Finance Colombia: Mayor, during your campaign you talked a lot about making Medellin the Software Valley, and we still hear a lot about that slogan. Medellin has an international reputation as a technology center. My question is, in the last two years of your administration, can you talk about any success regarding attracting international investment related to technology, services, BPO, ITO, and informatics? Can you give some examples of how you really are making Medellin the Software Valley because of any particular companies that have arrived, and grown here? Can you please provide some examples?

Daniel Quintero: There are plenty, I’ll tell Eleonora (Betancourt, director of ACI Medellín) to provide more examples, but we have for instance the arrival of Alibaba, MercadoLibre, Indra, Conecta, and many other companies that come also in the need of human talent that can be measured in thousands: they need 500, 1000, 1200 people, but besides that we know that there will be many other companies coming. We have received 34 companies in the last two years. Last year the investment achieved $382-383 million, but there is more coming, because a month ago, the president approved the bill for the conversion of Medellin from municipality to Science and Technology District.

Last week we issued our first tax statute, which for the first time benefits the technology companies located in the territory, and even more to those located in the orange zones or free zones, and because for the first time in the congress there is a bill that will provide tax benefits at a national scale, for the companies that are in the territory. What’s interesting is that both local and national governments are aligned to create benefits, and the companies are perceiving these signs, so they locate here. What we believe is that this, when added to the investments in education, will create the other variable that will be very interesting, indispensable for any technology company.

Finance Colombia: You and I were in the event where Viva announced their plans to do with Medellin basically what Copa did with Tocumen International Airport in Panama, but you mentioned something very interesting and that is that there is a plan to close the city’s Olaya Herrera municipal airport and move the traffic to the international airport in (the Medellín suburb of) Rionegro. That’s curious because speaking with Viva, they agree as well that it can be a good idea, but Rionegro has only one runway and it’s already busy; which is good for Medellin, but isn’t that a risk? Because Bogota already has issues with delays, and also the international airport is out of the direct control of Medellin, because is in Rionegro, so how do you see the possibility? Is it more like a dream or is it a real plan? What are the obstacles, and logistically, because here we have a lot of local flights and private flights, wouldn’t it be a problem logistically for the city, and also politically, since that airport is out of the control of the city? How do you see that?

Daniel Quintero: First of all, Medellin has always had a strategic point of view, besides having a very corporate vision, Medellin is one of the cities in Latin America with the most public companies. For example, EPM is a public conglomerate of gas, water, water cleaning, telecommunication; for instance Tigo, which is let’s say 50% plus a share of the city of Medellin through EPM, and with airports the story is similar.

Medellin is partner in the ownership of 5 airports in Colombia: Rionegro, Olaya Herrera, Encarepa, Enquito, Corozal Sucre. When an airplane lands in any of those airports, Medellin earns some pesos, and is involved permanently in the investment decisions of these airports in which we are partners, where Medellin participates as a shareholder. In order to guarantee the development, Medellin amplifies its aerial connectivity as a fundamental principle, and requires very important investments.

Medellin has another feature, that it often makes investments out of its territory, as long as it represents a strategic advantage. For example, the Toyo Tunnel, which is hundreds of kilometers away, where Medellin invested more than 400 billion pesos, but that definitively is one of the 4G (highway projects) of the country that normally is made with national investment. It has never happened before a that a city itself invested in a project to be completed and executed in Colombia, but in Medellin it is possible, so what have we proposed to the national government? First, that Medellin purchases the necessary land to be able to build the second runway for Rionegro. We are talking about an investment that surpasses 500 billion pesos, close to 500 hectares or a bit less, but there is more participation in the construction of the Rionegro airport, a runway with a terminal, which would pass from 150,000 to 300,000 daily operations. Today, the airport is at 80,000 daily operations average. Additionally, the purchase of 1,000 hectares in the east, and 1,000 hectares in the west in a valley named San Pedro de los Milagros, or Nus Valley, to build another airport, which would increase the aerial connectivity of the city. Let’s say it’s not immediate, but at the beginning, it would have a small runway, which would look like the one we have at Medellin’s Olaya Herrera municipal airport, which has 130 hectares. We are talking about 1,000 hectares, so we’d have 2 airports, one military and another for passengers in San Pedro de los Milagros, and the reconditioning of an old airport, which unfortunately was being used for drug traffickers for a long time, also in the east, but towards Santa Fe de Antioquia.

A reconditioning of a small airport that would work for touristic aviation trips or rather private planes, and for aviation schools, but also I say touristic because it’s an area with a touristic potential that no doubt will be developed. Besides with the tunnels that are being built, many of them will be completed in December of this year, and these are the same that work towards the west, that include the Toyo Tunnel, so we invest as a city in that road, which is a national road, this is part of the mega projects of the city that don’t happen necessarily in the territory, not only in this administration but in the past ones as well, acknowledging that not only guarantees the future of a city looking at it, but at the whole region.

It’s not difficult, you know, because there is some sort of inertia around a topic of thinking Medellin in the future, the challenges from today. There is a culture that every mayor leaves a project so the next mayor executes them. I am executing projects that my predecessors left, and I’m going to leave projects that my successors will execute. Medellin always challenges itself to decade lasting projects, so we are equally happy by designing and executing these projects, as well as those who help with the delivery and opening, because there are those who design, those who execute and those who deliver, no matter in what stage we are we feel very fascinated and excited in being part of this process.

On top of recruiting more employees, Convergys Colombia says it is aiming inspire workers to embrace a health-conscious and environmentally friendly lifestyle. In Bogotá, a metropolis of more than eight million with some of the most congested streets in Latin America, biking to work can also reap benefits in terms of commuting time.

“We want to inspire the people of Bogotá, promoting practices that help the environment and encouraging them to plan and implement a healthier lifestyle,” said Eugenia Rojas, senior manager for communications at Convergys in Latin America. She added that, “together, we can all pedal towards great changes.”

Convergys, which established its presence in Colombia in 2011, recently installed bike racks at its sites. It is currently looking to hire bilingual customer service representatives, as well as “semi-bilingual” sales agents. The company is encouraging those interested to fill out an application at its Bogotá office (Calle 127 #7A-28) during business hours or by visiting the Convergys website or Facebook page.

“With this 40 bicycles that we are giving away, we want to raise even more awareness in the community” said Rick Strub, director for Convergys in Colombia. “We invite everybody to join this initiative, exercise, and start their path towards a successful future.”

BPO Outlook 2017

From software development to call centers, 2016 was a year marked by significant change and uncertainty across the spectrum of business process outsourcing (BPO). Political, technological, and human factors have all conspired to ensure that no matter what sector one works in, there will be no more “business as usual.”

Rise of the Machines

In 2016, Amazon released APIs for its Alexa artificial intelligence product, meaning that the research the cloud and retail behemoth put into voice recognition and artificial intelligence is now available for third-party developers. The kinds of capabilities seen in Apple’s Siri or Microsoft’s Cortana are now available for anyone to develop applications around.

In call centers, the hated IVR (interactive voice response) may be replaced with intelligent solutions that can go beyond customer service to advanced functionality. Freed from having to develop the underlying technology, developers can create solutions that can easily replace the lower-end inbound and outbound call center functions. It will be even easier to create chatbots and interactive email bots sans the voice recognition technology. Some AI chatbot platforms are already commercialized and in the marketplace.

Photo: President Donald Trump has pledged protectionism and become a wild card in an already rapidly evolving outsourcing world. (Photo Credit: Gage Skidmore with modifications)

In the coming months, the smartest providers will look for ways to leverage and commercialize these platforms, making the traditional contact center more and more obsolete.

The same holds true for non-customer-facing processes. Robotics process automation (RPA) is not coming — it’s now here. Just as in traditional robotization, an initially higher capital investment can result in much lower operating expense over the midterm. Job boards are filling up with advertisements for developers and engineers versed in RPA.

The human role on the BPO front line is morphing into one of supervision of processes or “exception handling.” The starting BPO job is no longer about “butts in seats.” It is one that demands cognitive abilities and advanced critical thinking. Everything else is automated—or about to be.

This holds significant implications for location sourcing. The gap will continue to widen between locations that have educated, capable talent pools with certifiable credentials and those that have little more to offer than language skills. Talent will trump wage rate even more than before. This means there is no greater role for the public sector than in providing competitive education and marketable skills to its young populace. Along with security and good government, there is nothing more critical in the long term.

A large part of BPO is beginning to be gobbled up by BPA: business process automation. While ITO (information technology outsourcing) will continue to be critical for most companies of any size, those IT outsourcers that are able to morph or evolve into RPA and BPA enablers will be best positioned for success — and survival. After all, these are uncertain times for traditional software outsourcers.

In December, U.S. Senate democrats and other stakeholders gathered to tell President Trump that he must “keep your promise to American workers and prevent outsourcing.” (Credit: Senate Democrats)

A Stacked Deck

Trying at all costs to avoid “trump”-card puns, the outsourcing industry and the globalized environment is facing a new U.S. president avowedly hostile to outsourcing. President Donald Trump has promised to make enemies of all of us in international outsourcing — or any international business that benefits from free trade and movement of capital, data, services, and talent across borders.

Of some comfort, the U.S. president is in certain ways, far weaker inside the United States than he is externally. The president does not have the legal ability to cancel free-trade agreements on his own and cannot rule by decree. Generally speaking, he cannot order any individual or entity to do anything in particular beyond federal employees or federal government agencies. On the other hand, those same agencies can cause trouble or headaches for companies when instructed to do so.

The largest threat seems to be faced by traditional FTE-based outsourcers (full-time equivalent) reliant upon labor-arbitrage benefits. When a clear case can be made that “the company fired 200 of us and hired 200 people over there!” such organizations can find themselves in the crosshairs of an activist administration that may not be above outright bullying.

Much safer are the firms that partner for cross-border services in a globalized world. The purchasers of processes or services high on the value chain are much more difficult to politically target. Legal support outsourcing is an example. The media is devoid of protesters demanding more employment for lawyers!

While lots of noise is made about coders and the U.S. H-1B visa program (or other countries’ equivalents), politicians that move to restrict the program only drive more development and maintenance work offshore by restricting the amount that can be done onshore. The move to the cloud means that less work depends upon physical proximity to begin with. Both the buy-side and sell-side in the outsourcing equation will move to protect themselves by evolving into an “as a service” model as opposed to an FTE model.

This does much more than protect against political risk, but when done properly it more closely aligns provider and customer: It drives efficiency and innovation on both sides of the equation. Providers are self-incentivized to come up with advanced solutions and think of new ways to service clients, as opposed to traditional adherence to the terms in a multiyear RFP-based contract that is probably obsolete by the time it is signed.

Back to the point: In practice it is much more difficult for a bombastic politician to say “you can’t buy that global service” than “you can’t move those jobs!” Customers and providers that adopt the “as a service” model will find themselves relatively insulated from political winds — and perhaps better positioned for the wider evolution already underway.

Trump’s combative stance toward China could mean an ongoing clash with President Xi Jinling. (Credit: Kremlin)

Hardware

Tangential to pure BPO, but indirectly very important, is the rapidly heating climate between Trump and China. Trump seems to be intent on making an enemy out of its second biggest trading partner, and Chinese President Xi Jinping seems uninterested in backing down.

While this has most-dire consequences for security and stability, a trade war with China would almost certainly be a lose/lose proposition. As the saying goes, “when the elephants wrestle, the ants get trampled.” What that means is toxic instability for world markets, but especially vulnerable are smaller countries. Most exposed are those smaller markets without a strong broad-based manufacturing capacity.

If the Trump administration takes an aggressive approach to Chinese monetary policy, and things don’t get too far out of hand from a security standpoint, a higher Chinese Renminbi can boost manufacturing — especially nascent high-tech manufacturing Latin America and the Caribbean.

But those countries need to have pre-invested in the capacity, meaning talent and infrastructure. It is not something that can be dialed up overnight.

Brexit

The decision by the voters of the United Kingdom to break away from the European Union will have many winners and losers, and in some cases it is too early to tell which is which. But one clear winner is the nearshore outsourcing industry, especially finance and accounting outsourcing.

Tight economic integration with the European Union meant that domestic British entities were encouraged to outsource within the EU, perhaps to lower-cost EU locations such as Eastern European countries. This decoupling makes those advantages less evident and provides an opportunity for Caribbean Anglophone countries like Trinidad and Tobago, and even Latin American countries with strong bilingual abilities and highly educated talent pools.

Vendors and venues that may have lost out to EU providers in the past few years would be well advised to reach back out to those contacts for a catch-up call. Likewise, buy-side entities may want to review venue selection in favor of providers on the western side of the Atlantic where things are more predictable. As of January 2017, how Britain will disentangle itself from the European Union remains a big unknown, with the political climate in Europe even more uncertain than it is in the United States.

Outsourcing for capital markets now exceeds a projected $2 billion USD.

Capital Markets: New to the Party

Finance and accounting outsourcing has traditionally focused on banking and insurance back-office processes. However, there are new players. According to the Everest Group, capital markets have come a long way from their 2008 meltdown, with capital markets outsourcing now accounting for 18%-20% compounded annual year-over-year growth during the past three years.

Outsourcing for capital markets (asset management, fund administration, brokerage, custody, or investment banking) now exceeds a projected $2 billion USD. These firms (especially retail-facing companies like brokerage) face a changing customer base. The under-40 demographic is less impressed — and less interested — in peddlers of obsolete insurance products and high-load securities of the past and more interested in financial apps and robo-advisors.

Providers need to do more than be versed in new technologies like blockchain and other cryptocurrencies, they need to have a native level of comfort in order to do the heavy lifting on behalf of corporate customers facing pressure from consumers. Even strictly B2B financial entities, such as investment banks and institutional money managers, realize as a matter of survival that the value they add is — or needs to be — intellectual, not in processing or operations. Especially smaller, independent entities cannot out-process the global giants; they must out-think them, beat them on intellect.

This is where outsourcing providers can help, by efficiently and effectively handling the processing, the back office, the customer service, and even the compliance. This will allow those innovative financial firms, whether B2B or retail, to effectively leverage their intellectual property. This will allow them to ensure that their solution offering is their value proposition instead of getting bogged down in building the infrastructure or recruiting the staff for vast operations.

On the retail side, the days of full-load mutual funds and other high-commission financial products are coming to an end. The traditional retail stockbroker was disintermediated almost two decades ago. Margins are now Walmart-thin and automation will continue to make them thinner. Global banks and insurers already have economies of scale and can move operations across borders within their own companies. Effective development of outsourcing partnerships can help smaller and newer firms compete by allowing them to focus on their niche, their go-to-market strategy, and their uniqueness.

Colombia has built the large, impressive Ruta N complex in Medellín to foster tech innovation and entrepreneurship. (Credit: Ruta N)

The Disruptors

Traditional big-time outsourcing has focused on Fortune 1000 global companies, with relationships between giant companies signing deals for thousands of FTEs (full-time-equivalent employees). This has mostly meant large companies servicing other large companies in major population centers: Bangalore, Guadalajara, or the Philippines.

However, many of these large, traditional companies are getting disrupted by aggressive, smaller fintech (financial technology) firms that also can take advantage of outsourcers and outsourcing destinations, but only when those providers and venues are nimble enough (and sometimes humble enough) to talk to smaller firms and earlier-stage entities.

As a venue example, the city of Medellín accommodates startups as small as a sole entrepreneur in its expansive Ruta N business incubator facility. Smaller cities and island countries that would struggle to come up with 4,000 qualified candidates to fill a major BPO facility would do much better to focus on qualified providers or in-house delivery centers providing high-value services at a smaller scale, perhaps 50 to 500 seats. Companies on both the buy and sell side with opportunities of this size are often overlooked or ignored.

Safer for those venues as well is the lower risk profile of multiple smaller operations compared to one dominant employer that could potentially destabilize an entire local economy with the shuttering or downsizing of a single operation.

Nontraditional financial institutions are a superb example. There are new nonbank lenders that make consumer loans and package the debt for sophisticated and institutional investors, like Lendstreet. There are technology platforms like robo-advisors and app-based money transfer services that have the older firms like Western Union and Moneygram in their crosshairs.

Not all of these services are ready to start off with 1,000 seats in an outsourcing contract. But there are many of these firms, and they are not only rapidly growing, they are rapidly multiplying. Early bets, while more work initially, may pay off for the fintech firms, the nearshore location, and the provider — not to mention the customer.

Key Factors

For the Buy-Side

• Leverage outsourcing to compete with larger, operationally focused, entrenched competitors

• Consider nearshore locations, including smaller, more emergent locations that offer advantages over Eastern Europe or the Asia-Pacific region.

• Evaluate if the “as a service” model works for you as opposed to the traditional FTE paradigm. This can provide political insulation, along with other advantages.

• Mine the talent of your outsourcing provider. Use them as an advisor, not just a destination to off load busy work.

• Building a cloud-native infrastructure will make it easier to collaborate with outsourcing partners and, to some degree, insulate operations from political risk.

For the Sell-Side

• Non-IT outsourcers must still invest in software talent. Competency is not enough, only excellence will do. Business process outsourcing is becoming business process automation and those that cannot automate will not survive.

• Pay attention to smaller, disruptive firms and even startups. Chasing Fortune 1,000 firms means you are competing with Infosys, TCS, and Teleperformance. There is more new business to do and new relationships to be made with smaller firms that still provide viable, profitable opportunities. Some of these disruptive, emergent firms will become Fortune 1,000 firms — and can take you with them.

• Offering “as a service” outsourcing may be politically more palatable than offering traditional FTE based services.

• When thinking of financial services clients, think beyond retail. Also take into account custody, investment banking, and institutional asset management.

• Be ready to automate everything you can when your customer asks for it. They eventually will.

• Be politically sensitive about how your services are marketed. Don’t unnecessarily provide detractors with ammunition to use against you.

• Either evolve into a BPA (business process automation) firm — or become obsolete.

For Nearshore Destinations

• In the long term, there is nothing more important than investing in the education of your population. Nothing else even comes close.

• Rather than trying to compete with giant venues, leverage your unique value proposition: your location, your talent pool, your quality of life.

• Pay attention to the smaller firms you may be overlooking, whether they are outsourcers are companies setting up global in-house centers. Many of them have very high quality opportunities.

• No matter what your niche is — voice services, finance and accounting, legal, or even manufacturing — if you don’t have a deep enough IT talent pool to support those other services, you will be overlooked.

Loren Moss
Outsourcing Executive, Editor, Industry Analyst
If my talented team or I can be of service to you, please contact me

Jaime Miller, Zonamerica’s CEO

Colombia has a very well respected university and higher education infrastructure concentrated in the south of the city allowing it to supply ample talent for technology sector, with an employable talent pool that accounts for over 20.000 university graduates, 7000 technical school, and 35.000 high school graduates every year.

According to Everest Group, Cali is positioning itself as an ideal location for the global services industry due to its strategic location, high educational standards, excellent talent pool & low operational costs.

“The amicable environment for foreign investment, the region´s political and economical stability, as well as the quality of its human talent, makes Cali the perfect destination for the global service industry, says Jaime Miller, the CEO of Zonamerica, a Uruguay based business park developer that is building a large, class-A business and technology free-trade zone in the south of Cali. “The main criteria used by global services companies when choosing a destination for their operations, are human talent, infrastructure, business environment and industry maturity; these factors are undoubtedly improving in Cali.”

Aerial perspective rendering of Zonamerica Cali, now under construction

“Before choosing Cali as the location for our new business park, we assessed other countries in Latin America and the Caribbean that are well-known destinations for nearshoring, and to target regional demand. However, we selected Colombia due to the fact that is the 4^th biggest economy in Latin America, it shares the same time zone as several North American markets, and it accounts for a scalable and sustainable, high quality talent pool, that makes big service operations viable, which is what Everest Group is confirming with this report”, adds Miller.

Anurag Srivastava, Everest Group Senior Partner

Everest compared Cali with other recognized global services destinations in the region, including Miami, Bogota, Costa Rica and Monterrey. The results were conclusive, stating that Cali is highly competitive among these cities, and is very attractive for companies looking to set up service operations with good quality standards and low operational costs. Anurag Srivastava, Senior Partner at Everest Group, said “Cali has a very interesting value proposition, based on four key pillars: Skilled, qualified and sustainable talent pool; low operational costs; proximity to the main Colombian seaport of Buenaventura; and the city provides a robust business-enabling environment. That has already been proven by large foreign multinationals.”

Srivastava continued, stating that: “This value proposition allows Cali to perform four potential roles for the global services industry: Servicing Latin America and Spain; supporting small-scaled business-process service delivery for the US and Canada; act as a spoke for larger hub locations serving regional demand, helping diversify talent and environment risks; and finally, Cali is a key location to meet the considerable Colombian demand.”

The report noted that Cali accounts for 2.3 million inhabitants, with another 700,000 in surrounding communities, and an annual GDP growth rate of 4.5%, while maintaining less than a 2% yearly inflation rate. It also revealed that Cali is the city with the lowest operational costs among the comparative group of cities, with up to 30% savings when compared to Monterrey, and operating costs over 75% less expensive than Miami.

Click Below To See Additional Charts on Cali’s Cost Advantages:

Aerial view of Zonamerica Cali’s site plan rendering

• Operating costs compared to other LatAm cities
• Roles Cali can play in regional service delivery networks
• Cali’s value proposition as a service delivery location

“Cali offers benefits and advantages that make the landing and setting up process a lot easier for outsourcing companies (BPO, ITO or KPO), but also for a shared service center (SSC) operation, from which they can address the Latin American and Spanish markets and the US market,” said Miller.

The study indicated some challenges that the city and its promoters still face if they want to continue to grow as an ideal global services platform. One of the issues is getting its young talent pool to consider the service industry as an attractive career path. According to Miller, “nowadays the industry is strongly associated with call center duties, but this is just a small portion of it. Based on our experience in Uruguay, it will be our challenge to show Cali’s talent pool that there are different ‘verticals´ within this industry, that require complex skills and represent great career opportunities, whether in a SSC operation, a BPO or a system development platform in an ITO company, for example. These are definitely exciting and rewarding jobs.”

Everest Group noted some other interesting facts, such as that there are currently over 20,000 people already supporting the BPO sector in the city, and 4,000 in the IT industry. The local government states that public mass transportation covers up to 97% of the city, and that the Alfonso Bonilla Aragón airport is the second most connected airport in Colombia, offering more international direct connections than any other Colombian airport, save for Bogota’s El Dorado International Airport.

Zonamerica Cali aerial rendering