Download - BPO in Chile_2007
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Simon BellDirector, Global Business Policy Council
April 10, 2007
Leveraging Chiles Strengths to become aPreferred Location for Remote Services
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Presentation Overview
The Global Remote ServicesOpportunity and Challenge
Assessing Chiles Strengths andWeaknesses
Recommendations to Optimize ChilesCompetitive Position
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The Global Remote Services Opportunity and Challenge
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The range of services that can be delivered remotely isenormous
Applicationdevelopment
Application hosting
Application integration
Application devt.
Technical support
IT Services
Data mining
Information research
Knowledgemanagement
Analysis & projections
Modeling
Research & Analysis
Engineering
Design
Architecture
Graphics Advertising
Engineering &Design
Auditors
Travel Services
Legal Services
Consultants Financial Advisers
ProfessionalServices
Diagnostics
Clinical Trials Education content and
delivery
Online Training contentand delivery
Health & Education
Web-design
Editing / translating Writing
Animation
Art
Audio / Video
ContentDevelopment
Internal / external
Inbound / outbound Sales & marketing
Correspondence
Mailings
Contact Centers
Data entry
Accounting Payment/receipt
processing
HR management
MIS
TransactionProcessing
Evolution over time
Sample
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39%
66%
62%
50%
61%
71%
73%
66%
76%
70%
87%
79%
Source: A.T. Kearney Foreign Direct Confidence Index, 2003-2005
Interest in offshoring is growing rapidly across all regionsand functional areas
11%
14%
14%
15%
26%
13%
24%
16%
16%
30%
25%
32%
38%
50%
24%
26%
41%
41%
44%
50%
IT Developmt.& Support
ContactCenters
Logistics/Distribution
Manufacturing
BusinessProcesses
KnowledgeManagement
R&D/Engineering
Major companies planning on offshoring overthe next three years, percent
AsianInvestors
EuropeanInvestors
GlobalInvestors
NorthAmericanInvestors
2005 2004 2003
Major companies planning on offshoringcorporate activities, by function, percent
67%
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As a result, all segments of the offshore services marketare growing at very fast rates
Source: A.T. Kearney projections based on Gartner, IDC, Neo-IT and other sources
Projected Global Offshore Services Market, 2005 2010 (US $ Bn)
109
24
59
31
19
2005 2010
CAGR
R&D/Engineering
26%
Contact Centers &Technical Support
BPO Services
KPO Services
27%
58%
25%
20%
IT Services
$80 billion
$242 billion
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While the opportunity is vast, so is the competition
Countries covered in the A.T. Kearney Global Services Location Index
SENEGAL
AUSTRALIA
NEWZEALAND
SOUTHAFRICA
GHANA SRILANKA
INDIA
PAKISTAN
ALLEASTERNEUROPEAND FSU
EGYPT
JORDAN
UAE
ISRAEL
LEBANON
TURKEY
CANADA
USA
MEXICO
MOROCCO TUNISIAPUERTO RICO
DOMINICANREPUBLIC
JAMAICA
CHILE
ARGENTINA
BRAZIL
COSTA RICA
PANAMACOLOMBIA
UK
IRELAND
GERMANY
FRANCE
SPAIN
PORTUGAL
KOREA
JAPAN
SINGAPORE
MALAYSIA
PHILIPPINES
INDONESIA
VIETNAM
THAILAND
CHINA
TAIWAN
FIJI
MAURITIUS
Countries actively promoting themselves as offshore services locations
URUGUAY
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India and China in particular dominate corporate radars
India42%
Eastern Europe11%
China17%
Rest of World22%
UK/Ireland3%
North America5%
Expected location of offshore functions goingoverseas over the next three years
Source: A.T. Kearney Foreign Direct Confidence Index, 2005
To compete in this crowded market,countries need to have a clear positioning and strategy
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Assessing Chiles Strengths and Weaknesses
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Since 2001, A.T. Kearney has produced a Location Index toassist clients in assessing potential service locations
Financial Costs People Skills and Availability Business Environment
40% 30% 30%
Compensation Costs
Infrastructure Costs
Tax and Regulatory Costs
80%
10%
10%
Cumulative IT/ServicesExperience and Skills
Labor Force Availability
Language Skills
Educational Skills
Attrition Risk
40%
20%
15%
15%
10%
Country Environment
Country Infrastructure
Security of IntellectualProperty
Cultural Exposure
60%
20%
10%
10%
Metrics evaluated in the A.T. Kearney Global Services Location Index
Source: A.T. Kearney Global Services Location Index
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Chile has consistently ranked among the top 10 countriesin the Index
3.2
2.9
2.8
3.2
2.6
3.3
2.73.3
3.2
2.6
1.7
2.8
3.2
3.1
2.4
2.4
2.6
2.6
3.3
2.7
0.5
3.0
2.9
2.5
2.8
2.3
2.3
1.3
1.2
1.8
1.5
1.21.2
1.0
1.5
1.5
1.0
1.1
1.0
1.0
1.1
0.9
1.2
1.0
0.9
2.7
1.0
1.3
1.0
1.0
1.4
1.4
2.0
1.6
1.5
1.1
1.91.3
1.6
1.6
2.5
1.8
1.3
1.5
2.2
2.1
2.0
1.8
1.2
1.9
2.3
1.5
1.3
2.0
1.6
IndiaChina
MalaysiaThailand
BrazilIndonesia
ChilePhilippinesBulgaria
MexicoSingapore
SlovakiaEgypt
JordanEstoniaCzechLatvia
PolandVietnam
UAEUSA (Tier II)
UruguayArgentinaHungaryMauritius
Source: A.T. Kearney Global Services Location Index 2007
Global Services Location Index 2007
Ranks 1-25 Ranks 26-50
3.0
3.3
2.6
3.2
3.2
2.5
2.82.9
3.0
0.8
2.9
2.6
2.0
3.2
0.5
2.9
0.5
1.2
1.5
0.9
1.6
2.8
0.5
2.1
0.4
0.9
0.9
0.8
1.0
1.0
1.2
1.00.9
0.9
2.1
0.9
1.4
1.3
0.8
2.2
0.8
2.2
1.7
1.1
1.7
1.1
1.0
2.1
1.3
1.5
1.5
1.3
2.0
1.2
1.1
1.6
1.51.5
1.4
2.3
1.3
1.2
1.9
1.1
2.4
1.4
2.4
2.1
2.3
2.3
2.1
1.1
2.3
1.4
2.3
TunisiaGhana
LithuaniaSri Lanka
PakistanSouth Africa
JamaicaRomaniaCosta Rica
CanadaMorocco
RussiaIsrael
SenegalGermany (Tier II)
PanamaUK (Tier II)
SpainNew Zealand
AustraliaPortugalUkraine
France (Tier II)TurkeyIreland
EnvironmentFinancial PeopleCountry score:
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Chiles has slightly higher wages than most key regionalcompetitors, making it marginally less financially attractive
GSLI Financial Attractiveness Scores 2007
0.7
5.7
6.0
5.6
6.4
6.4
6.3
6.3
6.6
0.6
0.7
0.4
0.4
0.4
0.3
0.3
0.6
0.4
0.4
0.6
0.5
0.5
0.2
0.6
0.4
0.5
0.3
0.5
0.6
USA (Tier II)
Canada
Mexico
Brazil
Chile
Jamaica
Panama
Argentina
Uruguay
Costa Rica
Tax & Regulatory Cost
Compensation Cost
Infrastructure Cost
Business airfare avg.from US/ EU/ Japan
Rent ($/m2, class A) Electricity ($/KwH,
commercial) Telecom ($/capacity)
Infrastructure Costs
Total Tax Burden Corruption
Perception Index Currency
Depreciation
Tax & RegulatoryCosts
Assessment Criteria
Average Wages Programmer Salary Call Center Salary BPO Analyst Salary Local Manager
Salary
Compensation Costs
Source: A.T. Kearney Global Services Location Index 2007
Financial Attractiveness
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However, this is offset partially by a lower tax burden andcompetitive infrastructure costs
Financial Attractiveness
Chile
Argentina
Brazil
Colombia
Uruguay
Costa Rica
Panama
Jamaica
Mexico
USA (Tier II)
Canada
150-170
125-140
200-220
140-160
110-130
210-230
160-180
310-340
250-280
125-140
150-170
Average Rent, Metro AreasUS$/sq m, 2006
Total Tax Rate, 2006(As share of profits)(1)
Executive Perception ofTax Burden, 2006
(Scale 0 7)(2)
Notes: (1) The total tax rate measures the amount of taxes payable by a business in the second year of operation, expressed as share of profits.(2) The overall tax burden on an enterprise, including all associated costs (tax rates plus administrative and time costs, penalties, etc.),is estimated as share of net revenues (1=0-4%, 2=5-15%, 3=16-25%, 7=81-100%).
Source: Rent: Colliers, CB Richard Ellis;Total Tax Rate: Doing Business 2007, World Bank; Executive Perception of Tax Burden:Global Competitiveness Report, World Economic Forum 2006
26.3
116.8
82.8
27.6
37.1
83.0
52.4
46.0
43.0
52.3
71.7
3.2
4.5
4.6
3.4
3.9
3.7
3.0
3.7
3.6
4.4
4.2
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0.3
0.4
0.3
0.4
1.2
1.3
1.8
2.2
3.4
4.0
0.1
0.4
0.8
1.3
0.3
2.0
1.0
0.7
1.1
1.0
1.0
1.0
1.0
1.3
1.2
1.1
1.2
1.5
1.2
1.2
1.2
1.2
1.5
1.5
0.4
0.2
0.4
0.5
0.3
0.3
0.5
0.5
0.7
1.2
0.6
0.7
Panama
Costa Rica
Jamaica
Uruguay
Chile
Argentina
Mexico
Brazil
Canada
USA (Tier II)
Chile is also disadvantaged by the relatively smaller size ofits talent base and industry experience
GSLI People Skills and Availability Scores 2007
People Availability and Skills
Educational Skills
IT/BPO industry size/quality
Laborforce Availability
Language Skills
Attrition Risk
Size of 15-39 populationTertiary student enrollment
Labor Force Availability
Mathematical Literacy
Scientific LiteracyReading LiteracyMean score on TOEFL
Education & Language
IT/BPO Market Size# of firms with CMM/CMMILevel of CMM/CMMI
Integration# COPC certified centers# ISO certified centers
Quality of ManagementSchools
IT / BPO ServicesExperience and Skills
Attrition Risk (BPO growthless unemployment rate)
Attrition Risk
Assessment Criteria
Source: A.T. Kearney Global Services Location Index 2007
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To address this, Chile is doing a good job of driving qualitycertification, English skills and management education
People Availability and Skills
Chile
Argentina
Brazil
Colombia
Uruguay
Costa Rica
Panama
Jamaica
Mexico
USA (Tier II)
Canada
Native English Speaking
Native English Speaking
Native English Speaking
Note: (1) Scale legend: 1=schools lag far behind most other countries, 7=schools are among the best in the world.
Source: Carnegie Mellon Software Engineering Institute; Education Testing Service Test of English as a Foreign Language;Global Competitiveness Report, World Economic Forum
Mean score on TOEFLexam, 2004
Executive perception of qualityof management schools,
2005 (Scale 0-7)(1)
2,633
n/a
103
< 10
< 10
Number of firms withCMM/CMMI certification 2005-
2006
39
27
44
0
71
0
5.5
5.1
4.6
4.2
4.7
5.1
3.3
6.6
6.0
4.4
4.5
236
245
221
244
230
233
223
230
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Chile really excels in the area of business environment
Overall Quality Telephone/Fax Quality Competition in ISP Sector Quality of Electricity Supply
Country Infrastructure
Globalization Index
"Personal Contact" rank
Cultural Exposure
Assessment Criteria
EIU Country Risk FDI Confidence Index rank Political Environment Business Cost of Terrorism Regulatory Burden Government success in ICT
promotion
Ease of Doing Business
Country Environment(Economic & Political)
Rigor of IP protection Laws related to ICT Software piracy rates (%) # ISO Information security
certified centers
Security of IP
Business Environment
2.3
2.7
2.6
2.9
2.4
2.9
3.3
4.1
4.4
4.4
1.3
0.9
1.3
1.3
1.3
1.4
1.2
1.6
1.9
1.8
0.3
0.5
0.4
0.2
1.0
0.6
0.5
0.4
0.76
0.60.9
0.6
0.3
0.35
0.33
0.38
0.31
0.33
0.36
0.41
Argentina
Costa Rica
Panama
Brazil
Jamaica
Uruguay
Mexico
Chile
USA (Tier II)
Canada
GSLI Business Environment Scores 2007
Economic/PoliticalEnvironment
Infrastructure Quality
Cultural Exposure
IP Security
Source: A.T. Kearney Global Services Location Index 2007
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Chile offers by far the most stable business-friendlyoperating environment in Latin America
Business Environment
EIU Overall Business Risk2006
100=high risk (lower is better)
Source: Economist Intelligence Unit, Global Competitiveness Report, World Economic Forum; World Bank, Doing Business 2007
Chile
Argentina
Brazil
Colombia
Uruguay
Costa Rica
Panama
Jamaica
Mexico
USA (Tier II)
Canada
World Bank Labor MarketRigidity, 2006
100= Most rigid
Executive Perception ofRegulatory Burden, 2006
Index 1-5 (5 = lowest burden)
3.6
2.4
2.8
2.9
2.5
2.6
2.9
3.4
2.6
2.0
3.6
53
54
21
40
41
40
40
22
20
50
48
24
41
27
31
38
32
56
0
4
4
42
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It is also by far the safest environment in Latin America
Business Environment
n/a
EIU Political Environment, 2006
1-10 (10=good environment)
Source: Economist Intelligence Unit, America Economa, Transparency International
Chile
Argentina
Brazil
Colombia
Uruguay
Costa Rica
Panama
Jamaica
Mexico
USA (Tier II)
Canada
1-10 (10 = least corruption)
Safety Index2005
1=(very bad) 5 (very good)
Corruption Perception Index
7.3
2.9
3.9
6.4
4.1
3.1
8.5
3.7
3.3
7.3
3.3
5
4
5
5
3-4
1-5
3-4
1-3
2-3
1-3
7.8
5.8
6.1
5.9
6.9
6.4
7.9
8.1
5.9
6.4
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Chiles infrastructure is also the best in the region
Chile
Argentina
Brazil
Colombia
Uruguay
Costa Rica
Panama
Jamaica
Mexico
USA (Tier II)
Canada
Executive perception of overallinfrastructure quality(Scale 0 7)(1) 2006
Note: (1) Perception of infrastructure in the country is 1= poorly developed and insufficient, 7= among the best in the world
Source: Global Competitiveness Report 2006, World Economic Forum
Executive perception ofphone infrastructurequality
(Scale 0 7 )(1) 2006
Executive perception ofquality of electricity supply
(Scale 0 7)(1) 2006
4.9
3.6
2.9
3.8
3.5
2.6
3.6
6.5
6.1
3.6
2.8
6.7
5.8
5.8
6.4
5.7
3.2
5.6
6.7
6.6
6.2
5.2
5.5
4.3
5.0
5.4
3.8
5.2
4.8
6.6
6.5
4.5
4.7
Business Environment
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Interviews with industry players inside and outside Chileconfirm broad recognition of Chiles key strengths
Political andeconomic stability
Chiles political and economic stability is widely recognized Long term investors, such as multinationals developing captive shared service centers,
consider this a particularly important factor
Transparency andstrength ofinstitutions
Chile is considered the most transparent location to do business in Latin America The existence and general enforcement of regulationsas in labor and arbitrationprovides
confidence, compared to volatile conditions in Argentina, Colombia or even Brazil.
As one investor said, one can rest assured that institutions will do their job
Pro-businessclimate
Radical demands from labor and other interest groups are much lower than in peer countries Investors are enthusiastic about the effectiveness and efficiency of government agencies. A recent
investor indicates visas can be obtained in weeks in Chile rather than months in other countries
Developedinfrastructure
Developed telecommunications is mentioned as one of the key countrys strengths Santiago offers all the amenities of a developed city and has air connections with major world hubs
Specialized talentavailability and
stability
Investors recognize that Chiles top talent pool is as strong as any in the world. Non-investorsmention Chiles reputation for qualified and well educated people
Unlike locations like Costa Rica, India, and China, salaries are stable, making Chile increasinglyattractive as the cost arbitrage of other locations decreases
Strong supportfrom government
agencies
Recent investors note this strength more emphatically than other groups They express that the support received from Chiles representatives from the Ambassador to
CORFO was professional, proactive and effective in helping us establish in Chile
Chiles Key Strengths Identified in Stakeholder Interviews
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and of Chiles key challenges
Limited Depth ofQualified Talent
Strongest recurring theme is the shortage of English speakers, especially at non-professional levels There are only 10,000 graduates a year from Chiles universities Investors have difficulty finding talent to expand large operations, such as bilingual call centers, or
certain BPO services
High Cost of Talent
Labor costs are higher in Chile than in competing countries in the region Inflated salary expectations from candidates for high-value added jobs, such as research analysts Many recognize that the cost differential is small, after accounting for the costs of corruption,
lowered productivity due to bureaucracy, and other hidden costs in competing countries
However, in low-value added services, such as traditional contact centers, some multinationals stillprefer to incur these risks and benefit from the cost arbitrage by locating in lower cost countries
Limited Incentives(Tax, Capex,
Training)
Investors and non-investors mention that incentive programs typically do not figure in the decision tolocate in Chile, given their small scale
Under current tax law, it is cumbersome and time consuming to receive reimbursement of VAT oncertain exported services; however the law is currently under review
Investors and non-investors repeat that to make Chile more cost competitive, tax, capitalexpenditure and more significant training incentives could be offered
IP Protection
Enforcement of intellectual property protection laws is perceived to be lax
In the biotech sector, for example, lack of coordination between the authorities which grant new drugapprovals and those which grant patents and trademarks in Chile, leads to the approval ofunauthorized copies of patented drugs
SMEs express further concern given the perception of lack of political will to solve this issue
InvestmentPromotionTargeting
Investors, non-investors and some SMEs concur that the country image is not clear in theinternational community
A lack of sector targeting and focus causes confusion among investors The strength of the country as a destination to their particular offshore service interest is unclear
Chiles Key Weaknesses Identified in Stakeholder Interviews
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Recommendations to OptimizeChiles Competitive Position
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Four key themes emerge to optimize Chiles position as apreferred location for remote services
1. Focus
Given its small size and the competitive environment, Chile can not affordto compete in all segments of the remote services sector
Chile must focus on those segments where it offers investors a clear value-proposition
2. TargetedPromotion
Having identified priority sectors, more targeted promotion is required tospecific sub-segments within these sectors This means development and distribution of more specific information on
Chiles attributes in key target sectors, as well as prioritization of specificregions, industries and firms to be targeted
3. Skills and
Creativity
The most important key to success in each of the priority sectors is going tobe to expand the quantity and quality of the skill-base eligible to work in
the sector English language skills, relevant graduation rates, opennessand attractiveness to foreign knowledge workers, and so on
4. BusinessEnvironment
As this is Chiles key competitive advantage, like Singapore, Chile mustcontinuously seek to optimize all aspects of its business environment,particularly areas like Intellectual property protection and informationsecurity, infrastructure quality and costs, and regulatory efficiency
Key Recommendations
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1. Given relatively high costs and small size, Chile mustfocus on higher value-added or more risk-sensitive sectors
KPO
BPO
IT Services
Chiles Potential
SectorAttractiveness
Focus
De-emphasize
Invest
Biotech R&D
SharedServices
Contact Centers
Tech SupportCenters
Focus on higher value-addedsectors; particularly inindustries where Chile has adistinctive trackrecord or skills,for example: Agribusiness and Mining Financial Services Retail and Consumer
Emphasize low-risk, stableenvironment to attract captive
shared service centers,requiring a mix of low- andhigh-level skills
De-emphasize more cost-sensitive and language-dependent sectors such asbasic BPO and contact centers
Comments/Highlights
Framework for Prioritizing Offshore Segments
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2. Within these sectors, a very targeted approach isrequired to promote Chiles attributes
For target sectors, develop andmake readily available muchmore specific information onChiles key attributes:
#/sources of relevant graduatesin relevant disciplines
Special skill developmentinitiatives (universitypartnerships, etc.)
Detailed cost information
Fringes and taxesSpecific incentives
Specific policy commitments(e.g. labor laws for ICT; IP forR&D, etc.)
Set-up/Approval process/speed
What
Focus on promoting Chile asR&D, ITO and BPO location toindustries with affinity for Chile orexisting local skill-base:
Agribusiness and Fisheries
Mining, Forestry,
Retail, Consumer
Financial Services
Focus on countries where Chilehas FTA
Target specific firms most likelyto be seeking a Latin Americaservice center in the near future
Identify and leverage Chilenoexpat connections in target firms
Who
Focus less on advertising, largetrade-shows and broad-brushbrochures; develop customizedpresentations for specific firms,laying out business case andproposition
Find opportunities for individualdecision-makers visit Chile tosee for themselves theinfrastructure, stability, quality oflife, etc.
Mobilize existing investors, localvendors and industryassociations as ambassadors
Look at overall Chile branding does not adequately conveyattributes
How
Targeted Promotion Campaign
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3. In all sectors, human capital development is absolutelycritical to success
EnglishCompetency
A critical weakness for Chile noticeably weaker than key regionalcompetitors at all levels from government and business leaders totechnical professionals to retail and hospitality
Need multi-pronged approach more English throughout secondary andtertiary curriculum; study abroad opportunities; shorter immersion andcertification courses for target technical professionals, etc.
TechnicalSkills
Given small size and focus on higher value-added sectors, increasingquantity and quality of specific technical skill-profiles will be critical
Specific profiles to be developed will depend on demands on specificcompanies. Key to is to ask companies what they need (as in Costa Rica,Singapore, Ireland), encourage universities to be flexible/responsive,provide targeted funding, develop short certification courses as well as fulldegrees to fill critical gaps
Innovationand Creativity
Success in higher value-added sectors like R&D and KPO depends onability to attract and retain creative knowledge workers. This requires notjust excellent education, but also a creative environment and culture
Promote Chiles quality of life and environment as a key asset Permit/encourage foreign knowledge workers to work in Chile to act as
catalysts for the development of knowledge clusters Stimulate arts, culture, openness sought by knowledge workers
Key Areas for Improvement Human Capital
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4. Finally, Chile must continuously improve its businessenvironment, as its key source of competitive advantage
IP andInformation
Security
While better than most in Latin America and Asia, enforcement of IPR isstill perceived to be weak (particularly in pharma and bio sectors)
Singapore, which also markets its safety and stability, takes proactivemeasures to reinforce this reputation, such as sponsoring new businesscontinuity ISO standard, encouraging information security certification, etc.
Regulatoryand TaxBurden
While better than most, investors still identify several areas whereregulatory environment could be made more conducive to remote servicesoperations, e.g. R&D approval processes, more flexible labor laws for ITOand BPO operations, VAT reimbursement on exported services, double taxtreaties with other countries in region (for shared service centers), etc.
InfrastructureQuality and
Costs
Again, as a source of competitive advantage, quality and efficiency ofinfrastructure has to be continuously improved
Continued investment, liberalization and competition must be promoted toexpand capacity and drive down costs of telecom, power, local transportand international air-links
Key Areas for Improvement Business Environment
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Thank you
For further information, please contact:
Simon Bell: [email protected]
or
Chris Callieri: [email protected]