Nearshore Americas

Sykes Goes to a “Non-Traditional” Geo in Costa Rica: What are the Lessons?

Breaking ground is never easy, even in the fertile soil of Costa Rica’s northwestern province, Guanacaste. 

Flanked by the Gulf of Nicoya to the west and the Guanacaste mountain range to the east, the region overflows with natural beauty and supports thriving agriculture, livestock and tourism industries. 

Though abundant in resources of many kinds, English proficiency is not one of them, with a reported 15% of the population considered bilingual.

The province’s capital, Liberia, is some 200km by road from the safety of the San Jose and Greater Metropolitan Area (GMA) talent pool. It isn’t the traditional location for BPO companies looking to enhance their Nearshore customer services for a US client base.

But that didn’t stop Sykes Enterprises from opting for Liberia as the location to open its first operation center in Costa Rica outside of the GMA last year. 

Sykes’ Roy Mena researched secondary hub locations for nine years before choosing Liberia

Breaking away from the tried, tested and competitive capital is undoubtedly a challenge. But it’s one that Roy Mena, Sykes’ Director of Corporate Affairs understood when the company finally trumped for Liberia, nine years after he first cast his eyes beyond San Jose.

“No other company from our sector have made this leap, of jumping outside of the GMA to make an investment and expose themselves to what it takes to break ground. We are breaking ground in a totally new greenfield,” Mena told Nearshore Americas. “This is a work in progress.”

Opportunities and Obstacles

Sykes Enterprises opened its account in Costa Rica in 1999 with just 250 employees. Since then, it has grown to over 6,000 in-country employees across four sites, making a significant contribution to its global headcount of almost 60,000 spread across 23 countries. 

In February, La Republica reported that only 800 of 3,060 applicants had the required level of English to gain a place at the Sykes English academy where they would receive up to five months English teaching before being considered for full employment.

800 of 3,060 applicants had the required level of English that would allow them to gain a place at the Sykes English academy

Despite  CINDE had found that just 15% of region’s population was bilingual to the level required for multinationals, while radio platform Monumento quoted CINDE as saying that while the region’s English-level was considered ‘intermediate’, companies like Sykes needed advanced English skills from its workers. 

From the first 800 candidates with the required English-language skills to be accepted to the Sykes academy, 170 graduated from the academy and 110 accepted an offer to work for the company. 

As of today, Sykes has “150 people hired and operating remotely from the Liberia area and another 300 more in the Sykes academy and in the pipeline,” Mena explained.

The company’s plan to reach 600 employees from the Guanacaste region is expected to take 18 months, as waves of trainees pass through English training and onto the operation floor.

The road towards full opening in Liberia will take time and require investment. Though the road may be arduous, seeds are being planted for the future in the region, said Mena: “We wanted to move away from the GMA and knew that would require investment as well as agreements with governments and other entities to ensure we can hire as time goes by. But we also believe that we are setting down a cornerstone, a foundation, for the creation of a new cluster in corporate services.”

Beyond Traditional Markets

Companies that move away from long-established BPO markets also move away from a comfort zone where infrastructure is strong, resources are readily available and experience is deep.

Taking the leap away from these consolidated areas allows businesses to side-step associated issues of competition. On its website, Sykes notes that: “a high concentration of jobs in the GMA creates fierce talent competition, increasing costs in benefits, and staffing back-filling efforts due to higher rotation rates.”

“Between 90% and 95% of international companies coming to Costa Rica establish themselves inside the GMA” — Jose Gonzalez

Jose Gonzalez warns that the overwheming majority of companies entering Costa Rica go to the GMA

According to Jose Gonzalez, Director of Market Research & Consulting at Cushman & Wakefield, a real estate service company that helps global enter new markets, “between 90% and 95% of international companies coming to Costa Rica establish themselves inside the GMA.”

But for a country with an available working population of just under 2.5 million according to the National Institute of Census and Statistics (INEC), expanding business horizons beyond the GMA – though challenging – is a vital step to meet the needs of international companies. 

“Costa Rica has done a great job at developing talent but it’s a small country and there is a limit to what we can do,” Gonzalez said. “The key to continuing the development of the country and bringing in investment is developing talent outside of the GMA. There are key demographic spots outside of the GMA with great potential, but they need that push,” he added.

Secondary Market Challenges

The region does not have strong secondary markets, says Jeff Pappas

Sykes decision was primary market is one backed by years of study, as well as agreements with local and national government for training of staff and helping the local job market grow. But the move breaks away from a trend that is seen throughout Central America, says Executive VP of Site Selection and Brokerage at ESRP Jeff Pappas.

“When you look at the pre-eminent BPO markets in Central America – Costa Rica, El Salvador, Panama, Guatemala – all have only one major market, there is no other sizeable secondary market. Honduras is the exceptional,” he said. 

Small labor pools are often a test when moving to smaller secondary markets, particularly in rural areas, says King White, CEO of Site Selection Group. Though job attrition is lower among the workforce, the smaller pool can mean companies can become locked in a battle against the clock.

“Typically, we find that attrition is lower in rural areas rather than urban areas in the beginning. But the attrition in BPOs is still comparatively high and it can become too much for a small labor pool. It’s a big decision to move into the secondary market if you know the scalability is not there,” White said.

“It’s a big decision to move into the secondary market if you know the scalability is not there” — King White

Costa Rica’s BPO prowess means it can succeed, says King White

White points out that Sykes was a pioneer in the US for moving to rural cities to open BPO centers. During what White describes as “the infancy of the BPO industry”, Sykes went to cities like Morganfield, Kentucky and Ponca City Oklahoma with initial success. But they found that the high attrition rates and low populations saw the company burn through talent. Many centers were shut down in the mid 2000s.

Ali Viqhar, SVP of Strategic Projects at Accedo Technologies points out that moving outside of capitals or consolidated BPO markets can pose problems when selling services. “On the client-facing side, selling Tier 2 cities to the buy-side can be difficult,” said Viqhar.

Safety and sound transport links to from and to major US destinations are required too, says Pappas. Guanacaste, he points out, ticks both of these boxes.

White agrees. “Costa Rica is such a developed country that if this can be pulled off anywhere then it’s there,” he said.

Mena’s belief is clear. “The move to a greenfield site will not happen over night; it will take time, just as it took time for the company to get where it is today. But we are working and being supported by the government to open up this secondary hub in Costa Rica. This is a great opportunity and we’re positive the effort will be worthwhile.”

The Path to Success

Costa Rica’s investment agency knows well the challenges of bringing outside investment to non-traditional markets. 

In 2015, the agency set up an association to assist 20 communities outside of the GMA to attract foreign investment. Sykes’ arrival to Liberia is highlighted as one of the success stories in boosting FDI outside of the country’s powerhouse. 

According to CINDE’s Impact Report 2020, there has been 15% annual growth in investments outside of the GMA over the last five years. In 2020, there was a net job gain of 465 for non-GMA regions. Taken as a whole, a record 19,806 jobs were created in 2020 in Costa Rica. Nine out of every ten jobs created in the last five years in the country were created by CINDE companies. 

Karin Lachner, CINDE’s Marketing and Communications Manager, believes that the demand for Costa Rica’s talent will grow as the Nearshore becomes an even more appealing option for companies in the post-pandemic period. 

Last year, knowledge-intensive services from Costa Rica grew by 7% and a value of almost US$5 billion

The country is an service economy primarily exporting services rather than goods. Last year, knowledge-intensive services from Costa Rica grew by 7% and a value of almost US$5 billion. Having carved out a space as the region’s prime location for contact center and customer services, Costa Rica is poised to reap the benefits of changing investment behaviours and the growth of non-equity investments that focus capital into talent, she says. 

CINDE’s Karin Lachner explained that non-equity investing offers Costa Rica more opportunities

“FDI inflows per dollar revenue decreased by about 38 – 40% in 2020, a little over the average downward trend experienced around the world. But looking at the employment figures you see that we had a record number of employment positions created by multinationals within the country. This is a sign of the intangible, knowledge-intensive supply chains. We have been able to supply that market,” said Lachner.

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If the country is to continue delivering those services, development outside of the GMA will need to continue. As the Sykes case has demonstrated, English skills in other regions appear not to be adequate, yet, for the use of multinational corporations. With over 85% of the country’s export services exported in English, the need to improve is clear. 

Training through company-owned academies is one way to bridge this gap. Sykes’ academy has trained over 13,000 employees since opening its doors in 2007. When Sykes decided on Guanacaste for its new site, it made agreements with the local government to significantly expand the annual intake of the academy from 1,000 to 3,000. “We will take about 40% of those and the rest will be released to the market contributing with sector sustainability,” Mena explained.

Only those candidates that possess solid English skills are offered a place on the three month training scheme at the academy. Most BPO centers ask for a minimum of B2 English level. This means that an education system that leaves students will sound language skills must be in place.

“Will Costa Rica be bilingual by 2040? I don’t know, but I am optimistic we are getting closer” — Roy Mena

The Costa Rican government recently launched an initiative to make the country bilingual bv 2040. The first bilingual plan was set out over two decades ago yet still large skill gaps remain. Roy Mena believes that there must be major investment into the primary, secondary and tertiary levels of the education system to push the country along a course that it is only just starting.

Mena says that the impact of the Covid-19 pandemic may put affect how the initiative is rolled out. “The pandemic has probably set these goals back. Children couldn’t go to school and budgets may be reconsidered as money for health and support for families in poverty or the unemployed is needed,” he said. 

Mena and Sykes are committed to push bilingual skills in Guanacaste and Costa Rica, regardless of the pandemic. “Will Costa Rica be bilingual by 2040? I don’t know, but I am optimistic we are getting closer,” he added.

Peter Appleby

Peter is former Managing Editor of Nearshore Americas. Hailing from Liverpool, UK, he is now based in Mexico City. He has several years’ experience covering the business and energy markets in Mexico and the greater Latin American region. If you’d like to share any tips or story ideas, please reach out to him here.

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