Research Corner

Call centers in Latin America have three key characteristics in common. First, many of them are part of large American outsourcers. These include, for example, Tampa, FL-based Sykes, which has call centers in Costa Rica and El Salvador. They also include the French outsourcer SR.Teleperformance, which has call centers in Argentina, Brazil, El Salvador and Mexico.

Second, according to several observers, Latin American call centers plan to employ more agents. Zagada Institute, the research arm of Zagada Markets, a Miami, FL-based consulting firm, estimates that the number of call center agents in Central America will rise from 21,012 agents to nearly 40,000 agents by the end of next year. The research firm Datamonitor predicts that in Mexico alone, the number of call center agents working for outsourcers will grow from 33,500 agents this year to close to 80,000 agents by 2010. Datamonitor also predicts that the number of agents in Brazil who assist customers overseas will increase to 11,500 agents by 2010, up from 3,900 agents in 2005. According to Philip Peters, CEO of Zagada Markets, some Latin American countries, including Argentina, Brazil, Chile and Mexico, are also establishing themselves in specialty areas like IT outsourcing.

The third and most important trend in Latin America is that many countries in the region have been able to establish and maintain democratic governments. As we acknowledged in a Research Corner article this March, countries that are both economically and politically stable are good places to do business.

In addition to sustaining democracies, stable countries are able to provide adequate levels of social services like education and health care. We expect a country with a higher standard of living, in terms of its average household income, to provide better social services than a country with a lower standard of living. In this article, we look at whether this is true among Latin American countries that are leading locations for call centers.

Opportunity Through Education

The top call center sites in Latin America are typically within countries that have the highest per-capita incomes in the region. In terms of the average income per household in American dollars, the Latin American country with the highest standard of living is Mexico, followed by Chile, Panama, Costa Rica, Argentina and Brazil.

(If we consider per-capita incomes based on purchasing power, which represents more accurately how much workers can buy with what they earn in a given country, then the Latin American call center location with the highest standard of living is Argentina, followed by Chile, Mexico, Costa Rica, Brazil and Panama. You may notice that we omitted Uruguay, which, despite having one of the highest average household incomes in Latin America, hasn't yet emerged as a leading call center location.)

To appreciate what a country's labor force has to offer, and to get an accurate picture of the country's viability as a place to do business, we need additional information. As we shall show, average incomes, let alone average wages, don't tell you how educated the labor force is. It turns out that some of the less well-off Latin American countries actually provide more education than some wealthier countries in the region.

Let's look at education in Latin America. Although literacy rates throughout the region are high, hovering around 90% for people 15 years of age or older, Latin American countries differ widely in the levels of education their citizens achieve. According to the United Nations Organization for Education, Science and Culture (UNESCO), as of 2004, Mexico devoted nearly a quarter of its government's budget to education. The largest percentage of this money went to primary education, that is, elementary schools, from which nearly all Mexican children graduated.

If we consider the percentage of Mexican children who went to the American equivalents of junior and senior high schools, we see a significant drop. This figure, which was 64% in 2004, is far below U.S. standards, given that 90% of American children were in secondary schools during the same year. But it's indicative of an ongoing increase in Mexico's rate of secondary school enrollment, which was as low as 44% in 1991. In the context of Latin America, Mexicans' levels of educational attainment are on par with those of citizens of other countries in the region.

In Central America, the decrease from primary to secondary school enrollment is even more dramatic, from nearly 90% for children in elementary schools to between 35% and 50% for children in secondary schools. (The notable exception within Central America is Panama, where levels of educational attainment are comparable to those in Mexico.) But, as is the case throughout much of Latin America, enrollment rates in Central American countries have steadily risen during the last decade in both primary and secondary schools.

In South American countries that have call centers, most notably in Argentina and Brazil, governments tend to spend the largest percentages of their budgets for education on secondary schools. Not surprisingly, a large majority of children in these countries enroll in secondary schools. As is true of citizens of Barbados and Jamaica relative to citizens of other Caribbean countries, citizens of Argentina and Brazil tend to stay in school longer, and attain higher levels of education compared to citizens of most other Latin American countries, because their governments invest most of their educational resources in secondary schools rather than in primary schools. This trend applies to well-off countries like Argentina and Barbados, and to less well-off countries like Brazil and Jamaica.

Such a trend has broad implications concerning the economic development of Latin America. Research from UNESCO and other organizations suggests that increasing the number of years, on average, that citizens of countries in the region attend school without repeating grades may contribute to accelerating the growth of these countries' economies.

The upshot: If you want to employ call center agents who require a certain level of education to perform their jobs, don't assume that the per-capita income in a country is a sufficient indicator of the skills the country's workforce has to offer. Look instead at the level of education a country provides to most of its citizens.

The Challenge of Economic Inequity

We established that if we compare two Latin American countries, the country with the lower per-capita income may turn out to have a better educated workforce. But the possibility of such a scenario doesn't minimize the importance of incomes. Workers in poor countries earn a fraction of what workers in wealthy countries earn; they also spend a larger share of their incomes on services, like health care, that governments and businesses typically provide to workers in wealthier countries.

As we shall show, the percentage of out-of-pocket spending on health care in Latin America is far greater than the per-capita incomes of countries in the region would suggest. A possible explanation may be a wide gap in incomes between the region's most and least wealthy citizens. This gap has long been a source of political instability, and, in turn, a challenge of doing business in Latin America.

In its most current annual analysis of operating costs in different regions, The Boyd Company, a site selection consultancy based in Princeton, NJ, includes two cities in Mexico and the capital of Costa Rica among examples of representative Latin American call center locations. The study also includes the cities of Campinas, Brazil; Santiago, Chile; and Panama City, Panama.

Labor costs represent the largest portion of total annual operating costs that vary by location. Wages for call center agents, which are consistent among the cities cited in the study, fall between three and four U.S. dollars per hour. We can attribute the difference in operating expenses between Campinas, Brazil, the most expensive Latin American call center city in The Boyd Company's study, and Santiago, Chile, the least expensive city, to the fact that the cost of employee benefits in Campinas is more than double that in Santiago.

Why are employee benefits for call center agents more costly in Brazil than elsewhere in Latin America? One possible explanation has to do with health care expenditures, which typically represent the largest percentages of these costs. The lower the percentage of health care expenses a country's government covers, the more likely it would seem that businesses would pick up the rest. For example, according to the latest data from the World Health Organization (WHO), as of 2003, Brazil's government covered 45.3% of Brazilians' health care expenses; this was the lowest percentage among the Latin American countries cited in The Boyd Company's study.

We can smooth out differences in the costs of employee benefits among different countries if we factor in these countries' per-capita incomes and the percentage that health care expenses represent within each of these countries' economies. Even so, government health care expenditures don't tell the whole story. That's because businesses don't necessarily account for the portions of health care costs that governments don't cover.

In some countries, including Costa Rica and Panama, where governments pay the majority of health care expenditures, citizens are still responsible for a significant share of their health care costs. In 2003, out-of-pocket health care expenses represented 18.8% of total health care costs in Costa Rica, and 27.6% in Panama.

In countries where governments cover less than half of overall health care expenses, citizens pay higher percentages of health care costs out-of-pocket. In 2003, out-of-pocket costs represented 35% of total health care expenses in Brazil. That same year, Mexicans were responsible for paying half their country's health care costs out-of-pocket. To put these figures in perspective, during 2003, the U.S. government accounted for 44.6% of the country's health care expenditures, but Americans paid only 13% of their total health care costs out-of-pocket.

Why are out-of-pocket costs for health care in Latin America so high, given that countries in this region, by global standards, are not poor? In India, where, according to the World Bank, the average annual income per household is currently $720, it's not surprising that out-of-pocket expenses in 2003 represented 72.9% of the country's total health care costs. Nor is it surprising that in the Philippines, where the annual per-capita income is $1,300, citizens paid 44% of their health care expenses out-of-pocket in 2003. But in Mexico, where the annual per-capita income is $7,310, a plausible explanation for why citizens had to pay 50% of their health care costs out-of-pocket is that the country has a wide gap between rich and poor.

The polarization of Mexican politics is understandable given that, according to the most recent data from the World Bank, as of 2002, the richest ten percent in Mexico spent nearly 25 times more than the poorest ten percent. Yet the disparity in consumption in Mexico is small in comparison to that in Brazil, where, in 2003, the richest ten percent spent 57 times more than the poorest ten percent. Even in Argentina, the Latin American country with the highest per-capita income in terms of purchasing power, the wealthiest ten percent earned 36 times more than the poorest ten percent.

Because Latin American countries have large gulfs between rich and poor, average household incomes turn out to be unreliable indicators of how well-off most citizens of these countries actually are. The high percentages of out-of-pocket health care costs that people in Latin American countries pay may be symptomatic of these gulfs, and they probably widen such gulfs even further.

Before you decide where in Latin America to employ agents or to set up a call center, it's essential to pay close attention to both political and economic conditions throughout the region. Many Latin American countries have become democracies during the last two decades, but economic inequity can easily undermine the stability of these governments.

The good news is that the level of educational attainment, an important harbinger of economic growth, continues to improve throughout Latin America. It's likely that education could emerge as the key to reducing economic inequity, buttressing democratic institutions, increasing of the productivity of the workforce and sustaining the right environment for doing business in the region.

The More Things Change...

In countries that maintain democratic institutions, the leaders and the policies that their governments support frequently change. During the past few years, for instance, countries in South America, such as Argentina, Brazil and Chile, have received attention for electing left-leaning leaders.

Outside South America, citizens of Costa Rica and Mexico recently voted in leaders who advocate free market policies. Costa Ricans, who live in the most stable democracy in Central America, elected Oscar Arias Sanchez, a supporter of free trade with the U.S. (A former president of Costa Rica, he received the Nobel Peace Prize in 1987 for his work with other leaders of Central American countries to end civil wars throughout the region.)

In Mexico, an electoral court is in the process of determining whether or not to conduct a recount following the closest presidential election in the country's history. Felipe Calderon, the apparent winner of the election with a margin of victory below one percent, is the more conservative of the two candidates.

The political climate in Latin America is often in flux, but it reflects unrelenting conditions of economic inequity that continue to persist throughout the region. The extent to which Latin American countries can alleviate this inequity will determine whether they can continue to attract call centers and other types of businesses.

Copyright 2006 CMP Media LLC. All rights reserved. 9/1/06, Issue # 1909, page 16.

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