Who s Winning the LATAM Call Center Race and can Mexico Successfully Compete? September 18, 2009

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1 Who s Winning the LATAM Call Center Race and can Mexico Successfully Compete? September 18, 2009 Susan Arledge, SIOR President/CEO Arledge Partners Real Estate Group - Dallas, Texas On Sept. 8, I packed my passport, which I previously did not have to have to travel into Mexico, and boarded American for the 70 minute direct flight from Dallas to Monterrey (which I appreciated, as it was late in the evening when I left) to attend the IMT Contact Forum entitled Mexico Your Best Option. The IMT (Instituto Mexicano de Teleservicios) is the preeminent authority for Contact Center professionals in Mexico and throughout Latin America. I wanted to ask the tough questions that are always asked about Mexico: Is it safe and is there enough available bilingual labor? Both are very sensitive issues to the Mexican economic development communities Is the Crime Rate a Real Threat? During one of the sessions, someone cited a recent article in a Texas paper noting that Ciudad Juárez has become the murder capital of Mexico in recent months. More than 200 people have been killed in Juárez in the first 16 days of September vying for lucrative distribution routes into Texas. "We'd like to think this will soon be over, but this area is too important of a transit point, so it's likely the killings will continue for a while," said Alfredo Quijano, editor of Norte de Ciudad Juárez newspaper. Over the weekend, a banner purportedly signed by the Sinaloa cartel was found near Juárez, warning residents to remain inside and issuing an ultimatum to rival cartel members to leave the area. Within 24 hours, 30 people were killed. This week, at least seven more "narco" banners went up throughout the state of Chihuahua, promising retaliation in the hours to come from La Linea, hitmen associated with the Juárez cartel. We read these articles daily in our papers and therefore, the US attendees at the conference wanted to have some reassurances that Mexico would be a safe place to establish their call centers. Unfortunately, many of the EDC teams provided vague answers, feeling that avoidance of the issue might be the best way to deal with it. Many stated that the crime rate in Mexico s cities was no greater than in other major US cities, which is not the right approach in addressing the safety issues.

2 As much as I love Mexico and the opportunity that is ripe there, they need to be better prepared to deal with the crime issue and how the local community is working together to make the cities safer for employees. I can assure you, these economic development officers do not enjoy discussing crime rates and more than once the answer to the group when asked about crime issues was it s just not a problem here. The clients that I work with would be quite reluctant to accept that statement as reassurance from me. Can Mexico Compete in LATAM in the Wage Race and for Bilingual Talent? The real question here is not whether Mexico can successfully compete with India and the Philippines, but whether Mexico can compete with other Latin American countries such as Nicaragua, Guatemala, Panama, Costa Rica or Honduras (although not so much Honduras with the political strife there). Does Mexico really have a better supply of bilingual agents, as well as offering less expensive wage rates? The answer may be surprising, as the number of English speaker students graduating from high schools in other LATAM countries is on the rise. I admit to having a bias that Mexico still has a long to go to convince end users and third party outsourcers that it is a viable location in which to find large quantities of affordable bilingual labor. I was quite surprised to hear that there are many locations within Mexico, when compared on a fully loaded wage basis, are equally competitive. Weary of long flights to India and the Philippines, I am being asked to identify alternatives where low cost English can be provided with easier accessibility. The global recession has forced third party outsourcers to reduce their hourly rates in order to retain or acquire business, so the pressure falls on us to find locations where this can be done without sacrificing quality. Not an easy task, as many of the quality locations such as Costa Rica and Panama have already become saturated. Our ever-popular and always-entertaining moderator, Keith Fiveson of ITESA, was quick to remind the group that our perceptions about particular countries are often not in sync with reality. Keith reinforced that the countries winning the outsourcing race right now are India, Philippines and quite surprisingly, Mexico, as evidenced by the number of seats each country had in 2008: India: Philippines: Mexico 383,000 seats 140,000 seats 162,500 seats So, I wanted to ask the hard questions of each state within Mexico that made presentations Nuevo Leon, Jalisco, Chihuahua, Coahuila, Baja - about wages, availability of bilingual labor, number of bilingual high school and college graduates, as well as realistic crime statistics. Here s some information that I brought from the conference: In Nicaragua, an experienced Customer Support agent earns approximately $700 per month (including mandated benefits and taxes of 45.6%) Vacation 8.3%; Christmas bonus 8.3%; Termination compensation 8.3%; Holidays 3.7%; Social Security 15%; INATEC (Technological Institute 2.0% In Honduras, an experienced Customer Support agent earns approximately $517 USD per month (including a 22% mandated benefit package). The 22% mandated benefit package consist of vacation pay (based on 80 hours of 10, 8 hour days), holiday (based on 88 hours of 11, 8 hour days), Social Security, Government Training School, 13 month pay (Christmas Bonus) and an additional 14 month pay (due in June)

3 In Guatemala, an experienced Customer Support agent earns approximately $600 per month USD (including 37% benefits and taxes. Payroll and an additional 7% are accrued severance allowances), which are paid out in cash based on the number of employed months. In El Salvador, wage for a Spanish only Customer Service Agent is $225 and English/bilingual Customer Service Agent wage is $766 per month USD with 27.61% benefit load for employees: Social Security 7.5%; INSAFORP 1%; Retirement Fund 6.75%; Year end bonus 2.78%; Paid vacation 1.25%; Severance pay 8.33%. In Columbia, an experienced Customer Support agent earns approximately $580 per month USD (including mandated benefits and taxes) Pension 12%; Health 8.5%; Other contributions 9%; Severance 8.3%; Interest on Severance 1%; Service bonus 8.3%; Vacations 4.2%; Professional risks between.348%-8.7%; Life insurance - % depends on supplier In Costa Rica, an experienced Customer Support agent earns approximately $877 per month USD although this appears to be significantly increasing due to saturation levels, (Including: Social/medical/fringe benefits and worker s compensation insurance (26%); Christmas bonus (1 month salary); reserves for vacations (4.10%); severance (5.33%); and official holidays (2.47%) In Mexico, an experienced Customer Support agent earns approximately $ USD per month (including a 68.58% mandated benefit package) Christmas bonus (15 days minimum wage) 4%; Vacation bonus (25% of 7 days x minimum wage) 0.50%; Profit sharing (12 days per year) 3%; housing 5%; state and university 2.08%; Social Security 8.80%; Retirement fund (SAR) 2%; Savings Fund 10%; Cafeteria 8.80%; Transportation 10%; Uniforms 0.60%; Attendance bonus 5%; Food Bonus 8.80%. But wage rates alone don t tell the total story, as it s important to be aware of the impact that saturation levels have on competition, especially for bilingual employees. As an example, Sitel recently opened a 300 seat bilingual call center in the Invercasa building in Managua, Nicaragua and was so successful there, that they opened a 2 nd location in the site of the former US Embassy. In an effort to act as a barrier to entry, Sitel negotiated an exclusive clause with the owner of the Embassy location that prohibits another call center from occupying space in that location. Nice way to control market entry, as well as becoming the employer of choice in the area. Nicaragua,Managua Sitel seats supports heavy US based clients in two centers ETelecare/Stream seats serving US based customers. Over the last six (6) months, these two major 3rd party outsourcers have expanded for bilingual capabilities to service English speaking markets Tegucigalpa, Honduras Myron: 50 full bilingual, Mercury: 30 full bilingual, Sab Miller: 100 Spanish. Approximately 20 banks, cell phone companies, telephone companies and insurance companies, have call centers, but solely to support the domestic market. Puebla, Mexico Altitude Software: 100 fully bilingual agents supporting a pharmaceutical client, Intermex: 200 fully bilingual agents supporting US money transfers and multiple other smaller centers supporting both domestic and international work. Guatemala City, Guatemala Gap Gemini - 1,000 seats,

4 Atento - 1,500 seats, 24/7-500 seats Transactel bilingual agents GE Money - data entry (100% Spanish) 24-7 both bilingual and Spanish agents ACS - data entry (100% Spanish) Of the 9,000 agents currently employed in the call center industry in Guatemala, only 2,500 to 3,000 are supporting bilingual work. San Salvador, El Savador Competitors include Sykes, Stream, and Teleperformance. All provide English bilingual, but are now said to be reducing English bilingual and focusing on Spanish labor Bogata, Columbia Atento, SAP, Sitel all provide voice services, ACS provides non-voice services. Unisys, Allus/Multienlace and HP provide both voice and non voice services. San Jose, Costa Rica TeleTech, ICT Group, AEGIS Communication, Sykes, Hewlett Packard (ITO), Stream and Bank of America and a multitude of other end users offer customer service, customer care, technical support, telemarketing, billing & collections, IT support networks help desk, product tracking, trouble shooting, market research, after care, sales, help desk, IT engineering support, network support, infrastructure support, and recovery planning. Susan G. Arledge, SIOR, is president and CEO of Arledge Partners Real Estate Group, located in Dallas, Texas. Susan focuses her efforts on site selection, incentives negotiations and real estate identification and acquisition for the contact services/bpo industry. A recognized author and frequent speaker, Susan combines complete market knowledge with expertise in the financial and strategic aspects of a transaction. Arledge Partners is certified as a Women s Business Enterprise (WBE) by the Women s Business Enterprise National Council and certified as a HUB by the State of Texas.

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