ITES/BPO/Outsourcing Future in Costa Rica & Israel

Presented By :-
Adhish Kumar Sinha
Prin LN Welingkar Institute Of Management Development & Research , Bangalore
PGDM E-Biz ( 2013-15)
Future Of ITES/BPO/Outsourcing

Now Let’s Talk About
Costa Rica
Israel

Going Global Ventures Inc., New York | Horasis, Geneva 2010

• Costa Rica has been a sovereign and independent state since 1838, and has been
developing its democratic policies since. In 1949, the Latin American nation
eliminated its armed forces. The tropical nation, slightly smaller than West
Virginia, has a population approaching 4.6 million.
• The economy is predominantly agricultural (bananas, coffee, sugar, and beef) but is
expanding to include the blossoming technology sector. The nations GDP is valued
at USD $35 billion, and using the purchasing power parity it is closer to $52 billion.
In 2009 during the economic downfall the economy was shrinking by 0.7
percent, but has rebounded to higher growth rates at 4 percent.
• Costa Rica is attractive to foreign investment because of its stability, and the
financial incentives within its Free-Trade zones.
• Costa Rica became a member of the US-Central American-Dominican Republic Free
Trade Agreement (CAFTA-DR) in 2009, which should open the country to further
foreign investment.
COSTA RICA ( South American )

Economic Overview :-
Population: 4.6 million
Source: CIA Factbook, 2009
Gross domestic product: $35.8 billion
Source: World Bank, 2009
Gross domestic product (PPP): $53.9 billion
Gross National Income Per Capita (Atlas): $6,810
Gross national income (PPP): $11,270
GDP growth: 5.6%
Compounded growth: 2005–2009: 26%
(source: Forrester Research)
Population growth: 1.52%
https://www.sourcingline.com/outsourcing-location/israel
Definition of 'Purchasing Power Parity - PPP'
An economic theory that estimates the amount of
adjustment needed on the exchange rate between countries
in order for the exchange to be equivalent to each currency's
purchasing power.
The relative version of PPP is calculated as:
Where:
"S" represents exchange rate of currency 1 to currency 2
"P1" represents the cost of good "x" in currency 1

 Employee compensation
• Costa Rica offers competitive savings for sourcing projects. Software engineers and developers with one to four
years experience earn an average of USD $26,000, or 24 percent of their US counterparts.
• BPO resources are also moderately compensated, with junior staff collecting salaries of USD $16,000 (38 percent)
and skilled, senior resources earning an average of $24,000 (42 percent). General operations managers in Costa
Rica close the margin even more, with wages exceeding 57 percent of those in the US.
 Real Estate
• According to CBRE and its 2011 Office Occupancy Review, top quality real estate in Costa Rica’s cities is
affordable, with San Jose’s prime office space leasing for less than USD $33 per square foot annually. San Juan’s
real estate is slightly higher, averaging $36 per square foot.
 Taxes
• Costa Rica’s corporate tax rates are low at 17 percent, particularly when compared to Argentina (21
percent), Brazil (34 percent), India (34 percent), and the Philippines (30 percent). Indirect tax rates are 19
percent, and the SMB effective tax rate in Costa Rica is a moderate 55 percent.
Cost competitiveness

 Salaries: Software engineer: 24.5 % of US
Source: PayScale, SourcingLine, February 2010
 Salaries: Junior BPO resource: 38.5 % of US
Source: PayScale, Sourcingline, March 2010
 Salaries: Skilled BPO resource: 42.0 % of US`
 Real Estate: Office occupancy costs (CBD): 34.5 $/sf/yr
Source: CB Richard Ellis, Colliers International, SourcingLine, March 2010
 Taxes: Corporate tax rates: 17.0 %
Source: KPMG, October 2009
 Taxes: Indirect tax rates: 19.0 %
 Taxes: SMB effective tax rates: 55.0 %
Source: Doing Business (World Bank), 2010
Costa Rican Colon
Cost Competitiveness

Education and skills
• Costa Rica spends 6.3 percent of its GDP on education annually, putting it among the top
25 nations for educational expenditure (percentage). Adult literacy rates are 95 percent, on
par with some of the most developed nations.
Language
• The official language on Costa Rica is Spanish, and almost 11 percent of the adult
population speaks English as a second language.
Technological readiness
• Internet access in Costa Rica is under the control of Instituto Costaricense de Electricidad
(ICE), the state-run corporation. Basic quality is low, and prices for connectivity are above
average in the country.
Resources and Skills

 Workforce size: 8 million
 Outsourcing sector: Offshore outsourcing (IT and BPO): 771 million
Source: NASSCOM, SourcingLine, 2009
 Outsourcing sector: Exports of computer and info services: 581 million
Source: IMF, 2008
 Adult Literacy: 96 % of population
Source: UNESCO, 2009
 Basic Education: Expenditure on education: 6.3 % of GDP
 University Graduates: University educated population: 18.6 % of population
 Technological Readiness: Internet access: 5.9 users per 100 inhabitants
Source: International Telecommunications Union, 2009
 Technological Readiness: Broadband Internet access: 3.9 subscribers per 100 inhabitants

Economic competitiveness and stability
• Costa Rica fares well for economic competitiveness, with a GCI index of 4.3, similar to
Brazil and South Africa. Macro stability measures 4.1 on the index.
Infrastructure
• The infrastructure is a major component of operating a successful project, and Costa Rica’s
highways are quite poor; with a score of 2.8 they rank only above the former Soviet
republics in Eastern Europe, such as Bulgaria, Romania, Ukraine, and Russia.
• Unlike the road quality, electric supply in Costa Rica is quite high scoring 5.7, led only by
the US, Canada, the Czech Republic, and Israel.
Regulation
• Costa Rica ranks low for overall ease of doing business, at 125 worldwide. Starting a
business in the country takes on average 60 days, ten times longer than in the US.
Corruption
• The perception of corruption in Costa Rica is good, with a 5.3 CPI. This number is much
better than other countries in Latin America, such as Argentina (2.9), Mexico (3.1), Jamaica
(3.3), and Brazil (3.7).
Business & Economic Environment

• Economic competitiveness: 4.3 GCI score
Source: The Global Competitiveness Report, 2009
• Economy: Macroeconomic stability: 4.1 GCI score
• Infrastructure: Quality of roads: 2.8 index (1-7)
• Infrastructure: Quality of electric supply: 5.7 index (1-7)
• Infrastructure: Mobile phone penetration: 42.6
subscriptions per 100 inhabitants
• Labor market efficiency: Rigidity of
employment: 39index (0-100)
• Labor market efficiency: Cost of laying off
employees: 57.0 weeks of salary
• Regulation: Overall ease of doing business: 125 rank
(1-183)
• Regulation: Complexity of starting a business: 60 days to
register a start-up
• Regulation: Complexity of paying taxes: 272 hours per year
• Corruption perceptions: 5.3 CPI index
Source: Transparency International, 2009
• Legal protection: Procedures to enforce contracts 40
procedures
• Legal protection: Time to enforce contracts: 852 days
• Legal protection: Cost to enforce contracts: 24.3 percent of
claim
• Intellectual property: Protection: 4 index (1-7)
• Intellectual property: Software piracy: 59 percent
Source: BSE-IDC Global Software Piracy Study, 2009

Costa Rica will remain a major outsourcing centre. Further
growth, however, will be restricted due to size of its
economy/labour supply; some companies may be acquired by
bigger players in the U.S. and South America.
Future of Costa Rica

ISRAEL ( Middle East)
• Israel is a parliamentary republic and the only predominantly Jewish state in the world. It has an estimated
population of 7.5 million, six million of them Jewish. Israel is the only nation to operate under the Hebrew
calendar. Its two primary languages are Hebrew and Arabic, with English also widely spoken. English is taught in
elementary schools, and English-language television programs are also aired in broadcast networks, making the
language more accessible to everyone. Recent decades saw Israel welcoming migrant workers from
China, Africa, South America, Thailand, and Romania, adding diversity of culture to its community.
• Israel's economy is also diverse and dynamic, particularly its high-tech sector. Most of its advanced industries are
situated around Jerusalem and Tel Aviv, locations that have garnered recognition in the past. Newsweek once
named Tel Aviv as one of the most technologically influential cities in the world. Today, Tel Aviv is also the nation’s
primary financial hub, with Haifa the most important industrial center.
• Its major industrial sectors include transport equipment, chemicals, processed food, metal products, biomedical
and electronic equipment, and high technology. The influx of Russian immigrants that began in 1989 added to the
highly educated and well-skilled workforce, giving an added boost to the economy, particularly in the high-tech
sector. Almost one-half of the country's exports are high-tech.
• Despite the global crisis, the country was able to manage to expand its GDP in 2009 with an average growth rate
of seven percent, primarily due to exports and foreign investment. Israel’s current gross domestic product is USD
$201 billion or $217 billion when measured using the purchasing power parity (PPP).

• Population: 7.6 million
• Gross domestic product: $217.3 billion
• Gross domestic product (PPP): $217.8 billion
• Gross National Income Per Capita (Atlas): $27,180
• Gross national income (PPP): $27,660
• GDP growth: 1.3%
• Compounded growth: 2005–2009: 23%
(source: Forrester Research)
• Population growth: 1.29%
Economic Overview :-
Definition of 'Purchasing Power Parity - PPP'
An economic theory that estimates the amount of
adjustment needed on the exchange rate between countries
in order for the exchange to be equivalent to each currency's
purchasing power.
The relative version of PPP is calculated as:
Where:
"S" represents exchange rate of currency 1 to currency 2
https://www.sourcingline.com/outsourcing-location/israel

• Israel has lower costs compared to the U.S., although its employment wages are higher than
India. This does not keep sourcing companies from investing, because Israel offers a higher level
of English competency when compared to other global sourcing locations.
Employee compensation
• Israel is not as cost-competitive as it was once, with most wages in the IT sector almost at par
with U.S. resources. For example, Software Engineers with one to four years of experience
command 90 percent of US salaries. Senior software engineers and developers with 10 to 20
years experience earn on average USD $77,000 or 80 percent of their US counterparts. Senior
project managers in Israel offer comparable margins, earning 83 percent.
• Wages for junior non-voice BPO resources average 58 percent, while senior resources are much
higher, at 92 percent.
Real estate
• According to CB Richard Ellis, office occupancy costs in Tel Aviv averages USD $44 per square foot
annually for top quality downtown real estate. Costs outside the cities are generally more
competitive, with real estate in suburban Tel Aviv averaging USD $30 per square foot annually.

• Salaries: Software engineer: 89.7 % of US
Source: PayScale, SourcingLine, February 2010
• Salaries: Senior software engineer: 80.2 % of US
• Salaries: IT project manager: 83.8 % of US
• Salaries: Junior BPO resource: 57.6 % of US
• Salaries: Skilled BPO resource: 92.0 % of US
• Real Estate: Office occupancy costs (CBD): 43.8 $/sf/yr
Source: CB Richard Ellis, Colliers International, SourcingLine, March 2010
• Real Estate: Office occupancy costs (suburbs): 30.4 $/sf/yr
Source: Colliers International, SourcingLine, March 2010
• Taxes: Corporate tax rates: 25.0 %
• Taxes: Indirect tax rates: 16.0 %
• Taxes: SMB effective tax rates: 31.7 %
ISRAELI SHEKEL

 Outsourcing sector
• Israel’s computer hardware market, which includes computer accessories, servers, notebooks, and
desktops, was estimated to be worth USD $2.2 billion in 2010. It is expected to expand to USD $2.6 billion by
2014. Exports of miscellaneous business services, such as offshore BPO legal, call center services, research and
development, management, and accounting services is about USD $6 billion, ranking ninth after the
U.S., China, India, Canada, Brazil, Russia, Poland and Thailand.
 Education
• Education is an important component in Israel’s culture, with schools significantly subsidized by the state. Israel’s
educational system focuses on progressive trends, with some of the most developed science and technology
education in the world. Israel leads in expenditure on education, spending eight percent of its GDP compared to
the U.S. (7.7), Mexico (6.4), Ukraine (6.3), Malaysia (6.2), Poland (5.9), and Chile (5.7). Israel’s universities are
among the top 100 world universities in science and engineering, and rank fourth in the world for the most
scientific publications per one million citizens, almost 10 percent higher than the global average.
 Language
• There are many U.S. ex-patriots and immigrants in Isreal, providing a large number of English foreign language
speakers for outsourcing companies.
 Technological readiness
• Israel has a high PC penetration and strong broadband growth. Presently, the country has 30 users per 100
inhabitants. The International Telecommunications Union currently ranks Israel third among leading Internet
subscribers in the world. Broadband Internet access is also high, with nearly 23 of every 100 persons connected.

 Workforce size: 3 million
 Outsourcing sector: Exports of computer and info services: 7,700 million
Source: IMF, 2008
 Outsourcing sector: Exports of misc business services: 6,065 million
Source: IMF, 2008
 Adult Literacy: 97 % of population
 Basic Education: Expenditure on education: 5.9 % of GDP
 Educational achievement: Reading: 474 PISA literacy scale
Source: OECD PISA, 2006
 Educational achievement: Math: 447 PISA mathematics scale
 Educational achievement: Science: 455 PISA science scale
 University Graduates: University educated population: 41.4 % of population
 University Graduates: Annual graduates: 77 thousands
Source: UNESCO, NASSCOM, SourcingLine, 2009
 Technological Readiness: Internet access: 29.8 users per 100 inhabitants
 Technological Readiness: Broadband Internet access: 25.8 subscribers per 100 inhabitants
 English speaking population: 85 %

Economic competitiveness and stability
• Israel is economically competitive, following the U.S., Canada, and Malaysia among the top four nations
with the highest Global Competitive Index published by the World Economic Forum. It has an above
average macroeconomic stability, following Malaysia, Czech Republic, and South Africa in the list.
• Despite its flourishing high-tech sector, the Israel’s general economy is not benefiting from the same
advantages, with many of the high-tech entrepreneurs focused on exit strategies rather than growing
their businesses into a strong individual firm. Too few jobs are created, with only a few exports and little
investment that can make a significant impact on the economic future.
 Infrastructure
• Israel ranks eighth among the countries with the highest score for quality of roads. Its electric supply
quality is also very high, scoring an index of 6 after Canada (6.6), the U.S. (6.4), and Czech Republic
(6.4). Similarly, its mobile phone penetration for every 100 inhabitants is high at 127.
 Labour market efficiency
• A country's ability to flexibly manage its workforce is an important component in assessing overall
business competitiveness. According to a data co-published by the World Bank, Israel has very flexible
workforce management, ranking fifth after the U.S., Canada, Malaysia, and Thailand..

 Regulation
• Israel ranks fifth for overall ease in starting and running a business. The country's index is 29, compared to the
US (4), Canada (8), Thailand (12), and Malaysia (23). According to World Bank's survey, it takes an average of
34 days to register a start-up and 230 hours to pay taxes every year.
 Corruption
• The Israeli government has been taking steps to fight corruption. In addition to the domestic anti-bribery
regulatory framework developed by the government, Israel also operates in accordance to the UN and OECD
conventions aiming to combat bribery of foreign public officials in international business transactions.
• According to the Transparency International, Israel is winning its battle against corruption. In 2009, Israel ranked
fourth among the countries with the best corruption perceptions, scoring a 6.1 index.
 Legal protections of intellectual property
• Israel’s contracts and legal protections are moderate. There are 35 procedures in place to enforce a
contract, but time to enforce these contracts is high at 890 days. This is quite high when compared to the
US, which is just 300 days. The average cost in Israel to enforce a contract is more than 25 percent of the
original claim.

• Economic competitiveness: 4.9 GCI score
• Economy: Macroeconomic stability: 4.7 GCI score
• Infrastructure: Quality of roads: 4.4 index (1-7)
• Infrastructure: Quality of electric supply: 5.9 index (1-7)
• Infrastructure: Mobile phone penetration: 125.8 subscriptions per 100 inhabitants
• Labour market efficiency: Rigidity of employment: 17index (0-100)
• Labour market efficiency: Cost of laying off employees: 37.0 weeks of salary
• Regulation: Overall ease of doing business: 29 rank (1-183)

• Regulation: Complexity of starting a business: 34 days to register a start-up
• Regulation: Complexity of paying taxes: 235 hours per year
• Corruption perceptions: 6.1 CPI index
Source: Transparency International, 2009
• Legal protection: Procedures to enforce contracts 35 procedures
• Legal protection: Time to enforce contracts: 890 days
• Legal protection: Cost to enforce contracts: 25.3 percent of claim
• Intellectual property: Protection: 4 index (1-7)
• Intellectual property: Software piracy: 33 percent
Source: BSE-IDC Global Software Piracy Study, 2009

Future of Israel
With the ongoing peace process, Israel’s attractiveness as an
outsourcing centre will rise, mainly as a developer of licensed
intellectual property and with specific niche areas of
telecommunications,
security and life sciences; Israel may combine its
offerings with Arab countries like Jordan and Egypt. Israel will
continue to be an expensive destination.

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