Nearshoring in Latin America Series: 2. Colombia
Colombia: the land of banana, chocolate, coffee, and….nearshoring?
In this article, we continue our series exploring the diverse countries of Latin America to discover why it has become such a hotbed for the software nearshoring industry. Our focus on Colombia will follow the same pattern as our recent article on Ecuador, starting with some general background on the country and by followed a list of advantages and disadvantages as we see them. Enjoy! And let us know if you have any comments!
Colombia is the second country we’re featuring in this series and an important one. It has the 4th largest economy in South America, and is, coincidentally, the fourth largest in terms of physical size.
Colombia is about the size of Texas, but as the 29th most populous country in the world, has almost twice the population. Just as with Ecuador, Colombia has an extremely biodiverse landscape due to its variety of topographical climatic zones. Colombia shares some cultural traits with Ecuador due to history, nearby borders and the Andes mountains. This similarity shows up in some of the music, dance, and traditional indigenous garb.
Demographics and Geography
The population of Colombia is about 47.6 million, which makes it the 3rd most populous country in South America. It’s capital, Bogota is centrally located, and has a relatively cool climate owing to its high altitude. It happens to be the most populous city in the country by a large margin. It has a long history, historic buildings and a growing trendiness that has made it a prime choice as a tourist destination.
It’s 2nd largest city, Medellin, is warmer and more tropical. The city suffered from a dangerous reputation as a narco city, alá Pablo Escobar. It has since emerged as an example of urban renewal and recovery. This city has a hip and artistic ambiance making it popular among homegrown start-ups, established development companies, and nearshoring satellites.
Colombia is a republic with a government structure similar to the United States. It has a president who acts as the executive; two houses of Congress, the Chamber of Representatives and a Senate; and a judicial branch. It was marred by instability due to the ongoing violence by groups of rebels lasting for decades. The problem continues to weigh on citizens, despite the latest president, Juan Manuel Santos, having brokered a peace deal with the rebels.
While Colombia ranks low in educational attainment of secondary education, a relatively large percentage of people have college degrees. In fact, according to the OECD, it ranks second in Latin America for completion of college for people between the ages of 25 and 34. This means a ready and well-educated workforce is available in the country.
Advantages of Nearshoring in Colombia
Colombia ranks below Ecuador, but still relatively high on the Open for Business category of the US News and World report. Recent government reforms have made it an attractive place to do business. It has long had a reputation as a good location for clothes and home goods manufacturing because of its very low cost. Its appeal appears to be increasing for other industries as well.
Colombia shares a time zone with Ecuador, Peru, and Panama, which means that it resides in Eastern Standard Time for part of the year, and Central Time for the other part. The potential to service customers in a nearshoring arrangement is vast since it has access to a majority of US states, and all the states of the East Coast.
Colombia has its own currency called the Colombian Peso (COP). As of 2017, the purchasing power parity rate of the US dollar in Colombia was 1278.0, which means that your dollar goes a long, long way there. For a start-up with less initial funding, it’s an ideal location in terms of entrance into the market.
Disadvantages of Nearshoring in Colombia
CIO once reported Medellin as one of the most dangerous places to have an offshoring business. While security has certainly improved since that report, personal safety is still a major issue. Your offshoring staff may not always feel safe, and may, in fact, become victims of robberies, assaults, and pickpocketing. This complicates business in a number of ways, from theft of company equipment to lost employee time, to high-security costs.
Corruption is a big problem here. Colombia as a whole consistently ranks extremely high in studies of corruption. As a result, the official cost of doing business may appear markedly lower than it actually is. Corruption, in general, affects high-level political life but tends to trickle down to the lowest level including to simple police bribery, which, for many, is simply a way of life. It may also have effects on infrastructure projects that are promised, and even on smaller things like obtaining necessary permits.
This tends to go hand in hand with corruption. Often countries that are very corrupt create lots of bureaucratic barriers to some aspects of business in an effort to do damage control. Opening a business in Colombia requires a fair amount of preplanning, and you’ll have to be sure to be up on your laws (or have a great lawyer) because you may have obligations and prerequisites that could mean the difference between a legal business and a non-compliant one.
Anyone who has been there would agree that Colombia is a beautiful country with an incredible charm. In the past decade, the country has made vast improvements in its quality of life and safety. This has opened up markets and allowed companies to be part of the renewal by opening offices focused on software and systems engineering. While there are some challenges to entry, Colombia remains an attractive choice for those looking to save money, and enhance their business.
We hope this article has provided some helpful information. Keep following our series to find out more about Nearshoring in Latin America.