This is the first article in a 3-part series that will focus on Uruguay as a hub of foreign investment.
Uruguay may no longer be the “best kept secret” it once was, but it’s hard to quibble with the recognition that has come its way. Supermodels are known to frequent its beaches. In 2013, Uruguay allowed gay marriage, then it became the first country in the world to legalize marijuana, in what the government acknowledged was a “great experiment.” Later that year, The Economist magazine named Uruguay its “country of the year.” Recently India’s Economic Times heaped praise on country, noting, “Uruguay would have kept the [2013] title permanently weren’t it for some silly rule about there having to be other contenders.”
All this paints a certain picture of Uruguay as a Scandinavian-style social democracy in the South Atlantic, one where harmony is a byproduct of the state playing a leading role in the economy. In truth, while social policy has played some part in Uruguay’s development over the past decade, the country is far more geared toward international business than the notion of social democracy suggests.
The Free Trade Port at Montevideo is one of Uruguay’s oldest zones for the tax-free transit of goods.
Back in the 1980s, Uruguay was alongside China and other countries in opening the first wave of free trade zones, where businesses could warehouse goods without paying taxes on them. For Uruguay, it meant jobs; for the companies, it meant cost savings. Since then, the number and size of free trade zones in Uruguay increased, surging in the late 1990s thanks to the advent of Mercosur, and then surging again over the last decade thanks to greater global recognition of the promise of the Latin American market.
Now Uruguay boasts several dozen zones where most taxes are not assessed on foreign investment, in what the U.S. State Department calls, “one of the region’s most comprehensive Free Trade Zone regimes.” Hence, to the degree that the state made possible the current era of development, it was largely by clearing a way for free trade to flourish.
The Post-9/11 Environment for IT Services and BPO
Graphic from www.almisur.com
It’s been more than a decade since Uruguay began hosting major tech call centers and BPO operations. In the wake of September 11th, major global BPO companies began to realize that complete reliance on India for back-end services exposed business operations to the security risks that went with operating in Asia, not directly in the sense of terrorists targeting business centers, but indirectly as a result of the slow down that could stem from increased government regulation, longer waits to pass goods and passengers through security checks at airports, and the like. In this environment, Uruguay was a safe haven.
One of the first major multinationals to recognize Uruguay’s promise was Tata Consultancy Services. In 2002, TCS opened its Global Development Center there, in effect making Uruguay the beachhead through which TCS expanded operations in Latin America. Two years later, Sabre Corporation, a Texas-based corporation that specializes in IT solutions to the global travel and tourism industry, set up shop in Montevideo. Then Merrill Lynch decided to base operations there.
The initial rationale for investing in Uruguay has worked out nicely. Uruguay offers the skilled talent that global industry-leaders demand. Sabre CEO and President Tom Klein recently said in a press release, “We looked at a number of options and eventually selected Uruguay which had a thriving community of technology talent.” He went on, “We’re all incredibly proud to see how the Montevideo center has become a world leader in customer care, and a competitive differentiator for Sabre.”
The Once and Future Gains Offered by Uruguay
In a recent annual ranking of 100 outsourcing destinations by Tholons, a global services advisory firm, Uruguay moved up a place to number 35. This places Uruguay behind such better-known locales as India and Mexico, but it’s a promising showing nonetheless.
For now, Uruguay’s ascent up the ladder of tech-related outsourcing destinations is likely to receive a push by short-term factors. The strong dollar and strengthening U.S. economy are likely to benefit IT-related operations in Uruguay, as dollar-denominated investment in Uruguay will be relatively cheaper when compared to other locales.
Still, many of Uruguay’s business consultants are not terribly interested in such short-term fillips as currency swings; they are more eager to play up Uruguay’s fundamental strengths, which many firms are just beginning to realize, even after a decade of operations in the country. That’s because traits like the stability found in Uruguay are qualities that are only appreciated by experiencing instability elsewhere. And, after a decade-long binge of businesses piling all the operations they could into low-cost parts of Asia, international corporations are now realizing that cost is not the only factor in attaining sound outcomes. As these realizations take hold, Uruguay stands to welcome even more foreign investment.