Perspectives on global customer support

The customer support industry in Mexico and Central America

Winter 2012

IntroductionThe “nearshoring” of customer service operations is an increasingly important part of a global customer service delivery platform. Companies seeking low cost, Spanish-English or multilingual labor are nding opportunities in Mexico and Central America. With the additional bene ts of proximity to the U.S. customer, cultural alignment, and an increasingly stable political and nancial environment, the region is considered a strategic opportunity by a growing number of organizations. The popularity of Mexico and Central America is illustrated by the increasing number of companies establishing operations in the region and the increasing number of locations that are being solicited for direct investment for customer support operations. The customer support industry is now widely distributed across nearly all major cities in the region. This document provides an overview of the foreign direct investment landscape in Mexico and Central America.

Regional overviewIn total, there are eight countries in Central America (including Mexico). Of these, all countries with the exception of Belize have begun to solicit and receive investment in customer support operations. The region contains a total of 155.6 million people. Mexico is a unique country in the region, due to its geographic size and large population (114 million). All other countries are characterized by a relatively small land area and population. To put this in global perspective, the populations in many Central American countries are smaller than primary cities in India, China and the Philippines. Guatemala is the most populous country in Central America with a total population of 13.8 million. The region is also characterized by a low per capita GDP and a notable percentage of the population living below the poverty line. Unfortunately, the region is also characterized by increasing levels of crime, a consideration that needs to be factored into location selection decisions. The graphic below provides an overview of some key country indicators.

Area: 75,420 km 2

Population: 3.5 MillionPopulation Growth: 1.4%Population Below Poverty Line: 25.6%Unemployment: 6.5%GDP/Capita (US$): $12,700GDP Growth: 7.5%

Area: 112,090 km 2

Population: 8.1 MillionPopulation Growth: 1.9%Population Below Poverty Line: 65%Unemployment: 5.1%GDP/Capita (US$): $4,200GDP Growth: 2.5%

Honduras

Area: 130,370 km 2

Population: 5.6 MillionPopulation Growth: 1.1%Population Below Poverty Line: 48%Unemployment: 8%GDP/Capita (US$): $2,900GDP Growth: 2.8%

Nicaragua

PanamaArea: 51,100 km 2

Population: 4.6 MillionPopulation Growth: 1.3%Population Below Poverty Line: 16%Unemployment: 7.3%GDP/Capita (US$): $11,400GDP Growth: 4%

Costa Rica

Area: 108,889 km 2Population: 13.8 MillionPopulation Growth: 2%Population Below Poverty Line: 56.2%Unemployment: 3.2%GDP/Capita (US$): $5,200GDP Growth: 2.2%

Guatemala

Area: 21,041 km 2

Population: 6 MillionPopulation Growth: 0.3%Population Below Poverty Line: 37.8%Unemployment: 7%GDP/Capita (US$): $7,300GDP Growth: 1.2%

El Salvador

Area: 1,964,375 km2

Population: 114 MillionPopulation Growth: 1.1%Population Below Poverty Line: 18.2%Unemployment: 5.6%GDP/Capita (US$): $13,800GDP Growth: 5%

MexicoPolitical

Economic

Financial

Crime

Political

Economic

Financial

Crime

Political

Economic

Financial

Crime

Political

Economic

Financial

Crime

Political

Economic

Financial

Crime

Political

Economic

Financial

Crime

Political

Economic

Financial

Crime

Risk

Risk

Risk Risk

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Risk

Low Moderate High Very High

The labor landscapeWhen understanding the direct investment landscape for customer support operations in Mexico and Central America is hinged on understanding the dynamics of the labor force in the region, nuances between markets, and labor impact on proposed operations. Such labor considerations can be reduced to the following three key components:

• Scale • Sustainability• Cost

ScaleWhen determining what size of an operation can be supported in a city, it is important to understand that the overall labor force size is not a good measure. Rather, it is important to understand exactly how many professionals in a market possess the speci c skills required for a customer support position, with language often being the most important consideration. Language skills are usually the most dif cult requirement to identify and source due to the lack of correlation to overall population and labor force size.

Varying quantities of labor are available across the region based on the languages required and country/city in consideration for direct investment. Cities in Central America and Mexico can generally support anywhere from 50 to 500 bilingual (Spanish/English) people for customer support operations. However, the opportunity to support a multilingual operation larger than 500 people can result in challenges with both the ability to scale and sustain a workforce. In comparison, if sourcing only Spanish language skills, many markets in the region can support a 1,000 seat or potentially an even larger customer support center. The quantity of employees resident in a location with different language competencies is therefore a key consideration when determining the scale of an operation.

In the region there are ve employee pro les that can be targeted for voice-support operations. The ability to scale each employee pro le and the salary requirements of each will differ dramatically in any given market. Achieving a balance of employees that are representative of each pro le will contribute to the overall ability to scale a center and to also achieve key indicators of center performance. There are pros and cons associated with hiring employees from each pro le, but employers in the market indicate that a certain balance of each pro le in an operation is bene cial.

In general, there are four major language sets available in the region, ranging from pro ciency in only Spanish to a trilingual pro ciency in Spanish, English and another European language. Spanish is the native language in most countries, with Brazil being the notable exception. English is the most common second language, but identifying locations with a large volume of bilingual Spanish/English speakers can be dif cult. There are a limited number of cities with this language skill, and in some countries, there are only one or two cities that have a suf cient volume of bilingual capabilities to support a cluster of customer service operations. Trilingual language skills are the most dif cult language to source in the region, and there are a very limited number of markets that provide this type of talent in any volume.

Experienced Professional;

University Graduate

Tier I University Student

1

2

Pros Cons

Meets typical education requirements and generally has prior work experience

Typically don’t view voice-support positions as desirable. Likely difficult to recruit

Generally highest language proficiencies in the market. Cost for University student likely less than experienced professional

Enrolled in best universities in the country and do not view voice-support positions as a “career.” Likely difficult to retain

More readily available than Tier I University students and generally view voice-operation positions as desirable

Potentially less developed language skills than Tier I University Students

Significantly lower labor costs than University students

While language skills present, other work skills may need development

Excellent command of English or other foreign language. Understands even nuances and colloquial words

May have insufficient related work experience

Tier II University Student

3

High School Students

4

Repatriates

5

Spanish Spanish

English

Spanish

English

Portuguese

Spanish

English

European

More readily available across the region Less available across the region

1 2 3 4

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SustainabilityEqually important as the ability to nd quali ed talent is the ability to sustain that talent. While labor sustainability can, in part, be related to the company culture and policy, it also relates to market conditions. Market conditions that can affect sustainability include the level of competition for talent in a market, wage in ation, and alternative employment opportunities. Internal company policies that can negatively affect sustainability include a business model divorced from local practices that contribute to attracting and retaining talent, alignment of the type of work offered to employees and education level of employees, and an inaccurate understanding of the employee pro le best aligned to staff operations.

Cities across Mexico and Central America have varying degrees of competition for talent, ranging from almost no competition to very elevated levels of competition. Cities characterized by higher levels of competition for talent commonly have more than ten multinational companies operating in a city with requirements for the same employee pro le. An-nual attrition rates vary signi cantly between cities in the region and range anywhere from 30 percent to 150 percent (sometimes even higher). Wage in ation can also vary signi cantly in the region. Both considerations are driven by the supply demand equilibrium in a city (i.e. demand for talent vs supply of talent). In a market where supply of talent is signi cantly greater than the demand for talent, wage in ation can be as low as 3 percent per year. In saturated markets, where demand for talent is higher than the supply of talent, wage in ation can be as high as 15 percent per year.

Negative Impact on Sustainability

Competition for talent

Wage inflation

High prevailing employee turnover rates

Inaccurate understanding of employee profile

Misaligned operating model

Market DrivenCompany Driven

Base Salary

Benefits

Total Labor Costs

Cost of LaborTotal Cost of Operations

LABOR

Regional market maturityLocations across Mexico and Central America can be classi ed into one of three maturity categories: Pioneering, Emerging or Established. Locations classi ed as Pioneering will offer the least amount of competition for talent but also an unproven business environment. Locations classi ed as Emerging will typically have some competition for labor but a more proven business environment. Established markets can be considered locations that have a demonstrated track record and proven ability to support customer support centers (voice support) but also the highest levels of competition for talent. The list at the end of this paper provides an overview of the locations in the region that are supporting call/contact center operations and the list of companies in each city operating a center.

Potential risksWhile realizing the opportunities that exist today, it is also important to remember that the global investment climate is dynamic and that it is necessary to understand the potential risks in any investment decision. Risks to direct investment in Mexico and Central America include:

• Market Saturation: Markets across Central America are small compared to other global markets, and especially when considering that the availability of talent with bilingual language capabilities is a subset of the total labor force. Many countries in Central America only offer one potential investment destination and that market could have the potential to rapidly reach saturation.

• Increase in Crime: As crime continues to spread from the border between Mexico and the U.S. to the rest of Central America, it will be necessary for companies to understand how elevated levels of violent crime impact the macro and micro selection of a location.

CostLastly, understanding the costs in a market and related impact to the value proposition of a location is critical to successful ongoing operations. For customer support operations, labor generally comprises the majority of total operating costs. As such, it is necessary to fully understand the total cost of labor, including 1) base salaries for the speci c language and skills required in the operation, 2) the cost of a competitive bene ts package, and 3) number of months of compensation paid to employees. Bilingual (Spanish/English) Customer Service Representative’s base salaries can range from US$4,800 per year to US$18,000 per year. Currency stability is yet another important consideration impacting the cost of operations in the region. While Central American countries generally have stable currency regimes (many economies are even dollarized), economies with signi cant currency uctuations can affect the long-term value proposition of the market.

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• Political Risk: While risk of political events of a scale to impact the daily business environment is low, there are a few countries within the region that offer less stability than most investors are willing to tolerate. Unexpected political events, such as the ousting of the Honduran president in 2009, can be a part of the investment landscape and multinational companies need to have an understanding of potential political risks in a market and what impact they could have on operations.

• Financial and Economic Risk: The economies of Mexico and Central America have stabilized over the past decade and major negative events such as the Tequila Crisis in Mexico during 1994 are, for the vast part, no longer a part of the investment landscape.

• Labor Arbitrage: As many markets in the region are small and offer more limited pools of quali ed professionals for voice-support operations, the competition for talent can quickly increase with just a few moderate to large-scale direct investments. With increasing competition, the potential for wage in ation is high, and the ability to maintain the desired cost point in a market can be easily stressed.

• Language Pro ciency: As Brazil continues to grow as a dominant economy in the global landscape, there will be an increased desire to create voice-support centers staffed with Portuguese-speaking professionals. Central America and Mexico have a limited ability to support this language in any scale and the region may face dif culties supporting Brazil-oriented operations.

ConclusionMexico and Central America are increasing their participation in the customer support industry, and new markets are continually identi ed that can support voice-support operations. Today, nearly all major markets across the region have experienced at least some foreign direct investment in this industry and are actively working to increase investment ows. In order to understand which markets in the region would be able to best support an investment, it is important to understand the industry landscape, especially in regards to the region’s ability to provide and sustain labor at a cost point that allows a desirable cost arbitrage compared to higher cost alternatives.

Matt JacksonManaging DirectorJones Lang LaSallematt.jackson@am.jll.com+1 571 215 5118

Shannon CurleySenior AssociateJones Lang LaSalleshannon.curley@am.jll.com+1 202 719 5583

San Pedro de la Sula, HondurasGuatemala City, Guatemala

Hermosillo, Mexico

Chihuahua, Mexico

Monterrey, Mexico Mexico City, Mexico

Guadalajara, Mexico Leon, Mexico

Aguascalientes, Mexico

AtentoSykesTeleperformanceStreamOffice Gurus

TransactelCrowleyBensonCitiBank

TelvistaLexiconMcsource (infosys)Garcia ResearchPatenaude & Felix

TelvistaProspectiva TM

TridexHablatelVangtelACS

TeleperformanceDatazoneAtencion TelefonicaServifonCompusolucionLabinal

TeleperformanceHispanic TeleservicesClient LogicSutehrlandARVATOACSCMSAmerican Airlines

AvantelFamsaAtentoMARCATELGE MoneyChryslerNEORISInfosys

TeleperformanceSoftekHildebrandoNR FinanceCRM MexicanaCONEXIALa HuertaCenexis

TeleTechCall CenterHispanic TeleservicesHPAtencion Telefonica Systems

Corvus & CygnusCall OccasionCamara NacionalFasst.Grupo Actuarial y serviciosImpulse TelecommunicationsOutsourcing y Tecnologia AplicadaSIRSoluciones de MarketingSantander BankMichelin Tire Company

TeletechMunoz y AssociadosASR

Atento TolucaAtento MetepecHSBCAuroniz NaucalpanTeletechTeleperformanceTelvista

SabMillerMyronCTI, California Teleservices, IncKM2

CapGemini/TransactelHelp Desk Now Shell24/7 AtentoDigitexACSExxonMobilGenpactACCACS-BPSTracfone

Asistencia GlobalTelemensajeInnovative Contact SoluationsRY6 GlobalNCOLatinodeTe LlamoRed VenturesGO GlobalBPOOCA International

T l i t

Tijuana, MexicoT l i t

Mexicali, MexicoCorvr us & CygnusC & C

Queretaro, Mexico

Atento Transactel

San Salvador, El Salvador

Panama City, Panama

San Jose Metro Area, Costa Rica Managua, Nicaragua ACE Aegis Communications Amadeus Amazon BA Continuum ConcentrixConvergys Credits World Dell Costa Rica First Data Fujitsu Hewlett Packard (ITO) lntertecLanguage Line

McKinsey & Co. Support Services Motif Paci c Interpreters QualfonStartekStream lntemationalSYKES Tech Data TeleperformanceTeletech United Collection Bureau UPS Supply Chain Van Ru

SitelStreamTransactelConcentrixAccedoTechnologies

AlmoriPatentvestConnect International

AtentoAuthorized MoversHPNordix Data ServicesCCT Panama IncAll Star Vacations Marketing I2C, IncLiberty MutualFEDSCOSky CommunicationsPanatel International IncLead Dog CommunicationsTech Channel Corp

Start Centers RealtyValentine & Kebartas, IncWinterbury Management, IncCatepillarC&S America Solution CorpSkycom CommunicationsLogs of PanamaCMS Consulting Service CorpVCIS IncCable & Wireless PanmaFirm Solutions PanamaA Plus Performance IncTeknocalls IncTransactelInternational Data ManagementAjax Communications

AtentoAuthorized MoversHPNordix Data ServicesCCT Panama IncAll Star Vacations Marketing I2C, IncLiberty MutualFEDSCOSky CommunicationsPanatel International IncLead Dog CommunicationsTech Channel Corp

Call centers/contact centers candidate markets across the region

For more information, please contact:

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