Nearshoring

Costa Rica leads nearshoring offering but can the rest of LatAm follow?

Offshoring became trendy as businesses moved manufacturing and other professional operations to countries with lower costs. More recently, nearshoring has been driving work flows and opportunities to third parties in geographic locations relatively closer than traditional offshoring locations.

Pilar Madrigal, Head of Investment Advisory at the Investment Promotion Agency of Costa Rica (CINDE) explained, “Costa Rica has become a strategic destination for nearshoring, two recent examples include Intel’s USD 350 million investment over the next three years to establish assembly and testing operations here and MicroVention-Terumo’s USD 80 million investment by 2022 to construct a new 20,000 square-metre facility in Alajuela.”

Pilar Madrigal continued to explain why Costa Rica was such an attractive option, “Our country’s value proposition is explained best by its triple bottom line: People, Planet, and Prosperity. We have a highly skilled and resilient workforce, we a strategic geographic proximity to major markets, we are known for our sustainable practices, and our economy has evolved towards dynamic global sectors such as the life sciences and services sectors.”

“Our country’s value proposition is explained best by its triple bottom line: People, Planet, and Prosperity.”

Pilar Madrigal, Head of Investment Advisory, CINDE

Dyalá Jiménez, Director of the Costa Rican Chamber of Commerce, agreed, “The winning formula for nearshoring is the investment that Costa Rica has made for decades in education and free trade agreements – offering tax incentives but also legal certainty. Additionally, the investment that our country has made in the Social Security Fund provides a social cushion, making the value proposition very attractive. Finally, our environmental credentials are important to many companies that have their own carbon footprint reduction goals.”

“The winning formula for Nearshoring is the investment that Costa Rica has made for decades in education and free trade agreements – offering tax incentives but also legal certainty.”

Dyalá Jiménez, Director of the Costa Rican Chamber of Commerce

Latin American countries are well placed to cater for US clients. Good network connections, similar time zones, greater physical accessibility, comprehensive bilateral trade, and cultural similarities make Latin America a more appealing option than Asia for the US market. The Inter-American Development Bank (IDB) has been active in the promotion of Latin America as a nearshoring hub. Mauricio Claver-Carone, elected president of the IDB in September 2020, sees nearshoring as an opportunity for the region to improve workers’ conditions and increase participation of regional centres in the global digital economy.

To fulfil these expectations and develop its nearshoring capacity, the region faces a number of challenges to improve its competitive advantages. These include: improving education standards to compete with Asia, modernising the region’s infrastructure, resolving bureaucratic bottlenecks, reducing energy prices and improving legal security for investors.

Dyalá Jiménez explained, “Across the region, logistics and trade facilitation have to improve. We have to be even more modern and efficient and with greater control without losing efficiency in land transportation, and a lot of work is being done.”

 

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