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Caribbean & Central America (CCA) BPO & Contact Center Report 2012Leading the ‘Core Nearshore’ Momentum

Caribbean & Central America (CCA) BPO & Contact Center Report 2012© Zagada Institute • Reproduction without written permission is completely prohibited.

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ZAGADA INSTITUTE

Caribbean & Central America (CCA) BPO & Contact Center Report 2012

Leading the ‘Core Nearshore’ Momentum

December 2011

All Rights Reserved.

No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publisher, Zagada Institute, an arm of Zagada Markets, Inc,.

The data presented in this report is believed to be accurate and correct at the time of publication, but cannot be guaranteed. While the information presented in this report is based on data gathered from primary and secondary sources, the Zagada Institute is not in a position to always guarantee the reliable of the information given. Consequently, the Zagada Institute or Zagada Markets, Inc. cannot accept any liability for actions taken based on any information that may subsequently prove to be incorrect.



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Dear Executive:

We are delighted to offer a complimentary license of our latest study - the Caribbean and Central American BPO and Contact Center BPO Report 2012. The report was independently publish in September by the Zagada Institute, and is now being distributed with the welcomed and appreciated sponsorship from the governments of Jamaica, Trinidad, Guatemala, and Honduras; together with regional service provider and tech park firms: Island Outsourcers (IO), United Nearshore Outsourcers (UNO), and Tamana Tech Park. We are also grateful to Moodstudio our design agency partner in preparing this report.

The Caribbean and Central American Nearshore BPO industry is experiencing significant growth, with eighty percent of its US$2 billion revenues in 2010 coming from U.S. contracts. The region now represents the third leg in the BPO outsourcing triad inclusive of the Philippines and India.

The US$3 billion in annual economic impact generated by the industry has resulted in deepening government spending on talent formation and communication infrastructure. Over 750,000 students are now attending the region’s 200 plus universities and institutions with over 150,000 graduating each year. Many are entering the labor pool with firm-specific, work-ready skills to serve you and your clients.

Service providers - both local and international - are deploying capital and expanding their regional operations, and private equity firms are actively engaged in the region. Whether you are looking to expand with your own captive operation, contract a service provider, invest or acquire a regional player, the region now deserves a serious look, and we are here to help and guide you. Proximity, preparedness and proficiency (both cultural and operational) are accessible at competitive costs, with high reported levels of satisfaction based on client surveys.

We invite you to touch base with our sponsors or contact us directly for a complimentary hour of consultancy on entering the region. Happy holidays and looking forward to hearing from you and working with you during 2012.

Best regards,

Philip PetersChief Executive OfficerZagada Markets

Please reach me at [email protected].



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“Small Means Big”

TM

TM



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TABLE OF CONTENTS

I. EXECUTIVE SUMMARY & OVERVIEW 7 pag.

II. SERVICE EXPORT REVENUES 12 pag.

III. EMPLOYMENT & ECONOMIC IMPACT 15 pag.

IV. COMPANIES & INVESTMENTS 21 pag.

V. CHALLENGES & THREATS 34 pag.

VI. SUMMARY & CONCLUSION 46 pag.

VII. ZAGADA CARE INNOVATION MODEL 56 pag.

VIII. DEFINITIONS 59 pag.

IX. FIGURES & TABLES



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List of Figures

• Figure 1. Caribbean BPO & Agent Density 2009 - 2012 9 pag.• Figure 2. BPO Worker & Agent % 2010 - 2012 14 pag.• Figure 3. Number of Companies by Market (2011) 16 pag.• Figure 3a. Comparative Company Growth 2009-2012 16 pag.• Figure 4. Nearshore Telecom (T1) Rates 2011 20 pag.• Figure 5. Average Daily Wage Rates 2011 22 pag.• Figure 6. Regional Economic Impact 2011 - 2012 (US$$ million) 24 pag.• Figure 7. Regional Revenues 2011 - 2012 (US$$ million) 27 pag.• Figure 8. CA BPO & Agent Density 2009 - 2012 9 pag.• Figure 9. CA BPO Worker & Agent % 2010 - 2012 14 pag.• Figure 10. CA Companies by Market (2011) 17 pag.• Figure 10a. CA Comparative Company Growth 2009-2012 17 pag.• Figure 11. CA Telecom (T1) Rates 2011 20 pag.• Figure 12. CA Average Daily Wage Rates 2011 22 pag.• Figure 13. CA Regional Economic Impact 2011 - 2012 (US$$ million) 24 pag.• Figure 14. CA Regional Revenues 2011 - 2012 (US$$ million) 27 pag.• Figure 15. CCA Markets Growth Segmentation 54 pag.• Figure 16. Zagada Metacare™ Framework 58 pag.

List of Tables

• Table 1. Caribbean BPO Worker & Agent Growth 2009 - 2012 28 pag.• Table 1a - Key Projected Growth Metrics 2012 10 pag.• Table 2. Caribbean Country Assessment Index 2011 32 pag.• Table 3. Caribbean Performance Indicators 2011 - 2012 35 pag.• Table 4. Caribbean Country Cost Comparison (2011) 39 pag.• Table 5. Nearshore & Offshore Comparison Evaluation Index 42 pag.• Table 6. Caribbean Cost & Well Being Matrix 2011 (1=Worse, 5= Best) 45 pag.• Table 7. Caribbean Leading Service Provider Companies 2011 47 pag.• Table 8. CCA Service Technology Vendor Market Share 2011 (%) 49 pag.• Table 9. CA BPO Worker & Agent Growth 2009 - 2012 29 pag.• Table 10. CA Country Assessment Index 2011 33 pag.• Table 11. CA Performance Indicator 2011 - 2012 36 pag.• Table 12. Caribbean Country Cost Comparison (2011) 40 pag.• Table 13. Key CA Projected Growth Metrics 2011 11 pag.• Table 14. CA Leading Service Provider Companies 2011 48 pag.• Table 15. CCA Economic Performance Indicator 2011 – 2012 50 pag.• Table 16. Leading Indigenous and Captive Service Providers 2011 51 pag.• Table 17. Leading & Emerging Indigenous Service Providers 2011 52 pag.• Table 18. M&A Transaction Summary 2009-2011 53 pag.• Table 19. Service Help Experience Level Listing (SHELL™) 61 pag.



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I. EXECUTIVE SUMMARY

This new combined Caribbean and Central America (CA) - (CCA) Nearshore region report is the final in the Zagada Institute’s (ZI) regional studies. The company is moving to a customized data analytics subscription model executed through its ZeDoop platform currently under construction. Consequently, this report is fundamentally driven by data capture, with a concise executive summary, contextualizing and highlighting the salient points and trends, coupled with critical insights. Clients seeking a more elaborate understanding of the datasets, or matters of criticality are able to access Zagada at no additional cost, for conference calls, or through email requests on any clarification needed.

This report builds on the analysis of ZI’s Caribbean October 2008 and Central America’s August 2009 reports. As was shared with clients several months ago, certain regional markets – particularly in the Caribbean segment, engaged in deliberate data inflation – particularly related to incorrect worker density metadata submission to ZI. This study takes pain to drill into the heart of the reported data from economic development agencies (EDAs), by expanding our validation process through extensive independent interviews with a large subset of service provider companies engaged in the region. ZI has integrated several of its key proprietary metrics in its analysis to include: Metacare, Care, SHELL, Adaptivists, Sdpf and DigitalGNP or dGNP.

Now to our concise summary on the region’s current and year ending 2012 projected performance.

ZI categorizes the CCA Nearshore market into three growth segments to include:

Maturing (Costa Rica, Panama, Jamaica, Dominican Republic, Puerto Rico, Barbados), Contending (Guatemala, El Salvador, OECS, Guyana) and Emerging (Trinidad, Nicaragua, Honduras, Belize). (see Table 1a).

Over US$ 2 billion in 2011 revenues created in excess of US$3 billion in economic impact from its 125,000 workforce. Employment in the sector is projected to just surpass 20% growth in 2012. While over 200 registered firms operate in the region – most are small. A dozen plus international firms and a handful of well-managed indigenous operators, who have effectively scaled their businesses, generate approximately 75 % of the region’s employment and revenues.

Mergers & Acquisitions (M&A) activities produced US$700 million in transactions over the last 36 months. The BPO M&A landscape is principally defined by U.S., Indian service provider operators and European private equity firms as buyers of indigenous mid-size firms, with revenues ranging between US$30 and US$300 million. Operating margins average 14%.

ZI’s validated analysis on the true state of growth and dynamics of the CC A Nearshore market indicates that its service globalization outsourcing trade economics continue to trend positively (22%), albeit, at a less robust pace experienced in the 2007-2010 period featured in earlier ZI reports (34%). For the first time, Central America has now bypassed the Caribbean segment on all key fronts: aggregate agents and worker capacity in the sector, company revenues, and governments’ spending and inward foreign direct investment (FDI) in the sector.

Furthermore, the product mix in the region is evolving and maturing from pure contact center projects, with back office, shared services, and technology and web-enabled support, now representing approximately 20% (previously 12%), of regional revenues. This trend portends well for higher projected company margins and a growing opportunity for the CCA Nearshore market to lift the competencies, capabilities and service delivery - complexity of its 125,000 regional workforce.



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Jamaica Promotions Corporation

Jamaica’s Trade & Investment Agency



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Source: Zagada Institute

Figure 1. Caribbean BPO & Agent Density 2009 - 2012

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Table 1a.


Country Workers Revenues(mm)

EconomicImpact(mm) Companies

Puerto Rico 105 110 27

2,500 45 40 16

OECS 3,000 55 40 14

Trinidad 1,500 25 20 4

Guyana

Totals

5,000 90 80 15

70,250 1,230 1,151 182

6,000

Barbados

Dominican Republic 680 600 72

13,250 230 224 34

39,000

Jamaica

Key Caribbean Projected Growth Metrics 2012



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Table 13.


Country Workers Revenues(mm)

EconomicImpact(mm) Companies

Totals

Key CA Projected Growth Metrics 2012

Costa Rica 28,500 499 570 30

Guatemala 16,000 280 320 67

Panama 12,000 210 240 55

El Salvador 8,500 149 170 16

Nicaragua 2,500 44 50 6

Honduras 1,400 7 8 4

Belize 1,000 18 20 3

69,900 1,207 1,378 181



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Over 750,000 students are now attending the region’s 207 universities and institutions with over 150,000 graduating each year. While the 6.7 million English-speaking Caribbean segment has a workforce approximately 3 million; both companies and governments in the Dominican Republic and the Central American segment are aggressively investing in bi-lingual educational spending to deepen talent-ready, bi-lingual – English-ready “firm specific” capacity.

Intensifying CCA Nearshore capability, execution and performance is increasingly critical when evaluated from a global competitive posture. Perceived as both competitors and collaborators, the CCA Nearshore principally competes with India and the Philippines for U.S. BPO contracts. Year ending 2010, the Philippines and India generated approximately 350,000 and 320,000 BPO and contact center positions respectively, with US$6 billion and US$5.5 billion in corresponding revenues.

By contrast, the CCA Nearshore is on track to generated $2.2 billion revenues and 125,000 positions in 2011, reflecting the region’s capacity to compete well. Sector specific growth will create an additional US$3 plus billion in direct economic impact (EI) by the end of the year - and will surpass the US$4 billion mark in 2012. (see Table 15).

Additionally, with U.S. corporate service buyers increasingly demanding closer – at – home solutions, large Indian service providers such as Genpact, Tata Consulting Service (TCS) and others, are deploying capital to establish their own captive Nearshore centers, to complete their full global footprint. Aegis’ recent acquisition of US$50 million - Argentina based Actionline, and Genpact’s purchase of GE Money’s Guatemala’s BPO operation, reflect this new strategic Nearshore expansion trend for the Indian operators. Previously, U.S. and European service providers and private equity firms dominated most M&A activities in both the CCA and wider Latin American Nearshore.

On August 1st, 2011. Genpact further announced its first South America expansion (Brazil, Sao Paulo), with the launch of its finance and accounting (F&A) BPO center to initially serve Astra Zeneca. The size of the investment was undisclosed. With established footprints in key Asia-Pacific and European cities, these strategic capital expansion-driven Nearshore actions by Indian operators certainly accentuate the tactical response defining service globalization competition, to include Nearshore deliverability.

The fundamental challenges facing the CCA Nearshore market is not dissimilar to previously outlined issues in earlier reports – though in some areas a new acuity is needed (see Section: V). They principally include the need for ongoing solidification in mid-level management training to optimize business performance, deepening English - ready, firm specific talent-capacity, effective redundancy and risk mitigation planning, and increase in governments’ expenditure on the sector.

II. SERVICE EXPORT REVENUES

Projected 2011 aggregate CCA Nearshore revenues will exceed US$2 billion for the first time (US$2,218mm). Revenue split between CA and Caribbean segments reflects a tip, favoring CA momentum with US$1.20 billion projected revenues, followed by a US$1.011 billion for the Caribbean segment. This is significant, given that the Caribbean segment has historically lead performance from 2002 to early 2010. CCA revenues are projected at US$2,674 year ending 2012, thus reflecting a 20% growth or US$456 in additional revenues (see Tables 3, 11).

For companies, the income mathematics shows that every 1,000 worker - positions per contract, generates between US$15 to US$20 million in revenues. Margins scale upwards between 7 to 18 percent on the service contract continuum from basic outbound call



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Figure 2. Caribbean BPO Worker & Agent % 2010 - 2012

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Figure 9. CA BPO Worker & Agent % 2010 - 2012

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As stated earlier – for companies engaged in the space - the income calculus shows that for average every 1,000 worker - positions per contract, generates between US$15 to US$20 million in revenues. Margins scale upwards between 7 to 18 percent on the service contract continuum from basic outbound call center activities up the value chain to non-voice; back office BPO shared services, finance and accounting (F&A) functions.

An additional 13,000 plus new Business Process Outsourcing (BPO) back office, shared services and contact center jobs will enter the sector in 2011, with projected aggregated employment reaching almost 125,000 (124,600) workers by the end of 2011. The CCA Nearshore market is on target to exceed 150,000 (152,750) workers by the end of 2012, reflecting an additional 28,150 new workers entering the sector. Six countries generate close to 90% (86%) of the region’s capacity and revenues. In order of performance they include: Costa Rica, the Dominican Republic, Guatemala, Panama, Jamaica and El Salvador.

The Dominican Republic (DR) (33,000), and Jamaica (11,200), occupy almost 75 percent (74%) of the Caribbean’s work force, with a 54/20 percentage split respectively. While the Caribbean talent base will grow by 23 percent in 2012, the segment’s workforce market share split remains relatively the same in 2012.

The markets in the Southern Caribbean cone have held growth steady. The figures from those markets are verified as 9,000 (16%), and will add another 3,000 (17%) jobs by the end of 2012, with just about the same relative market share. Though late to the game, Guyana has demonstrated the most impressive growth, expanding its agent base from 600 in 2008, to reach 4,000 year ending 2011. The market is projected to add 1,000 new sector jobs to its workforce in 2012 (see Tables 3, 11, 15).

center activities up the value chain to non-voice, back office BPO shared services, finance and accounting (F&A) functions and the like. Average company sector profit margin hovers around 14%.

While Nearshore revenues will expand for the foreseeable future, ZI projects that companies will experience gradual erosion in margin health. This will be driven by higher wages occasioned by increased service provider competition. An effective antidote to this prognosis is the need for service providers to deliver an incredibly high and consistent service product – defined by ZI as Metacare™ (see Table 16).

III. EMPLOYMENT & ECONOMIC IMPACT (EI)

Service globalization (outsourcing) trade is projected to generate over US$3 billion (US$3,270) in direct EI across the CCA Nearshore economy by the end of 2011. The Central America and Caribbean segments will generate US$1.8 billion and US$1.5 billion respectively. In 2012, over US$700 (US$739) million in new transactions will create in excess of US$4 billion (US$4,009) in net EI by the end of the year. The additional US$456 million in revenues above 2011 numbers will create this expanding EI effect. (see Tables 3, 11, 15).

It is important to note that ZI’s analysis on EI multiplier effect cited in its early August press release was underestimated, due to the use of wage, labor and inflation data based on 2008/9 numbers. Having now adjusted for the above listed effects in 2011 wage inflation terms, the EI impact is corrected to reflect our validated analysis. In effect, each 1,000-sector jobs now generates approximately US$26.5 in economic impact.



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Caribbean Number of Companies by Market (2011)Figure 3.

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CA Number of Companies by Market (2011)Figure 10.

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Costa Rica continues to secure the leading position on most measures, namely: total number of workers in the sector, maturity in its service mix to principally include shared services, high end BPO, advance manufacturing, life sciences and clean technologies; and a solid portfolio of multinationals such as, Fujitsu, Teleperformance, Pfizer, Roche, Hewlett-Packard, Amazon, Sykes, and IBM, who recently announced plans to invest US$300 million and create an additional 1,000 new high end technology service jobs.

Auxis, a Florida based management consulting and outsourcing advisory firm, also recently announced IT/F&A expansion in their Costa Rican operations. Costa Rica’s 28,500 sector workers are projected to reach 33,000 by the end of 2012. It occupies about 40 percent of the Central America segment’s worker capacity (see Figure 8). However, in some areas the country receives lower scores than its peers in both segments due to its relatively high wage rates, and non-competitive telecommunication costs.

Guatemala also appears to be executing a winning strategy and has now grown to bypassed Panama to secure the number two position in the CA segment with 16,000 agents. Panama will have 12,000 workers by the end of 2011. Both markets will add 4,000 and 1,500 workers respectively, by the end of 2012. While a total of 100 firms operate in both markets, four of Panama’s U.S. service provider firms generate most of the international transactions with a total of 9,000 workers.

They include: Sitel (3,000), Dell Panama (2,200), Star Contact (2,000 employees – now an NCO company), and National Asset Recovery Services (2,000 employees). A handful of Guatemala’s 65 plus operators generates 80 percent of the market’s revenues. Key players include: Transactel/Telus (6,000), Atento (4,000), Digitex (3,000), Genpact (1200), and ACS (1,500).

KM2 – an Atlanta headquartered BPO with operations in Barbados, St.Lucia and Grenada, and of late, Honduras, is the lead operator in the network of the smaller Eastern Caribbean States (OECS) and Barbados markets, with approximately 1,000 workers. Barbados, which has a mature history in the sector, is projected 300 new workers to end the year with a 2,000 work force. Puerto Rico, with about 4,000 sector workers is essentially a local market, and is rendered uncompetitive from an outsourcing labor arbitrage perspective.

While the Trinidad market has deep potential to emerge into a solid higher value BPO/IT hub like Costa Rica has achieved, its social infrastructure challenges, high telecom connectivity costs, and its lack of local and international sector players, coupled with anemic commitment by eTeck and other government related entities, render the market challenging but hopeful.

The market’s educational base, capital strength, low energy cost and the warm nature of its people are features to exploited for positioning new entrants into the market. But alas, its preponderance for and ultimate reliance on its powerful energy generated export growth – particularly natural gas – continues to seduce government’s priorities in favor of the know rather than the gains promised from economic diversification. Trinidad remains an incubated promise.

In the Central American segment, on the other hand, the competition among countries to win business, create jobs and expand their economies with outsourcing service trade is a vigorous engagement. As was done in our previous reports, ZI categorizes the region along the growth continuum to include: Maturing (Costa Rica, Panama), Contending (Guatemala, El Salvador), and Emerging (Honduras, Nicaragua, and Belize). A similar Caribbean configuration yields: Maturing (Dominican Republic, Puerto Rico, Jamaica, Barbados), Contending, (OECS, Guyana), and Emerging (Trinidad).



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1.3 million

- Internet subscription has risen 26.91% per year since 2001, with a cumulative penetration rate of 61.8%

- Rates for ICT-enabled services have fallen across the board, making Trinidad & Tobago highly cost-competitive

- Increasing bandwidth capabilities and decreasing connectivity costs

- Mobile penetration is an estimated 141.1%

- Trinidad & Tobago has the highest literacy rate in the Caribbean at 98%

- The University of the West Indies and the University of Trinidad & Tobago produce more than 400 graduates each year

who specialise in ICT from a total graduating class of 8,000 annually

- invesTT is the nation’s first line investment promotion agency aligned to the Ministry of Trade & Industry.

Our mission is to grow Trinidad & Tobago’s non oil & gas sectors significantly and sustainably. We deliver

customized investor solutions through our unique combination of knowledgeable sector experts, strategic

alliances and extensive network of real estate and technology parks.

Open

Why invest in Trinidad & Tobago?

Trinidad & Tobago An Emerging Centre for BPO

for Business



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Caribbean Nearshore Telecom (T1) Rates 2011

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CA Nearshore Telecom (T1) Rates 2011Figure 11.

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Notwithstanding, the Caribbean and Central American components of the overall Nearshore market service offer is progressively establishing itself beyond the significance of a niche player. Acting together as complimentary units, both Caribbean and Central America segments are playing their role in projecting the overall Nearshore value within what is perceived as the global BPO triad to also include India and the Philippines.

Sustained, future growth looks secure - given high levels of reported U.S. corporate buy - side companies’ service delivery quality (metacare™) satisfaction scores. Agent and BPO worker cost inflation has grown modestly, and average attrition levels are relatively low (in the mid teens), when compared to markets such as Mexico, and India, which register attrition rates between 50 – 70 plus percentage points on an annualize basis (see Tables 5, 5a).

Nonetheless, apart from the market based threats faced by regional operators and regional economies, all participating entities must be prepared to face and pre-empt threats and meta-threats as potential disruptors to growth. They include, U.S. policy changes, natural disasters such as hurricanes and earthquakes, and security and operational risk issues such as mid-management training, data theft and technology related disruptions. Companies and governments are well advised to take serious measures to ensure that back up, redundancies, and contingencies planning define their operating priorities.

IV. COMPANIES & INVESTMENTS

While both segments in the CCA Nearshore economy have generated an impressive portfolio of small and mid-size indigenous BPO starts ups that are scaling their businesses; over 75% of revenues and hires are generated by multinationals and a handful of well-scaled local firms such as Jamaican based eServices

Belize has three operators but one firm – Ready Call Center - with 700 plus agents is the principal driver of that economy. A second firm, Transparent BPO, - from the U.S., has recently opened operations in Belize.

Honduras’s anemic growth over the last 24 months was mainly constrained by the political instability in that market. Nonetheless, it is beginning to regain some momentum with KM2’s recent expansion into Group Karim’s San Pedro Sula’s Altia Park with numbers approaching 200 agents.

At the writing of this report, Altia confirmed that U.S. operator StarTek has signed an agreement with them, which will create 800 new hires in 2011. Such emerging success bodes well for future wins for its capital in Tegucigalpa. It is important to note that the 14-floor Altia Business Center is the first of three construction projects in Group Karim’s master development plan. The company also owns the Green Valley Industrial Park.

Despite recent statements by Nicaragua’s President Daniel Ortega proposing a referendum to demand the U.S. pay for damages to the Central American country for the U.S. support of the Contras involvement in its civil war; U.S. service providers continue to deploy capital and grow their operations in that market. Nicaragua will have 2,500 agents by the end of 2011 and grow to 3,500 in 2012.

Of note, is AccedoTechnologies, an indigenous operator, with 500 plus employees, who is scaling and focusing well on growing its BPO enterprise. The Accedo project is a hybrid between its tech park and its operating BPO unit. Financing was obtained through the Central Economic Integration Bank, known as BCIE for its Spanish initials. An interesting participant in the investment round is HEMCO, a mining corporation who is making a strategic expansion bet in the new BPO sector.



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Caribbean Average Daily Wage Rates 2011Figure 5.

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Nearshore, given that most major transactions include a common or overlapping pool of buyers. This is also done to show the inter-connected flow of capital into the Nearshore – which is seen as a single market by buyers and investors.

In summary, 15 BPO deals were executed across the full Nearshore spectrum, valued at US$700 million. These transactions involved three South American markets (Argentina, Colombia, Peru), five Central American markets (Costa Rica, Panama, Guatemala, El Salvador, Nicaragua); and four in the Caribbean (Jamaica, Dominican Republic, St. Lucia, Barbados). Eight U.S. firms, two Indian operators, and two French buyers executed these transactions. Key buyers include: ACS, Sykes, NCO Group, KM2, Concentrix, Stream Global Services, Teleperformance, H.I.G Capital , Eton Park Capital, and Aegis and Genpact mentioned above.

With the exception of Eton Park and H.I.G Capital, which are private equity firms, the buyers are operating service provider companies directly engaged in the full spectrum of BPO and contact center service delivery. It should be pointed out that Capgemini has a BPO operation in Guatemala and continues to grow its investment in that operation. Of note, however, is the company’s acquisition of a 55% stake in Brazil’s market-leading IT outsourcer CPM Braxis for US$300 million. CPM Braxis services clients such as Syngenta and Danisco – whose services reach across the Central American region and the DR.

The target companies were all the products of local entrepreneurs, who had grown their businesses with sweat equity, local capital and some U.S. venture capital participation (see Table 17) in some local firms. A preponderance of revenues were driven by English-speaking contracts from U.S. corporations. Secondary revenue streams came from four additional segments: U.S. Hispanic, Spanish-language local in-country business, pan-Latin American assignments

(acquired by ACS), Panama based Star Contact (acquired by NCO Group), and Guatemalan based Transactel (strategically integrated with Telus).

Leading BPO multinationals engaged in the regions include: Stream, Sitel, IBM, ACS, Convergys, West, Teleperformance, TeleTech, Capgemini, IBM and Sykes. Capital from these service provider companies, and private equity firms continues to grow and fund expansion in the sector.

An estimated US$500 million in merger and acquisition (M&A) and investment transactions will define the investment CCA Nearshore landscape by 2011. Approximately US$200 million in transactions have already occurred over the last 30 months (see Table 18). Representing perhaps the most significant investment for the region - over the last decade - is Costa Rica’s recent win in securing IBM’s commitment to invest US$300 million in the country. As was stated earlier, the investment will create a projected 1,000 upper - tier professional technology jobs by 2014.

By comparison, the deal is double in size to GE’s recent US$150 million investment in Brazil, for one of its fifth global research and development center. Concentrix, a Synnex company, also recently announced a US$4 million expansion in its Costa Rican operations, with its new facility capable of housing 1200 workers. The company currently employs 250 employees. Panama, Guatemala, Jamaica, Barbados, the Dominican Republic, and St.Lucia were beneficiaries of M&A transactions.

While the entire Latin American and Caribbean Nearshore markets as a whole, generated approximately US$700 million in BPO M&A transactions over the last 30 months – the CCA Nearshore segment secured 36% net M&A transactions. While this report principally centers on outsourcing economics in Central America and the Caribbean, we are integrating BPO M&A commentary on the wider Latin American



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Figure 6. Caribbean Regional Economic Impact 2011 - 2012 (US$$ million)

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Figure 13. CA Regional Economic Impact 2011 - 2012 (US$$ million)

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was undisclosed. Both companies were founded by local entrepreneurs — Patrick Casserly (e-Services) and Gustavo Barrionuevo (Multivoice). At the time of the transactions, e-Services’ annual sales approximated $65 million, driven by its 4,000 agent workforce, while Mutivoice’s annual revenue topped $40 million with 6,000 workers.

Another significant 2009 Latin American deal was the purchase of Bancolombia’s BPO subsidiary - Multienlace, Argentina’s Actionline Cordoba (a separate legal entity to Aegis’ acquired unit), and a smaller Peruvian contact center by a group of U.S. investors lead by Eton Park Capital Management, a U.S. private equity firm. Eton Park subsequently rebranded the three entities under the single Allus brand.

The deal was consummated after Bancolombia agreed to sell its 100% interest in Multienlace to Stratton Spain for $63 million. Stratton was also a shareholder in Actionline Cordoba. Close to 15,000 agents now work for the rolled-up firm, which offers a full range of BPO solutions to both North America and European clients (principally Spain). Allus’ estimated revenues at the time of the transaction was approximately $145 million. Executives connected to Allus indicate that they have their eyes on possible Central American targets, or may deploy their own captive center in the near future.

Colombia has also recently benefited from Teleperformance’s December 2009 acquisition of Teledatos, another leading local BPO operator with over 6,000 workers. The exact terms of the deal were not disclosed. In mid-January, 2010, Teleperformance announced another expansion with a new center in San Jose, Costa Rica. The firm is headquartered in France and has nearly 50 BPO centers worldwide. It should also be noted that the University of Bogota conducts MBA classes in Guatemala, thus emphasizing the Colombian–CA capacity building nexus.

and Spain-to-Latin-America contracts. All of the acquired firms were private entities. As a result, most transaction details were undisclosed - with only a few exceptions. Our insight into the operating dynamics of the industry suggests that firms generated transaction multiples between 1.5 to 2.0 times revenues. As was cited earlier, on average, a 1,000-seat BPO call center generates between $15-$20 million in gross revenues, a 14% margin, and produces approximately US$26.5 million in EI.

ACS was the single most aggressive buyer over the last 36 months. Its acquisition of Jamaican-based eServices for US$85 million was a signature deal for the Caribbean segment. Xerox then purchased ACS in a stock transaction valued at $6.4 billion. That acquisition came on the heels of HP’s $13.9 billion acquisition of EDS and Dell’s $3.9 billion purchase of Perot systems, reflecting an emerging consolidation in the sector.

Some Indian IT firms such as Infosys, Tata, and Wipro, with a presence in key markets such as Mexico, Brazil and Argentina, have also launched their own BPO units and some are on the hunt for local BPO acquisitions. Genpact’s 2009 acquisition of GE Money’s Guatemala center set the M&A stage for increased Indian service provider action in the sector. This insight is recently validated with Aegis’ acquisition of Argentina-based –Actionline– a company which generated US$50 million in annual revenues. The exact value of the transaction was kept private. Aegis is the BPO arm of the US$15-billion Essar Group.

It should be noted that ACS has a regional footprint covering all geographic Nearshore segments and has a long history in the region. Its 2008 acquisition of Argentina-based Grupo Multivoice was followed up in 2009 by the purchase of e-Services group in Jamaica as cited above. e-Services was acquired for $85 million while the Multivoice transaction value



27


Figure 7. Caribbean Regional Revenues 2011 - 2012 (US$$ million)

DominicanRepublic

Jamaica Puerto Rico Barbados OECS Trinidad Guyana0

200

400

600

800

1000

1200

1400

20112012

Total


Figure 14. CA Regional Revenues 2011 - 2012 (US$$ million)

0

200

400

600

800

1000

1200

1400

1600

Costa Rica Guatemala Panama El Salvador Nicaragua Honduras Belize Total

20112012



28

Table 1. Caribbean BPO Worker & Agent Growth 2009 - 2012


Country 2009 2010 2011 2012

Puerto Rico

OECS

Trinidad

Guyana

Totals

Barbados

Dominican Republic 15,000

Jamaica 8,000 10,000 11,200 13,250

4,000 4,500 5,500 6,000

1,800 1,500 2,000 3,000

2,500 3,000 4,000 5,000

34,100 44,700 55,700 70,250

23,000 30,000 39,000

1,200 1,500 2,000 2,500

1,600 1,200 1,000 1,500



29

Table 9. CA BPO Worker & Agent Growth 2009 - 2012

Totals

Costa Rica 14,000 17,000 28,500

Guatemala 8,000 12,000 16,000

Panama 7,500 8,500 12,000

El Salvador 4,000 6,000 8,500

Nicaragua 400 800 2,500

Honduras 400 1,500 400

Belize 1,000 1,200 1,000

35,300 47,000 68,900

Country Agent2011

Agent 2010

Agent2012


Agent 2009

Agent 2010

33,000

20,000

13,500

9,500

3,500

1,500

1,500

82,500



30

As a subsidiary of Madrid-based Telefonica, the telecommunications giant that ranks in revenues only behind Dallas-based AT&T Inc. and ahead of third-place Verizon Communications, Atento is quietly spreading its footprint to augment its Nearshore positioning. The company opened a center in San Antonio, Texas in October 2009 near Interstate 10 and Wurzbach Road, with BBVA Compass Bank as its base customer. BBVA is a Madrid-based international bank that expanded to the U.S. several years ago with acquisitions of several U.S. banks, including Laredo National Bank. Atento projects that it will have 2,000 workers in the U.S by 2012.

This inward investment trend into the U.S. from the Nearshore and Spain, is projected to increase. This will happen to both mitigate political pressures and to strategically win contracts from clients with specific service delivery preferences. Other U.S. CCA Nearshore examples of inwards investments include the DR’s United Nearshore (UNO) expansion into Arizona, and Telus’s acquisition of a Nevada-based center. Aegis has also established operations in Texas and New York. Its important to note, that while Indian operators are deploying capital in both the Nearshore and the U.S., it is only Qualfon – a Mexican call center group with additional centers in Costa Rica, Guyana and Argentina, that has expanded into the Asia-Pacific market (the Philippines).

Like Barbados and Costa Rica, El Salvador is not defined by its entrepreneurial flair. The market, however, appears to be driven by an effective BPO management ethic. The singular deal defining its sector was Stream Global Services’ acquisition of Dell’s 2,000-plus-seat operation. Dell’s exit from El Salvador was part of its cost-cutting strategy to get back to profitability, driven by the return of company founder Michael Dell to the CEO helm. Stream’s acquisition of the El Salvador site follows several international acquisitions by the company, including call centers in the Dominican Republic, Costa Rica and Ireland. The terms of the El Salvador transaction were not disclosed.

Noteworthy Central American transactions included NCO Group’s purchase of Panama’s 2,600-seat BPO operation, Star Contact (managed by Joe Fidangue, a native Panamian) and H.I.G Capital’s purchase of National Asset Recovery Services’ (NARS) centers in Panama and Jamaica. With the backing of its new U.S. parent, Star Contact lately expanded into Guatemala. Prior to its Star Contact acquisition, NCO Group acquired Outsourcing Solutions Inc. (OSI) for US$325 million in cash. H.I.G., a Miami-based private equity firm, facilitated its NARS transaction through its Reprise Management joint venture arm, formed in April 2009 with veteran industry specialist Tim Bauer.

It should also be noted that while Guatemala has not attracted any distinct M&A transaction as such, apart from the Genpact/GE Money deal, the country is spawning a growing a number of scalable local operators such as Transactel and Allied BPO. Several months ago Transactel and Telus International (the BPO arm of Telus – the Canadian Telecom company) integrated their regional operation, with Guillermo Montano - Transactel’s CEO – also becoming President of Telus International Central America.

Telus is now an important institutional shareholder in Transactel. The peering is now marketed as Transactel: “powered by Telus.” With an employee base approaching 6,000, the company’s revenues should be now be moving north of US$ 75 million (see Table 14).

Atento, Telefonica’s BPO subsidiary, also has a solid presence in Puerto Rico, Guatemala and El Salvador (4,000) and across the major markets in the Latin American region. It is now considered the second largest BPO/contact center firm, when accessed from a global revenue basis with a workforce exceeding 150,000 workers (152,000) in 17 countries. Close to 90% of the company’s workforce (136,000) exists in the Latin American Nearshore region, with 16,000 in the EMEA region. The company generated 893 million Euros in the first half of 2011.



31



32

Table 2. Caribbean Country Assessment Index 2011


Literacy Rates (%)

Universities, Colleges& Institutes 7 4 4 6 244 12

Population (mm)

Employment(mm)

Unemployment (%)

Parameters Jamaica OECSBarbadosPuerto Rico

DominicanRepublic

Trinidad Guyana

BPO & Contact Center Companies

Agent Density

87% 91 93 98 94 98 93

9.5 2.8 4 0.3 0.6 1.4 0.8

4.2 1.2 1.3 0.129 0.241 0.615 0.421

15.2 13.5 12 10.7 18 6.9 12

65 28 25 14 10 3 12

4,00030,000 11,200 5,500 2,000 2,000 1,000



33

Table 10. CA Country Assessment Index 2011


Literacy Rates (%)

Universities, Colleges& Institutes

Population (mm)

Employment(mm)

Unemployment (%)

Parameters Guatemala NicaraguaEl SalvadorPanamaCosta

Rica Honduras Belize

BPO & Contact Center Companies

Agent Density

67 16

16,000 8,500

71.2 80.52

9 22

13.5 5.8

5,3 2.73

14.4 13.4 8.5 9.6 14.3 15.19

30

28,500

96%

73

4.3

1.9

9.7

55

12,000

93.4

28

3.4

1.3

6

2,500

68.32

42

6

2.5

4

400

80.05

17

8.2

3.2

3

1,000

77.9

2

0.33

0.115



34

V. CHALLENGES & THREATS

Apart from the threats posed by natural phenomena such as hurricanes, earthquakes, tsunamis, and human conflict generated events such as war, terrorism, social infrastructure (crime) and cyber security challenges that the region has to contend with, a number of other strategic challenges continue to confront the CCA Nearshore market as it engages the second decade in its service globalization trade push.

Regional governments, service operators and individuals competing for opportunities in the space need to deploy both offensive and defensive strategies to win in this ever-expanding sector. Economic development agencies need to become better Adaptavists™ (see Section VIII - Definitions) to new competitive realities. The challenges are similar to the ones we outlined in our earlier studies over the years. However, the level and intensity of these challenges vary from segment to segment and from market to market. If the challenges outlined below are addressed, however, the region can be truly transformed into a compelling outsourcing economic transformation story.

U.S. and international companies require sustained action on the following list of strategic challenges:

(a) Talent CapitalThe existing pool of English-speaking and bilingual (English ready) workers across all segments continues to grow. Current needs of existing call centers and BPO operators are being met with relative sufficiency. However, the decision by certain operators to migrate and expand their operations to neighboring segments across the CCA Nearshore region, reflect certain levels of depletion in the density of the bilingual agent stock pool in key urban centers.

While some companies expand for strategic and risk mitigation purposes, anecdotal data suggests a need

Two additional Central American transactions of note, though smaller in size, as was earlier cited were Concentrix Corporation’s investment in Nicaragua-based Intelligent Outsourcing and Costa Rica-based Occidental Business Services (OBS). Concentrix is a wholly owned subsidiary of SYNNEX Corporation. In addition to the ACS/e-Services transaction in Jamaica, and the NARS HIG/Repise deal earlier mentioned, KM2, which is also cited, is the other U.S. operator engaged in acquisitions in the Caribbean. KM2’s strategy is defined by a small-market/high quality boutique acquisition approach. The company purchased ICT Group’s Barbados center, and subsequently acquired St. Lucia-based Helen IT. The company has recently launched new centers in Grenada and Honduras.

The Nearshore has begun the decade with solid credentials and huge growth potential, but not without its challenges and obstacles to overcome. Each segment and every individual market reveals differing readiness and understanding of the service globalization opportunity. Future growth is buttressed by an annual $1 trillion in consumer spending by the U.S. Hispanic population - which now exceeds 50 million, as well as the strategic decision by U.S. global suppliers to include the Nearshore in their delivery footprint.

This augurs well for small and mid-size local BPO firms and their investors. Increasing focus on the region by corporate buyers, global service providers, and private equity firms, portends well for well-scaled indigenous service provider companies ultimately seeking exits. With BPO sector jobs paying a premium in excess of 25-30% to local industry jobs, workers will continue to tap into this higher that average income stream to accelerate their economic and social well-being. When viewed with macroeconomic lenses, expansion in service globalization outsourcing trade exports and increased employment in the sector, provide regional economies and companies with an attractive opportunity for optimal diversification and future economic health.



35

Caribbean Performance Indicator 2011 - 2012Table 3.

Sector Revenues2011 (mn)

SectorRevenues2012 (mn)

Regional Economic Impact 2011 (mm)

Regional EconomicImpact 2012 (mm)

Net AgentGrowth2011-2012

Net ServiceProviderGrowth

Population(million)

Jamaica OECSBarbadosPuerto Rico

DominicanRepublic

Trinidad Guyana


Total

578

680

600

780

9,000

8

9

195

230

224

260

2,050

4

2.8

80

105

110

55

500

3

4

35

45

40

44

500

3

0.3

35

55

40

53

1,000

3

0.5

18

25

20

26

500

2

1.2

70

90

70

88

1,000

4

0.8

1,011

1,230

1,462

1,844

14,550

27

18.6



36

CA Performance Indicator 2011 - 2012Table 11.

Sector Revenues2011 (mn)

SectorRevenues2012 (mn)

Regional Economic Impact 2011 (mm)

Regional EconomicImpact 2012 (mm)

Net AgentGrowth2011-2012

Net ServiceProviderGrowth

Population(million)


Total

499 280 149

576 350 166

570 320 170

680 400 190

4,500 4,000 1,000

4 4 2

4.3 13.5 5.8

Guatemala NicaraguaEl

SalvadorPanamaCostaRica Honduras Belize

210

236

240

270

1,500

3

3.4

44

62

50

70

1,000

3

6

7

27

8

30

1,100

3

8.2

18

27

20

30

500

2

0.33

1,207

1,444

1,378

1,670

13,600

21

41.53



37

the 2012 time line. This is currently being witnessed in the Jamaica, OECS, and Guyana markets of the Caribbean Nearshore segment; and Honduras, Nicaragua and Belize in the Central American segment.

The Altia Park cited earlier in this report exists in San Pedro Sula and not Tegucigalpa - Honduras’ capital. Nonetheless, that capacity serves that emerging market well. The Panama segment has fairly ample office space capacity, with Costa Rica fielding excellent capacity and continues to build out for anticipated demand. The Dominican Republic, with its many Free Zones have ample capacity to service its growth.

However, both the contending and emerging segments need to continue aggressively addressing their call center and BPO office specific capacity constraints and urgently fund the construction of new office capacity. The positive strategic first step policy previously cited in ZI’s 2009 report to extended their FTZ (Freezones) – tax exempt laws designation for call center and BPO companies establishing operations in any location outside of the FTZs - has been a positive contributor to growth.

Across the region, segments generally rate high with relatively lower real estate costs, when compared to key urban centers in India. Guatemala, in particular – while rents have increased, still offers industrial and commercial rates at attractive prices. Presently, though, call centers and BPOs serving the U.S. market, occupy commercial office location with rates ranging between US$ 5-15 per sq.ft at occupancy.

Despite its existing industrial office capacity occasioned by its Canal and other trade services business, the Panama segment reflects moderate pricing rather than a bargain opportunity. Jamaica has expanded its offering to a third city – Portmore – which releases pressure on Kingston’s office space capacity constraints.

to further intensify their bi-lingual agent delivery capabilities. For example, Transactel – cited above has expanded its internal Guatemala City operation to Quetzaltenango – the market’s second largest city to tap into a virgin talent pool promised by the city’s 1 million plus demographic.

It appears, however, that most sectors are vigorously addressing bi-lingual training and development to meet forecasted demand. Nonetheless, much more needs to be done to create a deep and pervasive bi-lingual talent pool. Universities, institutes, technical high schools, the presence of language educators such as Berlitz and other smaller entities are actively focused on supporting bilingual human capital formation in Central America.

Developing a deeper bilingual pool of English speakers is particularly important for the maturing segments such as Panama Costa Rica, and the Dominican Republic whose agents and BPO workers principally serve U.S. clients with over 90% of their worker capacity. El Salvador and Guatemala may incur fewer constraints, with El Salvador in particular, having about 70% of its existing agent capacity focused on serving U.S. clients.

For the English – speaking Caribbean market segment, the principal challenge from a capacity analysis, is the need for greater training and development in ‘firm specific’ skills catered to the sector. Like Costa Rica, India, the Philippines, government, institutes and universities should radically adjust and create programs, which produce graduates prepared for immediate induction into the sector.

(b) Real EstateDue to the significant growth the region continues to experience from U.S. demand and to a lesser extent from Spain - for offshoring services, potential strain in CCA Nearshore office capacity continue to experience varying constraints from segment to segment beyond



38



39


Corporate Tax (%) 25 30 25 3033.325 28

24 38 26 26 18Agent Daily ($US) labor cost

21 22

T1 (US$) 1,500 500 5,500 7,500 6,000800 5,500

Agent Attrition Rates (%)

17 25 18 20 1218 14

Real Estate ($US) 7 6 15 8 85 9

Caribbean Country Costs Comparison 2011Table 4.

Electricity (per Kwh) 0.270.24 0.20 0.29 0.24 0.03 0.21

Parameters Jamaica OECSBarbadosPuerto Rico

DominicanRepublic

Trinidad Guyana



40


Corporate Tax (%)

Agent Daily ($US) labor cost

T1 (US$)

Agent Attrition Rates (%)

Real Estate ($US)

CA Country Costs Comparison 2011Table 12.

Electricity (per Kwh)

ParametersGuatemala Nicaragua

El SalvadorPanama

CostaRica Honduras Belize

30 31 25 25

21 24 38 26

3,300 2,200 600 1,200

0.70 0.11 0.14 0.12

5 7 6 8

18 17 25 8

25

26

1,000

0.08

15

26

30

22

4,000

0.12

9

14

25

18

3,500

0.19

8

15



41

Telecom infrastructure is pervasive in most central urban centers across all sectors. However, varying connectivity challenges exist beyond the urban city limits in several segments. While there has been teledensity improvements, this is still particularly challenging in the contending and emerging segments.

As regional governments project and plan their segment’s economic futures, extending infrastructure connectivity beyond the central metropoles will not only positively affect socioeconomic well-being but will further lower occupancy costs and make their markets more attractive to companies from a total cost basis. Connectivity diffusion has to be embraced as a critical national application. Modeling the success story in mobile diffusion and adaptation is an apt model for replication in growing regional economies.

(d) Management DevelopmentEach of the three growth category markets (maturing, contending, emerging) across in the CCA Nearshore market reflects differing stages in operational and management characteristics. Correspondingly, they each face a different strategic management challenge to potentially realize the growth performance they are all seeking to realize. Costa Rica and Panama need to focus their middle and upper management teams in deepening worker and process operational management effectiveness as they grow and manage existing, expanding and future businesses establishing operations in their markets.

The contending and emerging segments should demonstrate consistency in their service product delivery as well as accelerate their deal-closure rates. With El Salvador and Guatemala business plans focused on both U.S. and Latin American clients, managers would have to demonstrate adeptness at effectively servicing both geographies well, given the cultural and idiosyncratic nuances of each geography and the corresponding customer care expectation by differing demographics.

Furthermore, Mark Kerr-Jarrett’s US$365M new Barnett Tech Park, located on 100 acres of former sugar cane lands in the Fairfield area of Montego Bay, portends well for maximizing Jamaica’s appeal. Vista Print, with a contact center presence in Jamaica for many years, has already secured a build out, designed by Pittsburgh, Pennsylvania-based, KSBA Architects.

(c) Connectivity DiffusionIn general, both regions secure high rating for privatizing their telecommunication sectors. The exception being, Trinidad and Costa Rica which are still stumbling on the privatization path. As was mentioned earlier, Guyana’s legislature has very recently passed legislation to open its market beyond the confines of its sole operator (Atlantic TeleNetwork’s (ATN)) monopoly. In Trinidad, while Flow has entered the market, rates have fallen marginally, suggesting that real and effective competition is yet to be realized in that market.

Resultantly, connectivity rates on average are approximately US$500 higher in the Caribbean Nearshore segment than the CA segment, despite very low rates in the Dominican Republic and Puerto Rico. Jamaica must be commended for liberalizing its sector, which resulted in average T1 costs falling from US$7,000 plus five years ago to approximately US$1500 at present. Still, its rate is twice that of the DR. Average DR T1 cost mirrors Panama’s (see Table 4).

By comparison Argentina’s rates approximate US$250. Costa Rica telecom - (ICE), however, has to move aggressively to privatize its sector to realize the full potential and gains of its digitally-focused service export economy. While Belize has passed privatization laws declaring its market open to competition, the lone competitor to BTL has made limited inroads and essentially still renders the market a de facto non-competitive market.



42


Agent Daily Labor Cost

T1 Cost

Real Estate Rents/sq.ft.

Corporate Tax (%)

Agent Attrition Rates

Travel Cost

Electricity

Security

Smog

Transportation

India Philippines Canada Mexico CaribbeanParameters

Table 5. Nearshore & Offshore Comparison Evaluation Index

US$24 35 27

4,000 600 2700

65 29 8 - 25

41 30 25-33.3

65 55 15

Exchange Rates 0.0221 0.08 1-0.029

2500 400 400

0.16 0.09 0.12- 0.15

2/5 2/5 3/5

2/5 2/5 4/5

3/5 4/5 3/5

22

550

25

32

35

0.0236

1500

0.74

2/5

3/5

3/5

45

1500

40

32

40

0.99

500

0.08

4/5

4/5

3/5



43

proxy attempt for extending his political term, by attempting a constitutional maneuver, which would have given his wife candidacy legitimacy, was rejected by the country’s supreme court. Clearly, an Argentine replication in the Guatemalan context did not work.

In the Caribbean segment, political systems are for the most part stable and predictable, apart from Haiti’s ongoing plight. The Caribbean’s key challenges however, lies in the perceptive challenges defined by social infrastructure (crime). This is particularly emphasized in Jamaica, Trinidad, Guyana, Belize and the OECS (St.Lucia). Fortuitously, these negative trends are pointing downward over the last 14 months, with the exception of Barbados, which is registering a disconcerting rise on this measure.

High levels of reported crimes also define the Guatemalan segment. Parts of Guatemala are facing civil challenges brought on by the expansion in influence of the Mexican drug cartel entering Guatemala. Regional governments appear to have deployed increased resources in confronting the challenge resulting in lower reported cases in 2010 on average when compared to the last four years.

Nonetheless, the levels of sophistication and business facilitation demonstrated by regional governments differ across segments. The maturing segments of Panama and Costa Rica – and Guatemala in the contending segments - secure high rating from U.S. and international investors operating in their markets.

It must be underscored, however, that in some markets, a left leaning politics – which could constrain governments’ interest and capacity to prioritize business friendly policies to facilitate sector-specific export led growth, is increasingly seducing some of the region’s governments.

In particular, Guatemala’s growth from 8,000 to almost 16,000 agents and BPO workers reflects higher maturation levels in management performance. eServices growth from a few hundred workers to exceed 4,000 from its duel markets in Jamaica and St.Lucia also reflects executive commitment to quality management, prior to its sale to ACS. This can also be said of Panama’s Star Contact growth. In effect, companies which secure exits or attract substantial investments reflect a proxy for qualitative evidence – based management. By extension these exits reflect management success is winning and expanding buy-side contracts.

The emerging segments of Trinidad, Nicaragua, Honduras and Belize as well as the DR, face the challenge of developing effective marketing and business development deal–closure competency in selling their vision to potential clients and joint venture partners. Regional business case examples in the English-speaking segment of the Caribbean Nearshore suggest that local entrepreneurial talent can accelerate their business execution and develop well-manned operations successfully, thus rendering a potentially more sustainable strategy.

(e) Political & Social Infrastructure RiskThe Honduran coup has significantly damaged the image of the Central America Nearshore - thus increasing the region’s perceptive risk profile (see Tables 6,13 for risk & cost profiles). Despite a historical legacy of coups, civil and social infrastructure challenges in several of its segments, and the recent reparation referendum being initiated by Nicaragua’s president – cited earlier in this report, the Central American Nearshore market, however, is relatively politically stables.

All segments offer a relatively accommodating and supportive climate for international companies seeking to invest in their markets (see Table 16). Nonetheless, Guatemala’s outgoing president’s



44

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Caribbean Cost & Well Being Matrix 2011 (1=Worse, 5= Best)Table 6.

Labor SmogAttritionRealEstate

Country Taxes Transpor-tation

Security Score Rating

Dominican Rep.

3 4 4 4 3 4 3 25 1

Jamaica 2 3 3 4 4 4 2 22 2

3 3 2 2 2Trinidad 3 2 17 5

Puerto Rico 4 1 1 1 3 5 3 18 4

Barbados 3 2 2 2 4 3 4 20 3

OECS 4 3 3 4 5 2 4 25 1

Guyana 3 5 3 4 4 1 3 22 2



46

In our 2010 analysis we indicated, “It was left to be seen how effective the newly elected Panama chief executive will manage his segment.” Having come from the country’s leading supermarket chain – to win the national elections by a 60% majority vote. He represents one of the region’s first “executive politician.” The lack of an economic development agency dedicated to promoting and marketing its BPO service sector was cited by ZI as a weakness. This is now corrected with the launch of its ProInvex agency. While still within the Ministry of Commerce and Industries (MICI) it is now a full agency, acting as a typical one-stop shop for investors and businesses.

VI. SUMMARY & CONCLUSION

The Caribbean and Central America Nearshore market continues to generate over US$ 2 billion in 2011 revenues creates in excess of US$3 billion in economic impact from its 125,000 workforce. It’s expected to grow at approximately 20% over the next year and reach 150,000 workers. Over US$500 million in M&A transactions is projected by the end of 2012. Increasingly, the region is being assessed and selected by U.S. and global corporations in their search for Nearshore locations and, service providers as candidates for third-party contract outsourcing.

The fifteen economies are categorized into three growth segments inclusive of maturing (Costa Rica, Panama, Jamaica, Dominican Republic, Puerto Rico and Barbados), contending (Guatemala, El Salvador, OECS and Guyana) and emerging (Trinidad, Nicaragua, Honduras, Belize). The region provides companies with savings in excess of 30%. Major differences exist between the different growth segments of the market and U.S. companies need to pay attention to the advantages and challenges offered by the different segments to optimize their site and service provider selection process.

The Ortega - Nicaraguan administration appears to have fallen to the seduction of President Chavez’s Bolivian ALBA socialist manifesto. Former Honduran President Zelaya´s political miscalculation and subsequent ouster was in large part due to his Chavezian term-life constitutional change he sought to introduce - which backfired and resulted in the election of a new president – Porfirio Lob. That market ultimately froze and only lately have resuscitated its outsourcing positioning.

Even Dominica and St.Vincent within the OECS segment, express a politics embracing Chavezian Bolivian sympathies. Mitigating these developments, however, is the welcomed policy development by the OECS to enact, as of August 1st, 2011, free movement of its citizens across all its six territories. This portends well for business formation, income generation, and the opportunity for service providers to easily move staff and management seamlessly across borders. Companies such as KM2, ACS and Sandals will certainly benefit from this development. It should be noted that Sandals runs its own call center operations with agent capacity between Jamaica and St. Lucia. ACS’ St.Lucian operation is derived from its e-Services group acquisition.

President Arias will probably never loose his hard won luster of a Nobel Peace laureate. His selection and blessing of Laura Chinchilla as his party’s successor was thought to by some to reflect nepotistic misjudgment. Nonetheless, her ascent to the Costa Rican presidency appears to be reflecting well to moderate political management thus far.

Guatemala’s President, Alvaro Colom, is experiencing credibility constraints due to allegations of politically inspired murder. In May (2011) a “state of siege” was declared in its northern border area brought on by the expansion in influence and assaults of the so called Zeta Mexican drug cartel entering Guatemala.



47

Table 7. Caribbean Leading Service Providers 2011


1

Parameters Agents Seats Locations Countries

ACS (formerly eServices) Jamaica, St. Lucia

Amov International Teleservices Dom. Rep

Stream International Dom. Rep

Vixacom Dom. Rep, Jamaica

KM2 St.Lucia, Barbados,Grenada

NCO Group Barbados, Antigua

UNO Dom Rep.

Direct One Trinidad

Global Gateway Jamaica

West Corp Jamaica

5,500

2,200

1,500

1,200

1,000

800

800

800

600

500

5,000

2,000

1,200

900

800

700

600

1,000

500

700

3

1

1

2

3

1

1

1

1

2



48

Table 14. CA Leading Service Providers 2011


Parameters Agents Seats Locations Countries

Transactel -Telus

Atento

Digitex

Sykes

NCO Group

Stream

NARS

Sitel

ACS

AlliedBPO

6,000

4,000

3,500

3,500

3,000

2,500

3,000

2,500

1,500

1,200

4,500

3,500

1,500

2,500

2,000

1,500

2,500

2,000

2,000

1,000

3

4

2

1

2

2

2

1

3

2

Guatemala, El Salvador, Nicaragua

El Salvador, Guatemala,Panama, Costa Rica

El Salvador, Guatemala

Costa Rica

El Salvador, Costa Rica

Panama, Nicaragua

Guatemala

El Salvador, Dom. Rep,Guatemala

Panama

Guatemala, Panama



49

Table 8. CCA Service Technology Vendor Market Share 2011 (%)


Vendors %

Avaya 85

Accent 7

Cisco 5

Other 3



50

Tabl

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51

Table 16. Leading Indigenous & Captive Service Providers 2011


Parameters CCA Workforce Local Presence

Transactel-Telus 6,000 Guatemala, El Salvador, Nicaragua

TeleTech 2,000 Argentina, Brazil, Costa Rica, Mexico

Atento 4,000 Argentina, Bolivarian Republic of Venezuela, Brazil, Chile, ColombiaEl Salvador, Guatemala, Mexico, Panama, Peru, Uruguay

Sykes 4,000 Costa Rica

Stream 4,000 Costa Rica, Dominican Republic, El Salvador

ACS 8,000 Brazil, Dominican Republic, Guatemala, Jamaica, Mexico

NCO 3,000 Panama, Guatemala, Barbados, Antigua

Digitex 3,500 Guatemala, El Salvador

NARS 3,000 Panama, Nicaragua

Sitel 2,500 Brazil, Chile, Colombia, Mexico, Panama

Capgemini 600 Argentina, Brazil, Chile, Guatemala, Mexico

Southerland Global 500 Costa Rica, Mexico, Argentina

Convergys 500 Argentina, Brazil, Colombia, Costa Rica

24/7 700 Guatemala

ICT Group 500 Argenina, Costa Rica, Mexico

West 400 Guatemala, Jamaica

KM2 1,200 Barbados, Grenada, St,Lucia, Honduras

Genpact 700 Guatemala, Brazil

Concentrix 500 Costa Rica, Nicaragua

AlliedBPO 1,200 Guatemala, El Salvador, Dom Rep

Teleperformance Argentina, Brazil, Chile, Dominican Republic, El Salvador, Jamaica,Mexico3,500



52

Table 17. Leading Emerging Indigenous Service Providers 2011


Parameters CCA Workforce Locational Presence Home Country

Transactel- Telus 6,000 Guatemala, El Salvador, Nicaragua Guatemala

Allide BPO 1,500 Guatemala, Dominican Republic Guatemala

United Nearshore (UNO) 700 Dominican Republic, USA Dominican Republic

Vixicom 1,200 Dominican Republic Dominican Republic

Nand Persaud Comm 800 Guyana Guyana

AccedoTech 500 Nicaragua Nicaragua

Rococco 800 Dominican Republic Dominican Republic

Clear Connect Inc 400 Guyana Guyana

Ready Call Center 700 Belize Belize

Qualfon 1,000 Argentina, Costa Rica, Guyana, Mexico Mexico

Global GatewaySolutions 500 Jamaica Jamaica

Sandals 400 Jamaica, St.Lucia Jamaica

Direct One 700 Trinidad Trinidad



53

Table 18. M&A Transaction Summary 2009 - 2011

Jamaica US$85 M BPO

Guatemala Undisclosed BPO

El Salvador Undisclosed BPO

Costa Rica Undisclosed BPO

Nicaragua Undisclosed BPO

Guatemala Undisclosed BPO

Panama Undisclosed BPO

Colombia Undisclosed BPO

Jamaica, Panama Undisclosed BPO

Argentina, Colombia, Peru Undisclosed BPO

Brazil US$300 M IT/BPO

Argentina US80 - 100M ~ BPO

Barbados Undisclosed BPO

St. Lucia Undisclosed BPO


Acquirer Acquiree Location Transaction Size Domain

ACS

Telus

Stream

Concentrix

Concentrix

Genpact

NCO Group

Teleperformance

HIG Capital

Eton Park

CapGemini

Aegis

KM2

KM2

eServices

Transactel

Dell El Salvador

OBS

Intelligent Outsourcing

GE Money

Star Contact

Teledatos

NARS

Multienlace/Actionline

CPM Braxis

Actionline

ICT Barbados

Helen IT



54


Figure 15. CCA Markets Growth Segmentation

Costa R ica, Panama, Jamaica, Dominican Republic, Puerto R ico, Barbados

Guatemala, E l Salvador, OECS , Guyana Trinidad, Nicaragua, Honduras, Belize

Maturing

Contending Emerging



55

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56

VII. ZAGADA CARE INNOVATION MODEL

Introduction

The Zagada Institute views the sourcing exercise as a Business Development (business development) function. Business development is defined by the Institute as the “practice of growth” and the sources of growth are identified as revenue and cost. This perspective allows global outsourcing to be viewed as a cost generated phenomenon. It’s the cost minimization objective that has dominated the decision by firms to offshore.

However, some sophisticated CEOs have begun to grasp the importance of the revenue source of growth in outsourcing. As a result, they are expanding Third-Party and joint venture assignments to integrate revenue generating activities. A critical element in this process often overlooked is the core nature of customer care. One of the advantages of the Caribbean Nearshore market we have established is its accumulated care dividend.

i. Nearshore Metacare™The U.S. economy is rapidly transitioning to a service based economy. Services as a share of GDP has grown enormously and the U.S. maintains a trade advantage in service exports. In a service-based economy the quality of customer service care delivered both online and offline directly affects a company’s profitability.

Customer service care acts as a shift parameter in a firm’s profit function that scales profits up or down. The inputs in a firm’s service delivery production function are what determine customer service experience and it is customers’ assessment of the care experience that are the sources of loyalty.

We classify care as a “core function” unlike the traditional view that treats it as a “non core” function and contends that metacare™ or the delivery of service

When compared with the offshore markets of India and the Philippines, the CCA Nearshore market appears to possess major advantages. Central to the region’s strengths are its pervasive tertiary educational institution, its expanding bilingual stock, U.S. proximity, modern urban telecommunication infrastructure and relatively low real estate costs.

If attention is paid to direct cost the region now out performs or matches the offshore competition. However, when indirect costs are considered ZI’s data indicate that the region has, in effect flattened the cost advantage historically true of Asian–Pacific markets. The CCA Nearshore market demonstrably has a clear bilingual agent labor arbitrage advantage over Mexico and the wider Latin American Nearshore.

In developing the BPO and contact center industry the region faces a number of challenges. These include the need for deepening English–ready, bilingual sector talent density, expansion in office ready capacity, deepening mid-management operational efficiency and the need to manage political and social infrastructure risks.

While the perceptive political risk appears to have been significantly increased with the Honduran coup, left leaning politics and administrative governance issues, it is left to be seen if it undermines the industry’s momentum and projected growth trends. The Zagada Institute assesses that political risk associated growth will have a minimal effect in deterring new entrants into the region.

However, due to the portfolio of well-established regional and global service providers–positive growth will continue unabated, albeit at a reduced rate of approximately 20% rather than the region’s more pronounced 35% growth rate registered in the last decade. Growth reflecting earlier accelerated levels can be recaptured if regional governments fund capacity deepening, support real estate capacity expansion, and truly embrace a Costa Rican–like model for effectively scaling up the BPO value chain.



57

a) Level 1 - Cultural Affinity Partner or country understanding and general relatedness to U.S. cultural mores such as its democratic institutions, market economy and political system.

b) Level 2 - Cultural AlignmentPartner and country synergies with level 1 attributes plus business practice, accounting protocol and trade exchange. c) Level 3 - Cultural KnowledgePartner and country synergize Levels 1 & 2 attributes, plus has deep and pervasive interlocking histories, politics, protocol, time construct, and cultural rhythm.

d) Level 4 - Cultural UnderstandingPartner and country synergize Levels 1,2 & 3 attributes, plus a deep and pervasive interchange at all level of business, government, and sub cultures.

e) Level 5 - Cultural IntuitionPartner and country synergize Levels 1, 2, 3,& 4. At this level an intuitive dimension becomes dominant, rendering a partner or country capable of anticipating and intuitively responding to the needs, demands, quirks, and Idiosyncrasies of U.S. executives and consumers. A Level 5 experience leaves the executive or end-consumer with the internal feeling of “they really know me,” at the end of the transaction or business experience.

care through contact centers and BPO operations, are an essential input in the Service Delivery Production Function (Sdpf )™. The standardization and (measurement) of care are therefore an essential element in the site and partner selection process. It is the delivery of “care” that has been the drivers in Caribbean Middle Office and Front Office success.

ii. Cultural Domain AcuityIf service care delivery is a core business function, what then are the important elements in the site, vendor and service supplier - partner selection process? The selection of a site and partner must be based on gauging understanding of care delivery as a core business function. The selection process requires that companies make decisions on the following three variables:

a) Subjects of CarePartners understanding of end-customers (consumers) as principally interested in receiving the highest level of care. The assessment is made that this understanding is real and not academic.

b) Delivery of CarePartners understanding that they are a critical distribution conduit in the delivery of care (metacare™), to the end-consumer, on behalf of companies. Partners understand that they are the representatives of U.S. corporations interfacing with end-customers.

c) Measurement of CarePartners understanding that care is measurable and should subject themselves to transparent evaluation of the care delivered.

These meta sourcing™ concepts offer corporations a set of innovation handlers to work with in establishing a nearshore sourcing philosophy for both service supplier and market. Recognizing the importance of U.S. “cultural domain” is also essential and five levels of cultural domain acuity have been identified.



58


Figure 16. Zagada Metacare™ Framework Su

bjec

tsof

Care Deliveryof

Care

Measurement of Care

CulturalAffinity

CulturalAlignment

CulturalKnowledge

Cultural

CulturalIntuition

Understanding

TM



59

Metacare™Metacare is a term developed by Zagada to mean, the distribution, processing and ultimately the delivery of care offered to end consumers and partners through all value chain mechanism, to include, front, middle and back office activities. Agents, or front-interfacing workers are the direct conduit for the delivery of that care to end-consumers. Managers and supervisors and by extension call centers, and BPOs manage the operational and process efficiency of care delivery to end consumers.

OECSThe OECS was established by the Treaty of Basseterre on June 18th, 1981 and comprises Antigua and Barbuda, the Commonwealth of Dominica, Grenada, Montserrat, St Kitts and Nevis, Saint Lucia and St Vincent and the Grenadines. Anguilla and the British Virgin Islands were admitted to the Organization as Associate Members in 1995 and 1984 respectively. As of August 1st, 2011 the OECS allow free movement of nationals across its territories in EU like fashion, with the exception of the Associated Members. The Eastern Caribbean dollar ($EC) is the single currency tendered across the OECS through the block’s common central bank. The $EC has been pegged to the US$ since 1973 with exchange rate approximating US$1 – EC$2.70.

Service Delivery Production Function (Sdpf™)A term developed by Zagada to process flow a corollary to Supply Chain management in the manufacturing sector. Service delivery production function identifies the need for quantifying, rating and managing the care delivery process. Three elements are necessary to access Sdpf. They include evaluation on: 1. The Subjects of Care (consumers receiving the care), 2. Delivery of the Care (service provider performance) and 3. Measurement of the Care delivered (metrics).

VIII. DEFINITIONS

Adaptivists™Adaptivists are Economic Development Agencies (EDAs) which are progressively making the transition to focus their energies on enhancing local human capacity, encouraging and catalyzing a local entrepreneurial climate with the same energy with which they vigorously reach out as “Invitationalists” to foreign investors and companies to their shores.

CareBecause the U.S. economy is being transformed into a service-based economy, care is viewed as a “core” business function. In a service based economy the quality of customer care delivered both online and offline, directly affects a company’s financial performance. Care delivery has three handlers: the subjects of care (consumers), the delivery of care (centers), and the measurement of care (evaluation of the care delivered).

CaptiveCaptives, as opposed to service provider third party contracting, are centers that are directly set up, run and managed by a foreign service provider or corporate service buyer. Captive centers are reasoned to allow businesses to significantly cut costs and increase capitalization while retaining full operational control, ensuring long-term value creation and minimizing intellectual property and data security risks.

DigitalGNP™A term developed by the Zagada Institute to measure the impact of Information Communication Technology (ICT), outsourcing effects and innovative strategies on economic activity.



60

SHELL™Service Help Experience Level Listings (SHELL) is a term developed by Zagada to measure and rate call center, BPO, service provider or Economic Development Agency, or an organization’s care delivery rating reflected by the measurement of loyalty ranging from 1 through 7. The 7th ultimate SHELL rating moves from the highest level of fundamental loyalty (6 SHELL) to customer enchantment reflected by customer devotion. SHELL metrics reveal the quality of care rating delivered.

U.S. Process Knowledge (USPK)Process knowledge is a measure of host country population knowledge of the functioning of U.S. business, political and economic systems. (e.g. cultural and business norms). Canada registers the highest USPK with key Nearshore markets also registering relatively high USPK.



61

Table 19. Zagada Seven SHELL Rating


BehaviorDomainExperienceRating

a) SHELL 1 Good Loyal Mind

b) SHELL 2 Very Good Loyal Mind

c) SHELL 3 Excellent Loyal Mind

d) SHELL 4 Exceptional Loyal Mind

e) SHELL 5 Superlative Loyal Mind

f) SHELL 6 Remarkable Loyal 1/5* Mind / Soul

g) SHELL 7 Enchanting Devoted Soul



62

The AuthorsThe report was researched and written by a Zagada team lead by Philip Dickenson Peters. He can be contacted directly by email at [email protected].

About Zagada InstituteThe Zagada Institute is the research arm of Zagada Markets

About Zagada MarketsZagada is a business development analytics firm. The company provides research, indexes, proprietary rating and tailor-made sourcing, acquisition, service supplier selection advisory services on countries, cities and service suppliers to corporations. Zagada is the developer and publisher with its joint venture partner Waagstein Research of the Zagada Waagstein Global Outsourcing 100 Index (ZAWA100), which is the first global equity index benchmark on service globalization (outsourcing). The company principally serves the corporate buy-side and is totally focused on delivering sourcing analytics on the global outsourcing sector.

Contacting USCompanies interested in subscribing to Zagada’s complete report series, our rating or advisory services are invited to contact Zagada directly at 786 348 7531 or 305 529 9028 to reach our South Florida office, or send emails to [email protected]. General enquiry can be sent to [email protected]. Mails can be sent to Zagada Markets, Inc, 145 Grand Avenue, Coral Gables Florida 33133.

Visiting US Corporate Headquarters: 101 Grand Avenue, Coral Gables Florida, 33133. 305 322 8156 (mobile) 305 322 8156 (direct).

We welcome your visit to our web sites at the following URLs: Corporate Site: www.Zagada.com

Our eStore: www.ZagadaStore.com

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