Chile outpasses China and India as an offshoring option

Filed in archive Market Overview on April 19, 2007

A recent McKinsey study has found that Chile's offshoring risk profile, which is better than that of both China and India, is the most attractive among all of the latin american countries which places the country on the top of list for offshoring in this continent. Chile scores especially well on regulatory risk: the regulatory framework is transparent, with little bureaucracy, and the legal environment is stable.

Mckinsey Global Institute examined Chile's position relative to ten other low-wage countries along six dimensions that companies consider when choosing an offshore location: costs (including labor costs), market potential, the vendor landscape, risk profiles, the overall environment, and the quality of infrastructure.

The study revealed that Chile's overall environment and level of government support are among the best of almost all low-wage countries; second only to those in Hungary and tied with the Czech Republic's. Chile's score is buoyed by quality-of-life ratings comparable to those of developed countries, low levels of corruption, and government policies that appeal to foreign investors. Indeed, when measured by the general level of government support, Chile scored better than Germany and nearly twice as high as Brazil.

Moreover, the cost of electric power in Chile is among the lowest in the world--comparable to rates in Canada and the United States--in part because of regulatory reform in the 1980s. Chile also boasts one of the world's lowest corporate tax rates, at 17 percent, and highly competitive real-estate costs. While Chile's labor costs are higher than Mexico's, they are similar to those in Brazil.

It's interesting to see whether the current improvements in Chile's position will lead to a change in the large institutional investors or not. What do you think?