Outsourcing moves closer to home

A new trade agreement with Central America to take effect Jan. 1 tempts more US companies to try 'nearsourcing.'

A lot has been written about the outsourcing of high-tech and customer-service jobs to lands overseas. But the latest threat to job security in the United States, some argue, lies right next door, south of the border.

Touting Central America as the "new Asia," pro-business and investment organizations across the region are all talking about the benefits of "nearsourcing." It's the same thing as outsourcing - that is, sending jobs to lower cost locations outside the US - but closer to home: It's South rather than East, near rather than far. And it's increasingly attractive to US firms.

Lured by the ease of working in the same time zone a mere three or four hours' flight away from headquarters in the US, such companies as Dell, Sykes, Sitel, IBM, Proctor & Gamble, and Western Union on the service side and Sara Lee/Hanes, VF Corp., and Russell Athletic on the manufacturing side have been moving business into the region.

Central America received just over $2 billion in foreign investment last year, up from an annual average of $633 million in the first half of the 1990s, according to the UN's Economic Conference on Latin America.

To be sure, the numbers of US jobs - manufacturing and service alike - that are going to Central America is minuscule when compared with those being outsourced to Asia. The number of jobs currently outsourced to India alone ranges between 400,000 and 700,000, says market-research company Forrester Research in Cambridge, Mass.

But with the Central American Free Trade Agreement (CAFTA) scheduled to take effect Jan. 1, interest in Central America is increasing, says Eric Jacobstein, a trade expert at the Inter-American Dialogue in Washington.

"The US private sector will no doubt continue to look to China and India," says Mr. Jacobstein. "This is a phenomenon that cannot be stopped." But, he adds, "geography does matter," and, combined with locked-in trade preferences via CAFTA, greater nearsourcing "is bound to occur," he says.

Like India and the Philippines before them, CAFTA nations - Nicaragua, Panama, El Salvador, Honduras, Costa Rica, and the Dominican Republic - are embracing the trend with business-friendly policies and heavy marketing.

ProNicaragua, a public-private agency working to attract foreign direct investment to Nicaragua has, for example, put together a database of English speakers (with more than 4,500 names so far) and is working with the government to establish programs to upgrade the English skills in the country.

These workers will fill what Juan Carlos Pereira, executive director of ProNicaragua, estimates will be approximately 4,000 new call-center and service-center jobs in the next three to four years.

"Paradoxically, the turmoil of the 1980s has now become one of our great selling points for the call-center industry," says Mr. Pereira. "Over 400,000 of our people who fled the conflicts of the 1980s moved to the US and Canada. Many, including myself, have now returned to the country with good education and English skills."

The leader in Central America in terms of attracting outsourcing business is Costa Rica, where 24,500 call-center and information-technology (IT) jobs have been created in the past few years. That number is expected to double in the next two years, according to the nonprofit Costa Rican Chamber of Information and Communication Technology.

In Latin America as a whole, the number of call-center workstations will hit 730,000 in 2008, up from 336,000 in 2004, reports Datamonitor, a market-research firm.

India still has a far larger pool of educated English speakers as well as a lower minimum-wage base, and often better infrastructure. But Central Americans feel they can still capture a growing share of the market, especially because CAFTA ends most tariffs on more than $33 billion in goods traded between the US and Central American signatories and protects investors in the service industry.

"There is a hunger here for having a job, and a highly motivated group of people," says Leonel Lacayo, a Nicaraguan who lived 23 years in the US before returning home to Managua and opening the Nicaragua Call Center (NCC) last month as part of a joint venture with US-based Franklin Collections Services. Lacayo has 70 English-speaking employees who make calls to collect debts for clients such as telecom companies, hospitals, and credit-card companies.

"It would be hard to find people in the US who wanted this job because they have too many other options," he says. "But here the pay [$400 a month plus incentives] is triple minimum wage."

By January, he says, he expects to expand to 100 operators.

When it comes to call centers, says Mr. Lacayo, the accents of his operators - if they exist at all - are a big selling point. The Hispanic population in the US has risen 50 percent in the past five years to about 38.8 million, according to US Census figures.

"There are millions of Hispanics in the US," Lacayo points out. "And so even non-Hispanics have gotten used to that accent." Indian accents, by comparison, he says, "are totally difficult."

Being able to speak both English and Spanish is a plus, says Claudia Solano, one of the operators at the call center. "The best collections I make are from Hispanics," she says. "They are not used to being able to communicate." A few days ago, she says, someone told her she was "the nicest collector who ever had called."

Ms. Solano's parents fled Nicaragua during the civil war of the '80s and settled in Las Vegas where she and her older sister, Karen, also an operator here, grew up. The family moved back to Managua to care for elderly grandparents three years ago.

"I am overqualified and underpaid," says Karen Solano, speaking over the din in the large rented hall that serves as the NCC call center. "But it's really hard to get a good job in Nicaragua."

If, she says, more companies eventually invest in the country, she will be better off. "I don't want to be a collector all my life, anyway," she explains, "I want to be a supervisor. So, I am keeping my fingers crossed."

Not everyone sees the growth in nearsourcing in a positive light.

"We are sorry about this phenomenon," says Thea Lee, the AFL-CIO's deputy director for public policy. "We are sorry anytime we lose good jobs here in the United States and we are also sorry we did not succeed in yielding stronger protections for Central American workers in CAFTA."

The AFL-CIO lobbied against the trade agreement, which squeaked by with a two-vote majority in the House of Representatives and a nine-vote margin in the Senate.

Ms. Lee disagrees with the argument that sending jobs to Central America will mean there will be fewer illegal immigrants in the US competing for jobs.

"It's a common business line, but there is very little truth to it," she says. "We don't believe that more trade will do much to lift people out of poverty. It will enrich the rich. We want Central America to be more stable, but we don't think this nearsourcing will deliver that."