Colombia sheds poor image to emerge as up and coming IT hub

Once beset by reports of kidnapping, narcotic-related crime and violent guerrilla groups, it is safe to say that Colombia is often perceived as an unstable and unsafe country. As such, despite a relatively well-established industry, it may not immediately spring to mind as an outsourcing destination, least of all for security-conscious banks.

Some in the international business community have shown in the very recent past that they still harbour such concerns. In 2009, Datamonitor's annual Black Book of Outsourcing ranked the country's capital, Bogota, as the riskiest outsourcing destination in the world.

This dubious and arguably undeserved accolade did not meet with universal approbation at the time however, and local and international businesses operating in the country are still baffled by the decision. By the end of 2010, the report's authors seemed to have reconsidered their assessment too, and Bogota was ranked near the middle of the survey's 160-city ranking.

A rethink may well have been in order, because despite numerous well-documented crime-related problems Colombia has made huge strides in combating the myriad issues it faced a decade ago. Once-soaring crime levels have been slashed, for example; between 2002 and 2009, the total number of murders in the country fell by 45% and kidnappings dropped by 93%. Nevertheless, international perceptions have not always kept pace with these developments, something that Colombian businesses and trade bodies are all too aware of. "Things have changed extremely fast, but perceptions haven't kept pace with the reality," says Juan Carlos Gonzalez, vice-president of foreign direct investment with Colombia's international investment promotion agency, ProExport.

Changing perceptions

Nevertheless, Colombia is now experiencing something of a rise in popularity on the international stage. It makes up one of the six 'Civets' (along with Indonesia, Vietnam, Egypt, Turkey and South Africa), identified by HSBC chief executive Michael Geoghegan as the next big emerging markets, and boasts strong economic growth and a stable political climate.

It is also becoming a favoured destination in the IT and business process outsourcing (BPO) sectors. Colombia already has a strong technological standing. After Brazil, it boasts the largest IT market in Latin America in US dollar terms, according to analytical research firm IDC Financial Insights. Similarly, the Economist Intelligence Unit and IBM Institute for Business Value's 2010 digital economy ranking – which assess a country's information and communications technology infrastructure and usage by consumers, businesses and governments – places Colombia 50th in the world, ahead of popular outsourcing destinations such as China, India and the Philippines.

Established operations

The call-centre outsourcing industry is long established in Colombia, and worth more than $250m annually in Bogota alone. IT service provider Unisys for example, has offered extensive voice-based services from Colombia for some time. It also recently decided to situate its regional centre for outsourcing services in Colombia from which it will support customers across Spanish speaking Latin America. The firm considered locating this facility in a number of other countries, but decided to stay in Colombia because of an appealing business environment and reasonably low operational overheads, says Yolanda Auza, Unisys' general manager for Latin America. "Colombia doesn't have the lowest costs, but it does have competitive costs," she says, highlighting the low internet costs, cheap utilities bills and average rental prices in the country.

Ms Auza adds that government initiatives designed to lure international firms to the country added to Colombia's attraction as a business destination for Unisys, as thanks to tax exemptions, it was able to bring technology into the country without import fees.

Unisys' growth is in part fuelled by demand for various services, including IT support and disaster recovery, from a number of banks seeking to expand their Colombian presence, including Scotiabank and Banco Popular, says Ms Auza.

Latin American tech hub

Basing a Latin American hub of operations in Colombia appears to be an increasingly popular strategy. IBM has also established a call centre and software solutions desk for much of its Latin American operations in Bogota. Meanwhile, Citigroup elected to establish a customer service centre in Colombia offering services such as sales, processing and voice BPO for personal and corporate banking customers in 14 Latin American countries.

For IBM, Colombia's central location was a crucial consideration "Geographically, Colombia is the best position for the headquarters of an organisation, it really is a geo-hub," says Francisco Bories, IBM Colombia's general manager. He adds that the business case is also improved by numerous direct daily flights to major cities in the US and other parts of Latin America, as well as a time zone shared with the US east coast.

Citigroup officials say the decision to locate in Colombia was also prompted by the country's modern telecommunications infrastructure, including five submarine cables that produce a total bandwidth of more than 550 gigabits a second. Colombia's flexible labour code and long daytime working hours were also a consideration for the bank.

Adding value

But the country is beginning to look beyond voice-based services, particularly when supporting banking clients. "Colombia has 16 to 17 years' experience in call centres; now there is a move towards more value-add and providing more services," says Santiago Pinzón, BPO executive director with ANDI, the National Business Association of Colombia. He adds that financial services firms will be one of the key customer groups for the sector.

This 'value-add' may be starting to appear, but in some cases, it has been a long time coming. Bancolombia CIO Olga Botero describes Colombia's IT sector as "vibrant and dynamic". However, she says that for many years, the industry was made up chiefly of small local software houses who provided software development for local small and medium-sized enterprises (SMEs) and were not necessarily well-versed in providing other services. The industry, she says, had "a lack of quality standards and [not enough] people with management capabilities". However, all of that began to change around the turn of this century, when the government created its 'connectivity agenda', which aimed to increase use and penetration of IT and telecommunications technology in different sectors of the country.

An influx of foreign firms has also had a large influence on local operations, with domestic companies often allying with large international players. Firms such as Tata Consultancy Service and Infosys now have large Colombian operations, while Hewlett Packard is set to open a software development centre in Colombia's second largest city, Medellín, with a 1000-strong workforce.

In general, this has had a strong and positive impact on Colombian IT companies themselves, Ms Botero argues. "For some international firms, the strategy has been to look for a local partner and help that partner and bring it into a level of quality and standards," she says. "But the biggest Colombian companies have had to become better themselves, and have also started expanding, establishing operations in other parts of Latin America and even Spain."

Of course, not all international IT firms are new to Colombia. IBM, for example, has spent 73 of its 100-year history in the country, and is already a huge presence in the financial technology arena. Banks and other institutions makes up its largest customer segment; 80% of banks working in Colombia are using IBM technology, and the firm's datacentres process about 40% of the country's gross domestic product, according to IBM.

Nevertheless, in Colombia such a scope of operations is rare. But Mr Bories also suggests the country is ready to move to providing more advanced services on a larger scale. However, he cautions that while Colombia does have the raw numbers of qualified personnel to do so, for more advanced technology and financial sector work, specialised education needs to be provided.

"There is very good talent in Colombia and finding people shouldn't be a barrier for growth, at least for an established firm. However, while we definitely have the talent here, we lack specific experience," he says, adding that as a result, financial projects often entail a larger degree of international help.

University link-up

As a result, IBM is currently developing educational programmes with universities both public and private (including the prestigious Universidad Nacional de Colombia) to recruit students so they will have expertise in the areas it needs and be productive within the firm fast. Unisys is taking a similar approach, says Ms Auza, as are many other large firms based in the country.

If Colombia-based IT and outsourcing firms are to secure and keep pace with all important financial sector customers, they may well have to adopt this approach. Bancolombia, like many other large Latin American banks, is in the midst of a major IT refresh, upgrading everything from core systems to credit-card processes and treasury programmes and moving away from the clunky proprietary architecture it once employed, says Ms Botero. Consequently, it is looking to external technology providers for help in doing so.

"Especially after the recession, we see Latin America as a place of high potential and high growth, and we are making significant investments to take advantage of that," she says. "We want to grow fast, and because we are a bank, not a software house or a service company, we want to concentrate on banking. We can outsource many things, and with outsourcing, we will be able to grow."