Corporate

A Prolific IT Services Market is Emerging in Costa Rica

Trade hubs have popped up throughout history, connecting precious resources in rare pockets of the world to those who are willing to buy. Cut to present times and the evidence of the formation of a new age trade hub can be seen in Costa Rica as well.

From being known as a quaint retirement and travel destination, the country has fast emerged as the trade hub of technology and IT services, decentralizing offshoring from the traditional hubs and addressing the digital transformation needs of the world with new-age technology prowess.

The country is today the preferred offshoring destination for large companies and is effectively exporting services to North America, Asia and Europe. According to the Costa Rican Investment Promotion Agency (CINDE), IT service exports represent 7% of the country’s GDP, with over 169 companies operating out of the country, with expertise in digital technology and design.

As a result, IT and IT-enabled service exports have come to account for a significant chunk (over US$5 billion) of  the country’s revenue, making it the number one exporter of IT services per capita in the Latin American region.

”Costa Rica is today the preferred offshoring destination for large companies”

The telecommunications sector has been the biggest beneficiary of the technological advancements in the Costa Rican market. This has significantly contributed to wireless coverage across Costa Rica, making communication within and outside the country much easier. This has prompted the rapid development of offshore as well as nearshore centers and convinced investors and businesses of Costa Rica’s potential in technology innovation.

According to the Global Innovation Index, Costa Rica’s exports reached US$3.3 billion in IT-related services in 2019, making it Central America’s top exporter of value-added services, both in volume and expertise. The number of foreign direct investment projects in 2021 increased at a rate of 30% from 2020, as per a report by CINDE.

So, what made Costa Rica such a lucrative market for IT services?

First, the Obvious

One of the foremost reasons is the easy connectivity and communication with different time zones that Costa Rica offers to enable easy collaboration with clients and vendors globally. Costa Rica provides very low software business process management issues when compared to Eastern European and Asian countries, thanks to a thriving developer community that is ranked number two for promoting innovation.

No wonder Costa Rica is perceived as the fifth best destination for business services in the world, according to Deloitte. In fact, Costa Rica is home to several prominent Fortune 500 companies, such as Intel, Microsoft, Amazon, IBM and P&G.

“Costa Rica is already touted as ‘the Silicon Valley of Latin America”

According to estimates released by the Inter American Development Bank (IDB), San Jose, the capital city of Costa Rica, will become one of the five essential poles for the global software industry by 2025. To put things in perspective, Costa Rica is already touted as “the Silicon Valley of Latin America”.

The advantages, however, are not limited to geographical leverage. Arguably, the most attractive aspect of business process management in Costa Rica is the country’s favourable tax regime, such as the Free Trade Zone, which provides lucrative incentives for foreign investors and companies. This implies significant savings for businesses operating out of Costa Rica.

The benefits include elimination of import duties on raw materials, corporate income tax, export taxes and capital taxes that typically account for a majority of expense outgo for businesses. Companies can recognize more benefits as well, should they comply with all local and national regulations. Moreover, tax savings increase when the parties re-invest in the local industry.

A rich set of Free Trade Agreements (FTAs) like those with Canada, Chile, China, the EU, Mexico, Peru, Singapore, South Korea and the US further foster and fuel the increasing demand for services in Costa Rica.

Innovation Has an Address

The ease of doing business in any region is not just about cost leverage. The availability of a skilled workforce is critical for the smooth delivery of services, especially in a world where technology innovations change at the speed of sound. Costa Rica delivers on this front as well.

While the World Economic Forum ranks Costa Rica as the top destination for quality human capital, the Coursera Global Skills Index 2020 ranked Costa Rica third in the Latin America for its coding and programming skills.

Costa Rica achieves this by focusing on improving English language skills and bolstering educational innovation. Multilingualism is crucial to the service offerings in Costa Rica, which is validated by its second spot ranking across Latin America in the 2021 English Proficiency Index.

With a young, enthusiastic, educated and typically bilingual workforce, Costa Rica can efficiently provide star employees for companies looking to set up in the country, as most of its human capital is upskilled, providing a massive competitive advantage. In 2021 alone, the services industry employed the highest number of skilled resources in the country, as per CINDE. About 20 new initiatives, including those from Amazon, Intel and Walmart, are currently in the implementation stage.

“Costa Rica is now the tech hub with untapped opportunities”

As an emerging hub for telecommunications and technology, the strategic advances of the Costa Rican service sector have helped mold its potential within the industry. The country has a fair share of access to technology that increases the efficiency of its service sector.

San José, for instance, is one of the most technologically advanced cities in Central America. Investment opportunities flood the city as technology becomes more popular within the country’s service industry. The deployment of Robotics Process Automation (RPA), which has begun to pervade across industries, is a fundamental factor behind growing service exports. With the efficient and futuristic implementation of RPA and upskilling of the local workforce in new age technology, operating out of Costa Rica potentially reduces costs and errors, while improving productivity and quality.

So far, CINDE has observed a 64% adoption rate of RPA in operating companies in the services sector, indicating a fast-growing market for the country. Big Tech companies are already pumping these markets with millions of dollars and resources into Costa Rica to leverage the advantages it offers. As per CINDE, the market size for RPA is slated to increase by 17% by 2025.

One of Latin America’s most prosperous economies, Costa Rica’s rise in the modern trade of technology and services is fueled by robust offshoring/nearshoring platforms, next-gen digital capabilities and a prolific software service industry.

With endless possibilities for investors to make huge economic gains, Costa Rica is now the tech hub with untapped opportunities.

This article was first published on Nearshore Americas.