Presented By :-

Adhish Kumar Sinha

Prin LN Welingkar Institute Of Management Development & Research , Bangalore

PGDM E-Biz ( 2013-15)

Future Of ITES/BPO/Outsourcing

Now Let’s Talk About

Costa Rica

Israel

Going Global Ventures Inc., New York | Horasis, Geneva 2010

• Costa Rica has been a sovereign and independent state since 1838, and has been developing its democratic policies since. In 1949, the Latin American nation eliminated its armed forces. The tropical nation, slightly smaller than West Virginia, has a population approaching 4.6 million.

• The economy is predominantly agricultural (bananas, coffee, sugar, and beef) but is expanding to include the blossoming technology sector. The nations GDP is valued at USD $35 billion, and using the purchasing power parity it is closer to $52 billion. In 2009 during the economic downfall the economy was shrinking by 0.7 percent, but has rebounded to higher growth rates at 4 percent.

• Costa Rica is attractive to foreign investment because of its stability, and the financial incentives within its Free-Trade zones.

• Costa Rica became a member of the US-Central American-Dominican Republic Free Trade Agreement (CAFTA-DR) in 2009, which should open the country to further foreign investment.

COSTA RICA ( South American )

Economic Overview :-Population: 4.6 millionSource: CIA Factbook, 2009Gross domestic product: $35.8 billionSource: World Bank, 2009Gross domestic product (PPP): $53.9 billionSource: World Bank, 2009Gross National Income Per Capita (Atlas): $6,810Source: World Bank, 2009Gross national income (PPP): $11,270Source: World Bank, 2009GDP growth: 5.6%Source: World Bank, 2009Compounded growth: 2005–2009: 26% (source: Forrester Research) Population growth: 1.52%Source: World Bank, 2009

https://www.sourcingline.com/outsourcing-location/israel

Definition of 'Purchasing Power Parity - PPP'

An economic theory that estimates the amount of adjustment needed on the exchange rate between countries in order for the exchange to be equivalent to each currency's purchasing power.

The relative version of PPP is calculated as:

Where: "S" represents exchange rate of currency 1 to currency 2 "P1" represents the cost of good "x" in currency 1"P2" represents the cost of good "x" in currency 2

Employee compensation

• Costa Rica offers competitive savings for sourcing projects. Software engineers and developers with one to four years experience earn an average of USD $26,000, or 24 percent of their US counterparts.

• BPO resources are also moderately compensated, with junior staff collecting salaries of USD $16,000 (38 percent) and skilled, senior resources earning an average of $24,000 (42 percent). General operations managers in Costa Rica close the margin even more, with wages exceeding 57 percent of those in the US.

Real Estate

• According to CBRE and its 2011 Office Occupancy Review, top quality real estate in Costa Rica’s cities is affordable, with San Jose’s prime office space leasing for less than USD $33 per square foot annually. San Juan’s real estate is slightly higher, averaging $36 per square foot.

Taxes

• Costa Rica’s corporate tax rates are low at 17 percent, particularly when compared to Argentina (21 percent), Brazil (34 percent), India (34 percent), and the Philippines (30 percent). Indirect tax rates are 19 percent, and the SMB effective tax rate in Costa Rica is a moderate 55 percent.

Cost competitiveness

Salaries: Software engineer: 24.5 % of USSource: PayScale, SourcingLine, February 2010

Salaries: Junior BPO resource: 38.5 % of USSource: PayScale, Sourcingline, March 2010

Salaries: Skilled BPO resource: 42.0 % of US`Source: PayScale, Sourcingline, March 2010

Real Estate: Office occupancy costs (CBD): 34.5 $/sf/yrSource: CB Richard Ellis, Colliers International, SourcingLine, March 2010

Taxes: Corporate tax rates: 17.0 %Source: KPMG, October 2009

Taxes: Indirect tax rates: 19.0 %Source: KPMG, October 2009

Taxes: SMB effective tax rates: 55.0 %Source: Doing Business (World Bank), 2010

Costa Rican Colon

Cost Competitiveness

Education and skills

• Costa Rica spends 6.3 percent of its GDP on education annually, putting it among the top 25 nations for educational expenditure (percentage).  Adult literacy rates are 95 percent, on par with some of the most developed nations.

Language

• The official language on Costa Rica is Spanish, and almost 11 percent of the adult population speaks English as a second language.

Technological readiness

• Internet access in Costa Rica is under the control of Instituto Costaricense de Electricidad (ICE), the state-run corporation. Basic quality is low, and prices for connectivity are above average in the country. 

Resources and Skills

Workforce size: 8 millionSource: CIA Factbook, 2009

Outsourcing sector: Offshore outsourcing (IT and BPO): 771 millionSource: NASSCOM, SourcingLine, 2009

Outsourcing sector: Exports of computer and info services: 581 millionSource: IMF, 2008

Adult Literacy: 96 % of populationSource: UNESCO, 2009

Basic Education: Expenditure on education: 6.3 % of GDPSource: UNESCO, 2009

University Graduates: University educated population: 18.6 % of populationSource: UNESCO, 2009

Technological Readiness: Internet access: 5.9 users per 100 inhabitantsSource: International Telecommunications Union, 2009

Technological Readiness: Broadband Internet access: 3.9 subscribers per 100 inhabitantsSource: International Telecommunications Union, 2009

Resources and Skills

Economic competitiveness and stability• Costa Rica fares well for economic competitiveness, with a GCI index of 4.3, similar to Brazil and

South Africa. Macro stability measures 4.1 on the index.Infrastructure• The infrastructure is a major component of operating a successful project, and Costa Rica’s

highways are quite poor; with a score of 2.8 they rank only above the former Soviet republics in Eastern Europe, such as Bulgaria, Romania, Ukraine, and Russia.

• Unlike the road quality, electric supply in Costa Rica is quite high scoring 5.7, led only by the US, Canada, the Czech Republic, and Israel.

Regulation• Costa Rica ranks low for overall ease of doing business, at 125 worldwide. Starting a business in

the country takes on average 60 days, ten times longer than in the US.Corruption• The perception of corruption in Costa Rica is good, with a 5.3 CPI. This number is much better than

other countries in Latin America, such as Argentina (2.9), Mexico (3.1), Jamaica (3.3), and Brazil (3.7).

Business & Economic Environment

• Economic competitiveness: 4.3 GCI scoreSource: The Global Competitiveness Report, 2009

• Economy: Macroeconomic stability:  4.1 GCI scoreSource: The Global Competitiveness Report, 2009

• Infrastructure: Quality of roads: 2.8 index (1-7)Source: The Global Competitiveness Report, 2009

• Infrastructure: Quality of electric supply:  5.7 index (1-7)Source: The Global Competitiveness Report, 2009

• Infrastructure: Mobile phone penetration:  42.6 subscriptions per 100 inhabitantsSource: International Telecommunications Union, 2009

• Labor market efficiency: Rigidity of employment: 39index (0-100)Source: Doing Business (World Bank), 2010

• Labor market efficiency: Cost of laying off employees: 57.0 weeks of salarySource: Doing Business (World Bank), 2010

• Regulation: Overall ease of doing business: 125 rank (1-183)Source: Doing Business (World Bank), 2010

Business & Economic Environment• Regulation: Complexity of starting a business: 60 days

to register a start-upSource: Doing Business (World Bank), 2010

• Regulation: Complexity of paying taxes: 272 hours per yearSource: Doing Business (World Bank), 2010

• Corruption perceptions: 5.3 CPI indexSource: Transparency International, 2009

• Legal protection: Procedures to enforce contracts 40 procedures Source: Doing Business (World Bank), 2010

• Legal protection: Time to enforce contracts: 852 daysSource: Doing Business (World Bank), 2010

• Legal protection: Cost to enforce contracts: 24.3 percent of claimSource: Doing Business (World Bank), 2010

• Intellectual property: Protection: 4 index (1-7)Source: The Global Competitiveness Report, 2009

• Intellectual property: Software piracy: 59 percentSource: BSE-IDC Global Software Piracy Study, 2009

Costa Rica will remain a major outsourcing centre. Further growth, however, will be restricted due to size of its economy/labour supply; some companies may be acquired by bigger players in the U.S. and South America.

Future of Costa Rica

ISRAEL ( Middle East)

• Israel is a parliamentary republic and the only predominantly Jewish state in the world. It has an estimated population of 7.5 million, six million of them Jewish. Israel is the only nation to operate under the Hebrew calendar. Its two primary languages are Hebrew and Arabic, with English also widely spoken. English is taught in elementary schools, and English-language television programs are also aired in broadcast networks, making the language more accessible to everyone. Recent decades saw Israel welcoming migrant workers from China, Africa, South America, Thailand, and Romania, adding diversity of culture to its community.

• Israel's economy is also diverse and dynamic, particularly its high-tech sector. Most of its advanced industries are situated around Jerusalem and Tel Aviv, locations that have garnered recognition in the past. Newsweek once named Tel Aviv as one of the most technologically influential cities in the world. Today, Tel Aviv is also the nation’s primary financial hub, with Haifa the most important industrial center.

• Its major industrial sectors include transport equipment, chemicals, processed food, metal products, biomedical and electronic equipment, and high technology. The influx of Russian immigrants that began in 1989 added to the highly educated and well-skilled workforce, giving an added boost to the economy, particularly in the high-tech sector. Almost one-half of the country's exports are high-tech.

• Despite the global crisis, the country was able to manage to expand its GDP in 2009 with an average growth rate of seven percent, primarily due to exports and foreign investment. Israel’s current gross domestic product is USD $201 billion or $217 billion when measured using the purchasing power parity (PPP).

• Population: 7.6 millionSource: CIA Factbook, 2009

• Gross domestic product: $217.3 billionSource: World Bank, 2009

• Gross domestic product (PPP): $217.8 billionSource: World Bank, 2009

• Gross National Income Per Capita (Atlas): $27,180Source: World Bank, 2009

• Gross national income (PPP): $27,660Source: World Bank, 2009

• GDP growth: 1.3%

Source: World Bank, 2009

• Compounded growth: 2005–2009: 23%

(source: Forrester Research)

• Population growth: 1.29%

Source: World Bank, 2009

Economic Overview :-

Definition of 'Purchasing Power Parity - PPP'

An economic theory that estimates the amount of adjustment needed on the exchange rate between countries in order for the exchange to be equivalent to each currency's purchasing power.

The relative version of PPP is calculated as:

Where: "S" represents exchange rate of currency 1 to currency 2 "P1" represents the cost of good "x" in currency 1"P2" represents the cost of good "x" in currency 2

https://www.sourcingline.com/outsourcing-location/israel

• Israel has lower costs compared to the U.S., although its employment wages are higher than India. This does not keep sourcing companies from investing, because Israel offers a higher level of English competency when compared to other global sourcing locations.

Employee compensation• Israel is not as cost-competitive as it was once, with most wages in the IT sector almost at par with

U.S. resources. For example, Software Engineers with one to four years of experience command 90 percent of US salaries. Senior software engineers and developers with 10 to 20 years experience earn on average USD $77,000 or 80 percent of their US counterparts. Senior project managers in Israel offer comparable margins, earning 83 percent.

• Wages for junior non-voice BPO resources average 58 percent, while senior resources are much higher, at 92 percent.

Real estate • According to CB Richard Ellis, office occupancy costs in Tel Aviv averages USD $44 per square foot

annually for top quality downtown real estate. Costs outside the cities are generally more competitive, with real estate in suburban Tel Aviv averaging USD $30 per square foot annually.

Cost Competitiveness

• Salaries: Software engineer: 89.7 % of USSource: PayScale, SourcingLine, February 2010

• Salaries: Senior software engineer: 80.2 % of USSource: PayScale, Sourcingline, March 2010

• Salaries: IT project manager: 83.8 % of USSource: PayScale, Sourcingline, March 2010

• Salaries: Junior BPO resource: 57.6 % of USSource: PayScale, Sourcingline, March 2010

• Salaries: Skilled BPO resource: 92.0 % of USSource: PayScale, Sourcingline, March 2010

• Real Estate: Office occupancy costs (CBD): 43.8 $/sf/yrSource: CB Richard Ellis, Colliers International, SourcingLine, March 2010

• Real Estate: Office occupancy costs (suburbs): 30.4 $/sf/yrSource: Colliers International, SourcingLine, March 2010

• Taxes: Corporate tax rates: 25.0 %Source: KPMG, October 2009

• Taxes: Indirect tax rates: 16.0 %Source: KPMG, October 2009

• Taxes: SMB effective tax rates: 31.7 %Source: Doing Business (World Bank), 2010

Cost Competitiveness

ISRAELI SHEKEL

Outsourcing sector• Israel’s computer hardware market, which includes computer accessories, servers, notebooks, and desktops, was

estimated to be worth USD $2.2 billion in 2010. It is expected to expand to USD $2.6 billion by 2014. Exports of miscellaneous business services, such as offshore BPO legal, call center services, research and development, management, and accounting services is about USD $6 billion, ranking ninth after the U.S., China, India, Canada, Brazil, Russia, Poland and Thailand.

Education• Education is an important component in Israel’s culture, with schools significantly subsidized by the state. Israel’s

educational system focuses on progressive trends, with some of the most developed science and technology education in the world. Israel leads in expenditure on education, spending eight percent of its GDP compared to the U.S. (7.7), Mexico (6.4), Ukraine (6.3), Malaysia (6.2), Poland (5.9), and Chile (5.7). Israel’s universities are among the top 100 world universities in science and engineering, and rank fourth in the world for the most scientific publications per one million citizens, almost 10 percent higher than the global average.

Language• There are many U.S. ex-patriots and immigrants in Isreal, providing a large number of English foreign language

speakers for outsourcing companies. Technological readiness• Israel has a high PC penetration and strong broadband growth. Presently, the country has 30 users per 100

inhabitants. The International Telecommunications Union currently ranks Israel third among leading Internet subscribers in the world. Broadband Internet access is also high, with nearly 23 of every 100 persons connected.

Resources and Skills

Workforce size: 3 millionSource: CIA Factbook, 2009

Outsourcing sector: Exports of computer and info services: 7,700 millionSource: IMF, 2008

Outsourcing sector: Exports of misc business services: 6,065 millionSource: IMF, 2008

Adult Literacy: 97 % of populationSource: UNESCO, 2009

Basic Education: Expenditure on education: 5.9 % of GDPSource: UNESCO, 2009

Educational achievement: Reading: 474 PISA literacy scaleSource: OECD PISA, 2006

Educational achievement: Math: 447 PISA mathematics scaleSource: OECD PISA, 2006

Educational achievement: Science: 455 PISA science scaleSource: OECD PISA, 2006

University Graduates: University educated population: 41.4 % of populationSource: UNESCO, 2009

University Graduates: Annual graduates: 77 thousandsSource: UNESCO, NASSCOM, SourcingLine, 2009

Technological Readiness: Internet access: 29.8 users per 100 inhabitantsSource: International Telecommunications Union, 2009

Technological Readiness: Broadband Internet access: 25.8 subscribers per 100 inhabitantsSource: International Telecommunications Union, 2009

English speaking population: 85 %

Resources and Skills

Economic competitiveness and stability• Israel is economically competitive, following the U.S., Canada, and Malaysia among the top

four nations with the highest Global Competitive Index published by the World Economic Forum. It has an above average macroeconomic stability, following Malaysia, Czech Republic, and South Africa in the list.

• Despite its flourishing high-tech sector, the Israel’s general economy is not benefiting from the same advantages, with many of the high-tech entrepreneurs focused on exit strategies rather than growing their businesses into a strong individual firm. Too few jobs are created, with only a few exports and little investment that can make a significant impact on the economic future.

Infrastructure

• Israel ranks eighth among the countries with the highest score for quality of roads. Its electric supply quality is also very high, scoring an index of 6 after Canada (6.6), the U.S. (6.4), and Czech Republic (6.4). Similarly, its mobile phone penetration for every 100 inhabitants is high at 127.

Labour market efficiency

• A country's ability to flexibly manage its workforce is an important component in assessing overall business competitiveness. According to a data co-published by the World Bank, Israel has very flexible workforce management, ranking fifth after the U.S., Canada, Malaysia, and Thailand..

Business & Economic Environment

Regulation

• Israel ranks fifth for overall ease in starting and running a business. The country's index is 29, compared to the US (4), Canada (8), Thailand (12), and Malaysia (23). According to World Bank's survey, it takes an average of 34 days to register a start-up and 230 hours to pay taxes every year.

Corruption

• The Israeli government has been taking steps to fight corruption. In addition to the domestic anti-bribery regulatory framework developed by the government, Israel also operates in accordance to the UN and OECD conventions aiming to combat bribery of foreign public officials in international business transactions.

• According to the Transparency International, Israel is winning its battle against corruption. In 2009, Israel ranked fourth among the countries with the best corruption perceptions, scoring a 6.1 index.

Legal protections of intellectual property

• Israel’s contracts and legal protections are moderate. There are 35 procedures in place to enforce a contract, but time to enforce these contracts is high at 890 days.  This is quite high when compared to the US, which is just 300 days.  The average cost in Israel to enforce a contract is more than 25 percent of the original claim.

Business & Economic Environment

• Economic competitiveness: 4.9 GCI scoreSource: The Global Competitiveness Report, 2009

• Economy: Macroeconomic stability: 4.7 GCI scoreSource: The Global Competitiveness Report, 2009

• Infrastructure: Quality of roads: 4.4 index (1-7)Source: The Global Competitiveness Report, 2009

• Infrastructure: Quality of electric supply: 5.9 index (1-7)Source: The Global Competitiveness Report, 2009

• Infrastructure: Mobile phone penetration: 125.8 subscriptions per 100 inhabitantsSource: International Telecommunications Union, 2009

• Labour market efficiency: Rigidity of employment: 17index (0-100)Source: Doing Business (World Bank), 2010

• Labour market efficiency: Cost of laying off employees: 37.0 weeks of salarySource: Doing Business (World Bank), 2010

• Regulation: Overall ease of doing business: 29 rank (1-183)Source: Doing Business (World Bank), 2010

Business & Economic Environment

• Regulation: Complexity of starting a business: 34 days to register a start-upSource: Doing Business (World Bank), 2010

• Regulation: Complexity of paying taxes: 235 hours per yearSource: Doing Business (World Bank), 2010

• Corruption perceptions: 6.1 CPI indexSource: Transparency International, 2009

• Legal protection: Procedures to enforce contracts 35 procedures Source: Doing Business (World Bank), 2010

• Legal protection: Time to enforce contracts: 890 daysSource: Doing Business (World Bank), 2010

• Legal protection: Cost to enforce contracts: 25.3 percent of claimSource: Doing Business (World Bank), 2010

• Intellectual property: Protection: 4 index (1-7)Source: The Global Competitiveness Report, 2009

• Intellectual property: Software piracy: 33 percentSource: BSE-IDC Global Software Piracy Study, 2009

Business & Economic Environment

Future of Israel

With the ongoing peace process, Israel’s attractiveness as anoutsourcing centre will rise, mainly as a developer of licensedintellectual property and with specific niche areas of telecommunications,security and life sciences; Israel may combine itsofferings with Arab countries like Jordan and Egypt. Israel willcontinue to be an expensive destination.