Lack of good call center real estate options. Real estate availability is very limited in most locations. Some call centers are choosing the central business districts where high-rise office buildings are converted to a call center, creating its own set of challenges. Others are picking suburban locations that are less competitive for labor; however, they are having to convert retail space which is expensive.
8. Time required to launch a site. You need to be prepared for everything to take longer than expected when trying to set up a new facility. You will need to set up a corporation, which can take some time. However, the biggest delays occur in the construction schedule due to a less advanced approach to construction. In addition, the lead time for furniture and equipment will typically take much longer since you will likely have to get shipped in via a container.

Conclusions
The desire to find the next Philippines continues. This has pushed companies to grow in Latin America and the Caribbean at a very rapid pace. The success of the region is evidenced by the numerous call centers that have successfully opened there. This success has created some growing pains for companies operating there and challenges for companies trying expand into the region. As a result, the ability of nearshore locations to handle the long-term growth of the call center industry will probably be the single biggest challenge faced by the region.