Outsourcing final oct_2011_eng

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  • 1. October 2011Offshoring & Outsourcing Investment Opportunities in Uruguay
  • 2. 1. Why Invest in the Service Export Industry in Uruguay?1. Uruguay has several features that make it attractive for companies offering export services bymeans of internal (captive) or external (outsourcing) delivery models: Suitable geographic, economic, political and business environment characteristics. Uruguay isnoted among Latin American countries for its economic liberalization and security. Attractive cultural and educational foundations, including a multilingual population. Suitable time zone between the United States and Europe (for time-sensitive services). Advanced communications and connectivity infrastructure. Reasonable wage costs. Facilitation of foreign worker immigration. Uruguay is an ideal country to accommodate managers and work groups focused on the region. Ithas a low cost of living; it is relatively safe and has a high standard of living.2. Uruguay treats foreign and domestic investments equally and has in force Investment Promotionand Protection Agreements with 26 countries, including Spain, the U.S., Finland, France and the U.K.,among others. There are no restrictions to capital repatriation, profits transfer, dividends orinterests.3. The country already has vast experience in the offshoring service sector, including substantialforeign and domestic investments that have been increasing over the past few years. An estimated20,000 people work in the industry. Among the first companies that have invested in the industry areTata Consultancy Services, Sabre Holdings, Atento and Avanza.In 2010 and 2011 two major ventures (Aguada Park and WTC Free Zone) are joining the country’smain technology park, Zonamérica, all of them as Free Zone regimes, thus increasing capacity foroperations and international services under the offshoring model.4. Several regimes, such as free zones and the Investment Promotion Law, favor investment byreducing and eliminating the corporate income tax (IRAE). In the case of contact centers, a 2008decree (Decree.207/2008, see appendix, page 22) provides corporate income tax exemptions undercertain circumstances. In addition, the 2008 Information Protection Law (Law No. 18.331 and Decree.414/2009, see appendix, page 22) puts national requirements in line with those of the EuropeanUnion. In the software and related services industry (ITO, BPO and KPO)1, exemptions for CorporateIncome Tax are granted for exports. In the audiovisual industry, a government fund has beencreated to support national film and other audiovisual productions. In addition, donations made bycompanies to projects linked to the audiovisual industry may be deducted from corporate incometax.1 ITO (Information Technology Outsourcing) refers to information technologies including software and consulting, BPO (Business ProcessOutsourcing) refers to business processes including accounting, collections, staff administration, etc. and KPO (Knowledge ProcessOutsourcing) refers to knowledge intensive processes (research and development, design, etc.)2
  • 3. 2. Characteristics that make Uruguay a suitable location for offshoreservicesUruguay offers economic, cultural, educational and industry-specific advantages that make it a veryattractive location to establish outsourcing and captive delivery models. Some of these features aredescribed above.2.1 Suitable geographic, economic, political and business environmentcharacteristicsUruguay has a geographical environment free of natural disasters. It is politically stable with arepresentative democracy and rotation of the three main political parties.Uruguay’s US$ 12,000 annual GDP per capita in 2010 (based on dollar currency) positioned thecountry first in Latin America2. The country’s GDP has increased significantly since 2004 andregistered an average annual growth of 7.8% between 2005 and 2010. This Growth in GDP isexpected to continue in the following years. Since 2004, macroeconomic indicators have remainedsatisfactory and inflation has been under control remaining at single digit levels (see mainmacroeconomic Indicators at the end of this document).Uruguay offers the most open business environment in the region (Tholons, Report on Outsourcingin Uruguay, June 2009, still standing in August, 2011): There are no restrictions on the repatriation of capital,profits transfer, dividends or interest. No permits or prior authorization are required to makeforeign investments. Local companies can be 100% foreignowned. The foreign exchange market is open and there are no limitson foreign currency trading. Investments can be made in anycurrency. There are no restrictions on hiring foreign personnel (exceptfor companies located in Free Zones where 75% of theemployees must be domestic). A residency permit and proof ofgood health are the only requirements. Residency permits can be quickly obtained and anyone whohas entered the country legally can obtain one and start working even during the applicationprocess. Citizens from most western nations do not require visas to enter the country.2 Source: World Bank, http://datos.bancomundial.org/indicator/NY.GDP.PCAP.CD.3
  • 4. Uruguay offers the safest destination for outsourcing in Latin America (Tholons, Report onOutsourcing in Uruguay, June 2009): Low impact of crime on business. The World Economic Forum’s 2010/2011 GlobalCompetitiveness Report (GCR) compared Uruguay with Argentina, Brazil, Chile, Costa Rica andMexico using three variables: organized crime, costs to companies regarding crime and violence andcosts for business regarding terrorism. Uruguay earned the best scores in all three areas and rankedfirst in the world for costs for business regarding terrorism (lower global cost). Uruguay leads in Latin America with respect to property rights, intellectual property rights,judicial independence and regulatory framework efficiency regarding settlement of disputes. Theabovementioned GCR report (2010/2011) evaluates these four variables, and in Latin America, onlyChile and Costa Rica were relatively comparable to Uruguay. According to the Corruption Perceptions Index 2010, developed by Transparency International,Uruguay ranks as the country with the lowest corruption rates in Latin America (24th place among178 countries), ranking slightly below Chile. According to the Global Peace Index 2011, developed by the Institute for Economics and Peace,Uruguay ranks first in Latin America regarding conflict and security issues (21st place among 153countries). The GPI report takes into account 23 separate indicators relative to domestic andinternational peacefulness. Uruguay also offers insurance against political risk to investors through a bilateral agreementbetween the Uruguayan government and the U.S. Overseas Private Investment Corporation (OPIC).The insurance covers all risks except credit risk with claims subject to international arbitration. Thisagreement was signed in 1982.Figure No. 1: Corruption Perceptions Index 20104
  • 5. 2.2 Cultural and Educational FeaturesEducationUruguayans are mainly descendents of European immigrants (mostly Spanish and Italian) and thereare no conflicts among minority groups. The country’s literacy rate is very high (98% in 2010).Regarding tertiary education enrollment Uruguay ranked 24th among 139 countries, only one placebelow Argentina, as seen in the following chart from the World Economic Forum’s GlobalCompetitiveness Report (2010/2011):Chart No. 1. Tertiary Education Enrollment. Relative position of each country among 139countries Country Position Argentina 19 Uruguay 24 Chile 43 Colombia 63 Brazil 65 Mexico 80 Costa Rica 83 Source: World Economic Forum’s Global Competitiveness Report 2010/2011.Plan Ceibal3In 2009, the first stage of a social-educational government initiative toprovide children and teachers from public elementary schools with laptopcomputers and with internet connectivity was successfully completed (PlanCeibal, One Laptop per Child in 2,068 schools). 380,000 computers weredelivered by the end of 2009.In addition to the distribution of laptops to all children from public elementary schools, in 2011 theinitiative has extended to private elementary schools, secondary institutions (High schools) andintermediate education from the Uruguayan University of Work (UTU). The total number ofdistributed laptops has increased up to 462,700 by the end of June 2011. Coverage of wirelessnetworks in intermediate education centers was of 96%.According to the report prepared by the Ceibal Center, this initiative has significantly increased thenumber of people who have access to a microcomputer (66% in 2010), specifically people who live intowns with less than 5,000 inhabitants and rural areas (58%). It has also reduced the digital gapbetween the extremes of income distribution, taking into account the poorest and richest deciles ofthe population (Internet connection and possession of microcomputers).3 Source: Reports published in the Ceibal Center website (year 2011) http://www.ceibal.org.uy/docs/IMPACTO-PLAN-CEIBAL-EN-USO-Y-ACCESO-A-LAS-TIC-2010.pdf and CPA-Ferrere (November 2010), Plan Ceibal, Main Strategic Guidelines.5
  • 6. Another far less known but still important objective of the Ceibal initiative is to support and adviseother countries in the design, implementation and evaluation of similar projects to those of Uruguay,transferring skills and technologies. Uruguay is already in contact with over ten countries that aredeveloping four similar projects.The initiative is currently run by the Ceibal Center, a non-state public institute for the Support ofChildhood and Adolescence. These efforts are already perceived by global statistics published by theWorld Economic Forum (Chart 2.2).Chart No. 2 Internet Connectivity in Schools. Country Position Uruguay 26 Chile 42 Costa Rica 64 Brazil 72 Colombia 88 Mexico 89 Argentina 111 Source: World Economic Forum’s Global Competitiveness Report 2010/2011, page 423.Quality and Cost of Life in MontevideoUruguay and Montevideo specifically, are noted for its high quality of life at a low cost: Quality of Life (Montevideo): Ranking first in South America (Mercer, 2009). Cost of living, including housing (Montevideo): ranked in the 127th place in 214 surveyed cities.From South America the list included, among other cities, San Pablo (10), Rio de Janeiro (12),Santiago de Chile (75) and Buenos Aires (159). A lower number indicates a higher cost of living(Mercer, Worldwide Cost of Living Survey 2011 – city ranking).2.3 Multilingual Population* EnglishEnglish is widely spoken by young people in Uruguay (41% of the active populationbetween 19 and 24 years of age speak the language, and 31% between the ages of25 and 34). Estimates provided by the National Statistics Institute (INE) show that26.5% of the entire active population speaks English, while in Montevideo thispercentage increases to 37%4. Among those who have tertiary studies (either completed or not)nearly 70% manage the English language (40% for those who have completed secondary studies).The state-run University (UDELAR), the largest university in the country, reported in its 2007 studentcensus that 70.5% of students can comprehend written English and 50.7% can speak the language(out of a total of 81,774 students).4 National Statistics Institute (INE). Expanded Household Survey (2006).6
  • 7. * PortuguesePortuguese is spoken by many Uruguayans who live or were raised in cities thatborder Brazil. Two departmental capitals, Rivera and Artigas (as well as othersmaller cities), are located on the border and have sister cities on the Brazilian side.As a result, residents are bilingual in Spanish and Portuguese.The State University 2007 student survey shows that 28.5% can read Portuguese and 34% cancomprehend the language orally.* Other LanguagesSeveral other languages are spoken by minor segments of the population. For example, SabreHoldings, a U.S. company located in Zonamérica (a technology park in Montevideo), maintainscontact with clients in 15 languages, including Spanish, English, Portuguese, Italian, French, German,Swedish and Turkish.In these cases, human resources can appeal not only to residents who aredescendents of immigrants who speak these languages (e.g. descendents who mayhave attended many of the existing bilingual schools in Uruguay), but also toemigrants or their children who reside abroad and want to return. The 2007university student census shows that approximately 18% and 8.5% cancomprehend written or spoken Italian and French, respectively.2.4 Time Zone between the United States and Europe Uruguay is geographically located between the U.S. and European time zones. The time difference with India is between 7.5 and 8.5 hours. This location enables complementary tasks to be performed during normal workday hours from an office in Montevideo with those in other regions. For example, TCS Uruguay combines its customer service center in Montevideo with another located in India, enabling round-the-clock worldwide services.2.5 Uruguay has begun to appear in reports developed by internationalconsultants regarding worldwide outsourcing locations A.T.Kearney, Global Services Location IndexSince 2006, Uruguay appears among the 50 most attractive countries for globalservices locations. According to the 2011 report it ranks in the 41st place, sixthposition in Latin America. The Global Location Index assesses multiple factorssuch as; wage levels, infrastructure costs, tax burden, corruption levels,availability and skills of labor force accessible in the sector and domesticbusiness environment.7
  • 8. Tholons, Top 50 Emerging Global Outsourcing CitiesMontevideo figured in the 2009 report among the top 50 emerging cities forglobal services location (40th place in the 2010 report), and Uruguay amongthe top 20 emerging countries for services location.2.6 Concentration in MontevideoNowadays, nearly all companies that provide outsourcing services (either to their own companies orfor third parties) are located in Montevideo. In many cases these companies establish in Free Zoneareas (Zonamérica, Aguada Park and WTC Free Zone), and in other cases outside them.According to the Telecommunications Chamber of Uruguay, an estimated 20 contact centercompanies were in operation by the end of 2010, employing nearly 2,500 people in Montevideo and2,000 in Zonamérica. In 20105, approximately 11,500 people worked in the information technologyindustry and about 5,000 are working in the audiovisual industry (up to September 2011)6.2.7 Advanced Level for Outsourcing Business InfrastructureIn Latin America, Uruguay currently ranks the highest in terms of modern communicationtechnologies. In order to support what is mentioned above, some of the most relevant internationalindicators are analyzed.According to the World Economic Forum’s 2010/2011 Global Competitiveness Report, Uruguay holdsthe following position among 139 surveyed countries: Quality of electricity supply (Average 2009/10): 2nd in Latin America, 37th position, page 394. Mobile telephone subscribers per 100 inhabitants (2009): 2nd in Latin America, 44th position, page396. Fixed telephony per 100 inhabitants (2009): 2nd in Latin America, 48th position, page 395. Internet users per 100 inhabitants (2009): 1st in Latin America, 41st position, page 467. Broadband subscribers per 100 inhabitants (2009): 4th in Latin America, with the exception thatfor Uruguay data refers to the preceding year in contrast to other countries, page 468.5 Source: CUTI.6 Source: Cluster Audiovisual.8
  • 9. Chart No. 3 Outsourcing Business Infrastructure. 2009 Data Summary Electricity Mobile Phone Fixed Telephone Internet Broadband Lines Chile 30 Argentina 25 Costa Rica 38 Uruguay 41 Chile 48 Uruguay 37 Uruguay 44 Uruguay 48 Colombia 47 Mexico 51 Costa Rica 43 Chile 64 Argentina 53 Brazil 57 Argentina 52 Colombia 57 Colombia 74 Brazil 62 Costa 66 Brazil 58 Rica Brazil 63 Brazil 76 Chile 63 Chile 68 Uruguay(2008) 59 Mexico 91 Mexico 93 Mexico 72 Argentina 74 Costa Rica 63 Argentina 93 Costa Rica 119 Colombia 77 Mexico 85 Colombia 70The Broadband column refers to 2008 for Uruguay and 2009 for other countries. Source: World EconomicForum’s Global Competitiveness Report 2010/2011.2.8 Reasonable Wage CostsWage costs are reasonable in Uruguay and, in general, are lower than in the region. The first chartshows monthly costs for the company and what employees receive in terms of real wages, withoutthe IRAE because it varies according to the income.Chart No. 4. Monthly Wage Costs for the Company7 Nominal Wage 100.00% th Mandatory Bonus (13 wage) 8.33% Vacation Wages (Real 4.47% wages/30*vacation days). presumably 20 days Pension Contribution 7.50% Health Insurance 5.00% Workers Retraining Fund 0.125% Compensation for Work Injuries (1) 0.98% Monthly wage costs 126.41%7 NOTE. (1) A 22% VAT (recoverable) and a 2% of Health Service, in non-free zone territories, should be added to thisinsurance; both percentages should be added over the insurance premium-The percentage corresponds to administrativework and may increase depending on the type of work: In a factory it could increase up to 6%. Source: Uruguay XXI.9
  • 10. Chart No.5 Monthly Net Wage for Workers8 Monthly net wage for workers Nominal Wage 100.00% Pension Contribution 15.00% Health Insurance(2) 4.50% Workers Retraining Fund 0.125% Net Wage 80.38%Finally, monthly salaries of managerial positions are compared to various countries in Latin America,including Uruguay.Chart No. 6 Net or Gross Monetary Salaries in US$9 Update Exchange General Administration Production Human Business System rate Manager and Finance Manager Resource Manager Manager Manager Manager Argentina 02/28/2011 4.03 15,679 5,980 5,554 5,039 6,573 5,313 Brazil 05/21/2009 30,062 13,068 13,323 13,551 14,614 Chile 03/31/2011 18,505 6,690 6,498 7,122 7,292 6,654 Costa 11/25/2010 516.00 15,218 7,560 7,291 5,916 6,266 5,995 Rica Colombia 05/30/2011 1,829.75 17,870 6,821 7,035 5,347 6,430 5,218 Paraguay 05/06/2011 4,574.00 6,465 3,860 2,722 3,117 4,082 2,947 Peru 04/30/2011 2,825.00 19,435 6,250 6,000 5,312 6,828 5,140 Uruguay 09/30/2010 20.00 8,833 4,874 4,741 6,957 5,173 3,844Managerial salaries in several Latin America countries are higher than those in Uruguay; in somecases this is significantly noticeable. According to the submitted data and depending on the position,remunerations in Brazil are 95% to 240% superior, In Chile 2% to 109% superior, in Argentina 17% to78% superior than in Uruguay (except in HHRR).8 (2) NOTE: This percentage can increase up to 6% if the worker has family in charge without health insurance.Source: Uruguay XXI.9 Source: PwC, 2010-2011 Remuneration Survey. Note: Numbers are subject to changes due to variations in the exchangerate. Brazil: refers to the year 2009.10
  • 11. 2.9 Foreign Worker Immigration Facilitations10Procedures to apply for legal residence in Uruguay are fast andsimple. The National Identity Document (temporary ID) can beobtained as soon as the application procedures start before theNational Migration Bureau, enabling the applicant to start workimmediately.To start the procedures before the National Migration Bureau,several documents obtained in the country of origin must bepresented and legalized before the Uruguayan consulate (birthcertificate, ID photocopy, marriage certificate, certificate ofgood conduct issued by police institutions that haveagreements with Interpol), as well as other documents obtained in Uruguay (work contract orjob offer signed by a company, personal health record, 2 photographs for the ID). The NationalMigration Bureau issues a temporary residence certificate along with the birth certificate issued bythe Civil Registry and grants a temporary Identity Document (valid for 1 year). The whole processtakes up to 15 working days approximately. Between 8 and 10 months later, the National MigrationBureau grants the permanent residency and the permanent Identity Document (valid for threeyears).3. Offshore Services Offered in UruguayOffshoring refers to services performed outside the national sphere. For the country that rendersoffshore services, said services are considered exports. Offshore services may be performed by thecompany itself, using its resources and capabilities in another country (in-house supply) or may beperformed by third parties hired by the company (outsourced services). The following chartsummarizes situations regarding the aforementioned services.Chart No.7 Type of services according to the company that provides them Country where services are provided In the Country Abroad In house o Internal departments Affiliated companies (in Company that captive of the company house) provides Outsource Third parties to the Third parties to the services company (outsourcing) company (outsourcing) Source: Uruguay XXI.It usually happens that changes occur overtime. An initial service provided by a company departmentmay eventually be provided by a third party within the same country (outsourcing) or in anothercountry (outsourcing but offshore), in this case it will be considered an export. It can also happenthat an affiliate company that provides services to the group abroad (in house) may transfer theseservices to a third party that has no relation with the company. Both cases refer to the country´sexport services where the work is carried out.10 Details of residence procedures may be found at www.uruguayxxi.gub.uy/Inversiones/Oportunidades ofinvestments/other reports/Procedures to apply for legal residence in Uruguay.11
  • 12. Listed below and classified into four main categories are some of the outsourcing/offshoring serviceswhich are currently offered in Uruguay: Information Technologies (ITO), Business ProcessOutsourcing (BPO), Knowledge Process Outsourcing (KPO) and the Audiovisual Industry.3.1 Information Technology Outsourcing (ITO)In a manner of speaking, all software-related services can beconsidered outsourced to the extent that they are performed byspecialized companies outside of the company that uses them. InUruguay, the software industry began to develop in the 1980s and hadan explosive export growth in the following decade. In 2010 37% of total industry sales were intended for export (225million of dollars, United States being the main destination countrywith 27%). Direct employment in information technology was of11,500 people in 2010, 80% of whom were highly qualified (engineers,analysts, programmers, IT technicians, and other professionals)11.Graphic No. 1 Uruguay: Information Technology Exports. Millions ofUS$ 250 219 225 207 188 200 151 150 105 89 100 75 50 0 1 2 3 4 5 6 7 8 Source: CUTI.Harvard University recently carried out a research regarding the Uruguayan software industry for acase study in their MBA program. Uruguay was chosen as the most advanced country in LatinAmerica with regard to information technology and software (Tholons, June 2009, UruguayOutsourcing: Creating a Roadmap to Success).Of all activities performed in Uruguay in the information technology industry, the following twosegments are noted for outsourcing and exporting:11 Information provided by CUTI, which consists of almost 300 members and carries out annual surveys between them.12
  • 13. a) Application Development1) These companies are mainly Uruguayan and create off the shelf and customized software (DeLarrobla, Top Systems, Solur, Memory, etc.);2) Two companies produce new development tools: Artech, industry leader, has offices in the U.S.,Japan, Mexico and Brazil and exports to more than 36 countries (September 2011), and Ideasoft,which has its own business intelligence technology platform. An estimated 40% of current softwareexports consist of products in this segment (including licenses).3) VeriFone, a U.S based company which designs software for payments management, has inUruguay one of its five global development and support centers for its software products (togetherwith centers in India, Ireland, Israel and the United States). 70 technicians work at the Uruguayancenter. The company has 62 branches in the world and specializes in software for credit, debit,prepaid and gift cards, as well as hardware terminals for use in stores. The company recentlyexpanded its offices in Zonamérica and plans to increase developers and analyst personnel from 70to 120 during the following six months12.b) Software ConsultingConsulting includes services associated to the implementation of software performed by the samedevelopment companies or by consulting firms, as well as other services. Both domestic andinternational companies are included in this segment.1) Domestic companies include Quanam Group (associated with Oracle, implementing softwarefrom large companies) and Infocorp (associated with Microsoft) and Conex (consulting unit of thestate electric company).2) International companies include Tata Consultancy Services(TCS), which has in Uruguay a Global Development Center forLatin America, Spain and Portugal. IT and consulting servicesare provided from Montevideo to more than 30 clients, withthe company operating as an offshore base for some clients inthe United States and Europe. Application development andmaintenance services are provided through multipletechnological platforms, as well as business solutions includingOracle applications.Other international companies in Uruguay include IBM (whosepersonnel increased nearly 10% between 2008 and early 2011,Microsoft, Bull, Sonda from Chile, and Indra from Spain(formally known as Soluziona). As a whole, these internationalcompanies represent about 50% of the sales of the softwareconsulting segment13.12 Business Journal: El Observador, Café y Negocios, September 7th, 2011.13 Source: CUTI.13
  • 14. 3.2 Business Process Outsourcing (BPO)Companies are increasingly focusing on their core businessand depend on third parties to provide integral solutions totheir support processes. Outsourcing services includecustomer services, administration (in many aspects) andconsulting. Major local companies that perform servicesabroad are linked to global companies or consulting firms.a) Customer Service: Contact centers, marketing and sales.As noted in our December 2009 report on contact centers, offshore services are performed inUruguay for foreign headquarters (in-house) as well as for third parties (outsourcers).The first case (in-house) includes, Tata Consultancy Services (TCS), Sabre Holdings and RCI GlobalVacation Network, all three of them operate in Zonamérica (TCS also has another location inMontevideo). Up to September 2011 a total of approximately 2,300 people were employed by allthree companies together.In the case of outsourcers, Spanish companies Atento and Avanza are noteworthy. In addition,several domestic companies operate in downtown Montevideo and employ approximately 2,500people in total (plus 2,000 in Zonamérica).b) Business Administration: Accounting and Finance, Logistics, Purchasing.Several companies serve foreign clients, offering a broader or narrower range of services:* IBM Uruguay provides accounting and finance business process outsourcing (BPO) to theheadquarters of BBVA bank (Spain), with 120 professionals workingon this project. The company seeks to expand this type of business inUruguay.* Several consulting companies provide outsourcing services tomultinationals (in addition to local companies) to meet regionalmanagement needs (accounting, preparation of financial statementsand adapting them to international standards, development ofmanagement reports, purchasing, collections and payments, etc.), aswell as management consulting, audit, tax, operation and logistics,and economic and financial consulting: CPA Ferrere, Guyer & Regules,KPMG, PwC y Deloitte, among others.* Several companies, including Sabre Holdings, centralize in Uruguaythe accounting functions of their subsidiaries in South America.14
  • 15. c) Human Resource Management: selection, training and payroll.The aforementioned consulting firms also offer services in the area of human resource management,which include payroll, labor documentation, labor regulation and social security reviews,management reports, absentee and leave management, and training and support for seasonalpersonnel needs.3.3 Knowledge Process Outsourcing (KPO)a) Innovation, Design & Testing.Several companies perform design and innovation processes from Uruguay to clients abroad.* One of these companies is CCC Medical Devices, which began tomanufacture and export pacemakers in 1970. By the end of the1990s, the company began to offer design services forimplantable medical devices. Foreign companies request designservices, including Impulse Dynamics, Meta Cure, BiocontrolMedical, American Medical System, Victhom and BioHeart.These companies develop ideas and concepts for devices to treat specific medical problems. In turn,CCC develops specific devices using the requirements of the client, building prototypes,manufacturing the final products in small quantities and transferring the production technology ifnecessary. Devices have been designed to treat various illnesses, such as heart failure, obesity,diabetes, high blood pressure, sleep apnea, chronic pain, etc.CCC currently has a world market share of 70 or 80% in its niche market and exports its services tothe United States, Europe, Israel and other countries. There are 140 people working for thiscompany, 50 of them are electronics and software engineers and to a lesser extent mechanical andchemical engineers.* Chipmate, a recently created national company, specializes inmicroelectronics, designing products for an Indian pacemakermanufacturer. The company consists of engineers specializing inmicroelectronics.b) Business Consulting (re-engineering, benchmarking, process design, etc.), legal consulting (intellectual property, legal support, etc.) and financial consulting (financial market advice, risk analysis, etc.)The following are examples of companies that perform these services in Uruguay: * Towers Watson, a consulting firm specializing in human capital and financial and risk management with 14,000 employees worldwide (headquartered in the UnitedStates). In 2005 the company established a financial research center in Montevideo (Zonamérica) tosupport its own offices throughout the world. This center, which is one of a kind in Latin America,is part of the company’s global research structure and currently employs approximately 50 people inthe country.15
  • 16. * Global Supply Chain Finance (GSCF) established inZonamérica in January 2009 and provides managementservices in the area of financial international trade. Using itsadvanced technological platform, financing from affiliatedbanks and coverage from credit insurance companies, GSCF designs and manages programs formajor corporate clients, both in portfolio management of debtors as well as creditors.Headquartered in Switzerland and with offices in Uruguay and Malaysia, GSCF can cover markets inAsia, the Americas and around the globe.Consulting firms also offer business, legal and financial consulting services to a diverse portfolio offoreign clients.c) Advanced Vertical Activities (services to specific industries): Pharmaceutical Companies, Health Services, Logistics and Transportation, Education and Training, Product Development. The Montevideo branch of the Institut Pasteur of France works on biotechnology projects related to human and animal health, as well as in other areas. Biotechnology services are performed for domestic and foreign companies. Such is the case of the Spanish company Biopolis S.L. who hired the institute in 2009 to optimize an animal model outsourcing system (mice) for the pre-clinical study and analysis of biotechnological molecules and/or ingredients requested by its European clients. Since 2008, French company Danone, through its own research and development center (Danone Research), has collaborated to jointly develop, at the Institut Pasteur of Montevideo, a platform of highly predictive biotechnology models for the study of dairy food prototypes with beneficial effects on human health. Models developed in Uruguay are complementary to those developed in France, the U.S., China and Holland. The Pando Technology Pole at the School of Chemistry (UDELAR) works in the areas of chemistry, biotechnology and nanotechnology for the food, pharmaceutical and environmental industries. It operates as a large R&D and innovation center and technology service provider (high technology analysis, industry services for environmental projects and center for competitive intelligence). Work is performed under various methods: specific demand, shared risk/benefit projects (consortiums) and as an incubator. Foreign clients receiving technology transfer services include Wama Diagnóstica (Brazil), Wiener Lab (Argentina) and Omya (Switzerland).16
  • 17. 3.4 Audiovisual industry.The audiovisual industry is emerging in Uruguay andincludes several sub-sectors that can perform outsourcedservices for foreign clients.The Audiovisual Cluster (AUDIOVISUAL UY – www.audiovisual.com.uy) is a productive complexcomposed of cinematographic and audiovisual production companies. The Audiovisual Industry inUruguay had a significant growth over the last fifteen years. The results of the production of qualitycontents is based on talent, education levels, accumulated development of cinematographic culture,search for new markets, the certainty and security provided by technical resources and services,among other aspects.In this context, the Uruguayan Film Commission & PromotionOffice (http://uruguayfilmcommission.com.uy) was created,with the main goal of positioning the audiovisual industry andUruguayan scenarios on international markets.Companies are clustered in different associations and arerepresented by the Uruguayan Audiovisual Chamber(www.cadu.org.uy).The following are the most significant sub-sectors: a) Production Services of FILM and ADVERTISING: Performed by several local companies who have a strong export profile, all of them listed at: http://uruguayfilmcommission.com.uy (Businesses Guide). Some of them have affiliates in other Latin American countries. Approximately 90% of all shootings are for foreign clients. b) Production of Animation Films and Videogames: Companies that focus on national and foreign markets. Listed at http://www.proanima.org.uy/ (members). Two strong examples worth of mentioning are TOURNIER Animation who has worked for Discovery Kids channel and Powerful Robot Games, who has exported their services to Cartoon Network. c) Production of Fiction and Documentary Films: Performed by internationally known independent producers, mentioning examples such as: WHISKY recognized in the GOYA awards and at CANNES Film Festival, among others; GIGANTE recognized at the BERLIN Film Festival, among others. d) Production of Television Programs: With an increasing FICTION production and development of new formats, with an active presence in international markets. e) Services Related to Audiovisual Productions, including pre-production (casting), shootings (equipment rental and interpretation services, technical and auxiliary staff) as well as post-production (editing, dubbing, audio, soundtracks and jingles).17
  • 18. Uruguay has several advantages in the audiovisual industry: Quality/Price Excellent price-quality relation given the high production quality as evidenced by many acquired international awards and the advantages the country offers in terms of technical ability, proximity to various filming locations and fast completion times through the Montevideo Municipal Government’s Location Office. Flexibility of Companies as a result of their reduced size, expansion capability (with the availability of a large number of freelancers) and the number of diverse projects completed. Attractive country due to its public safety and architectural diversity that enables multiple sets, proximity to locations within Montevideo (1.5 million inhabitants) and other parts of the country (a wide variety of locations at 50, 100 or 150 km. from Montevideo) and an ethnic diversity that allows the recreation of many places around the world. Broad Tax Exemptions for Audiovisual Activities. (VAT) 0 to Co –productions and production services abroad.Recent examples of Uruguayan products:Examples of Hollywood productions shot in the country include Miami Vice (2006, directed byMichael Mann and starring Colin Farrell and Jaime Foxx) and Blindness (2008, directed by FernandoMeirelles and starring Julianne Moore, Mark Ruffalo and Danny Glover). Both were filmed partiallyin Uruguay.Several global advertising campaigns were entirely produced in Uruguay.4. Recent Investments in the IndustrySince their arrival, nearly all transnational companies have continued to expand activities in Uruguay.Most of them began at the start of the decade with less than half of the employees they currentlyhave. TCS not only expanded its offices in Zonamérica, but established another one in downtown Montevideo. Sabre Holdings is expanding its presence in Uruguay, specifically in Aguada Park. APAC Custemor Services Inc., contact center from U.S.A decided to start in Uruguay its first operation in Latin America, also in Aguada Park. Globant, leading company in software development also decided for Uruguay, establishing in Aguada Park. IBM began a significant contract for a foreign- based bank in 2008.18
  • 19. Towers Watson continued to grow in 2007/09 since its establishment in 2005 by adding staff and expanding its infrastructure in Zonamérica. Global Supply Chain Finance (Switzerland) established in Zonamérica in January 2009, has duplicated its personnel in 2011 and opened a consultancy firm related to its business area (Cuway). An important travel agency established in Zonamérica an Administrative Center (in house or captive) for the region in 2011, initially with 50 employees. In the audiovisual industry, a laboratory to develop, transfer and manipulate digital images was established in Zonamérica in 2009, exporting to the United States among other destinations. Several multinational companies have increased their payroll, centralizing the accounting for the region in Zonamérica.Two significant infrastructure initiatives have been completed in 2010 and 2011: Aguada Park andWTC Free Zone, both under the Free Zone regime. 1) The Global Service Platform Aguada Park is located near downtown Montevideo and the Port of Montevideo, and it is also proximate to most of the universities center. It includes two state-of-the-art 19-story towers (56,000 square meters) and a total investment of USD 50 million (land, building and equipment). The undertaking seeks to house companies involved in software development, call centers, BPO, shared services, financial services and professional and trading services (agribusiness, clothing, energy, shipping) focused on export services. The first tower opened in March 2010 with 22,000 m2 in which offices will be available for lease (between 10 and 1,400 m2 of space). When the second tower is finally complete, available space may increase up to 2,800 m2 per floor (in the first three floors). 2) WTC Free Zone is building an office tower next to World Trade Center Montevideo and the Montevideo Shopping Center in an area full of banks, hotels and restaurants. Flexible office space may be leased ranging from 40 m2 offices to entire floors, all with the latest telecommunications technology. According to the administrators, WTC Free Zone “has a particular appeal for the financial industry and regional centers of administration, shared services, managements and vice- chairman”.5. Prospects for Further Investments in the IndustryIn the framework of the global offshoring trend, Uruguay is in an unmatched position to receiveinvestment in this industry.The country’s geographic, political, economic and cultural characteristics and its suitablecommunications infrastructure and high-quality workforce ensure solid financial prospects and lowrisk for companies considering investments.The ongoing expansion of foreign companies gives credit to this perspective, while new buildingprojects are arising that will offer new office space for those who decide to build considering theseopportunities.19
  • 20. According to the report released by Tholons Advisory Firm (Creating a Roadmap to Success, June2009), there were five areas or segments in which Uruguay might offer (and capture) global exportservices (outsourcing), most of them already at an early development stage: 1. Pharmaceutical R+D: Research contracts, clinical trials and research. Mentioned example: Institut Pasteur. 2. Health14: Medical tourism, diagnosis, medical coding. Mentioned example: UruHealth, medical travel service (SEMM). 3. Logistics: Inventory distribution and management, purchasing management and processing, supply chain management, storage. Mentioned example: Costa Oriental. 4. Education and Training: Distance learning, content development, testing design. 5. Product Development: Software applications, system software infraestructure. Mentioned examples: TCS and IBM, Memory, Artech, Quanam, Sonda and Concepto.The same report indicated the possibility of achieving incomes of US$ 2 billion in the next 4 years(2013) from a potential buyers market estimated at US$ 140 billion. It also specified the necessaryrequirements to achieve them in terms of human resources, infrastructure and coordination ofefforts to attract investors.Tucci (2010), in “Prioritization of sectors with the greatest potential in the global export servicesindustry (offshoring) in Uruguay” (IDB), added two more areas from the ones mentioned above: 1. Back office and Processes Outsourcing: Accounting and finance, human resources, sales and marketing, contact centers for back office, business consulting, business and investments analysis, market intelligence for KPO; and 2. Travelling: Customers loyalty program, income management, marketing, Contact Centers.The potential buyers market would then be of US$ 201 billion. Both studies are based on the currentcapabilities of Uruguay, the existence of growth potential in world markets and a strategy-countrycoordination that would make the insertion in the sector feasible an advantageous.14 This sector has in Uruguay a broad health coverage (41 doctors per 10,000 inhabitants, while U.S.A has 23, Argentina 32,Brazil 16 and Chile 9) and nurses (17 per 10,000 inhabitants, U.S.A 78, Argentina 4, Brazil 6, Chile 4). Tholons (2009),quoted work.20
  • 21. APPENDICESDomestic and Foreign Investment PromotionForeign investors in Uruguay enjoy the same benefits as domestic investors and do not need priorauthorization to establish in the country.Law No. 16,906 (dated January 7th, 1998) declares the promotion and protection of domestic andforeign investment of national interest. Decree 455/007 updated the regulations of this law.Investment projects in any industry that are submitted and promoted by the Executive Branch mayuse between 50% and 100% the amount invested as partial payment of corporate income tax (IRAE),according to project classification.The normal IRAE tax rate is 25%.In addition, moveable fixed assets and civil works are exempt from IP equity tax and VAT can berecovered for purchases of materials and services for the latter.Trade and Investment Protection Agreements1 General Trade AgreementsUruguay has been part of the World Trade Organization (WTO) since its creation in1995 and is part of the Latin American Integration Association (ALADI, 1980) along withten South American countries plus Cuba and Mexico. In the framework of ALADI, the Southern Common Market (MERCOSUR) was formed in 1991 together with Argentina, Brazil and Paraguay. MERCOSUR became a customs union in 1995, with free movement of goods, elimination of customs duties and non-tariff barriers between countries, and a common external tariff for countries outside the union. Venezuela is currently in the process of joining.Within the framework of ALADI, MERCOSUR has signed trade agreements with othercountries in South America: Chile (1996), Bolivia (1996), Colombia, Ecuador andVenezuela (2004) and Peru (2005), and an agreement with Israel (2007), all of whichform respective Free Trade Areas, with tariff reduction schedules that should becompleted no later than 2014/2019, according to the country. Uruguay also signed a bilateral free trade agreement with Mexico (2003), which allows for the free movement of goods and services between both countries (zero tariffs) since June 2004, with certain exceptions that end in 2014.2 Investment Protection AgreementsUruguay has signed investment security, protection and promotion agreements with 26 countries,including Spain, the U.S., Finland, France and the U.K., among others.21
  • 22. General Government Export Incentives1. Refund of VAT Paid on Supply PurchasesRefunds of VAT on purchases are made generally by discounting VAT charged on sales made withinthe national territory and paying the difference to the government. Since this tax is not charged onexports (of goods and services), VAT included in purchases of inputs is refunded at the request of thecompany. The DGI Tax Bureau extends credit certificates that can be used in paying other taxes.Decree 220/998 lists the operations included in the concept of services exports. The following aresome examples: Foreign transmission of television material produced in Uruguay; logistical supportservices for foreign cinematographic and television productions; consulting services provided toforeigners; services provided to foreigners for the design, development and implementation ofspecific logistical support; services performed by international call centers as long as the mainactivity is for foreign clients; data processing; services performed for the design, development andimplementation of digital content; market and social research services; and advertising servicesprovided by advertising agencies for foreign clients.2. Free ZonesThere are 13 Free Zones (11 are private FZ and two are state FZ), or customs exclaves formanufacturing activities or services to third countries, in which customs duties and taxes are not paidon entry and exit of goods and services and where VAT is not paid in advance. Furthermore, broadexemptions from national taxes include the Corporate Income Tax (IRAE), but not social securitypayments for domestic personnel.A minimum of 75% of Uruguayan citizens of the total personnel is the only requirement, althoughthis percentage may be reduced with prior authorization of the Executive Branch.Specific government incentives for various sub-sectors mentioned in thisreport1. Contact Centers. Decree 207/2008 dated August 14th, 2008. Corporate Income Tax exemption(IRAE).This decree incorporates contact centers in the Investment Promotion Law (Law No. 16,906 datedJanuary 7th, 1998) as long as the company has a minimum of 150 direct employees and the servicesare consumed abroad by non-residents. Those awarded incentives will be exempt from the EconomicActivities Income Tax (IRAE) for 10 years.2. Contact Centers. Personal Information Protection and HabeasData Action (Law No. 18,331 dated August 11th, 2008 andregulatory decree 414/09 dated August 31st, 2009).According to this regulation, all physical and legal persons havethe right to have their personal information protected. Thiscovers collection, recording and treatment under any support andmethod in the public and private spheres. The database managermust obtain and safeguard proof of consent of the owner of theinformation and must inform the owner of the use of saidinformation, as well as the use of techniques to ensure itsintegrity, confidentiality and availability.The decree establishes the operation of the Regulatory and Control Unit of Personal Data. This lawadapts current regulations to those of the European Union, thus enabling European clients tocontract with companies located in Uruguay.22
  • 23. 3. Software Industry. Corporate Income Tax Exemption (IRAE) for Software and Related ServicesExports.Title 4 of Amended Text 1996 covers income exempt from the corporate income tax (IRAE). Itincludes income obtained from logistical support production activities and related services(determined by the Executive Branch), as long as they are consumed entirely abroad.Decree 150/2007 dated April 26th, 2007 (IRAE regulations, article 163 bis) includes the services linkedto hosting, call center, business process outsourcing, sales and other services. In all cases they mustintend to have logistical support, even when said logistical support has not been carried out by theservices provider.With regard to logistical support, said article includes development, implementation, update, versioncorrection, personalization (GAPs), testing, quality control, logistical support maintenance, trainingand consulting.4. Cinematographic and Audiovisual Industry. Law No. 17,930 of December, 2005 (Patronage) andlaw No. 18,284 of May, 2008 (Film Law)Law No. 17,930 created a system of incentives for artistic and cultural activities (sponsorship),providing tax incentives (income and capital taxes) for those who make donations towards projectsof this type and to their promoters, including film and audiovisual production.The Film Law created the Film and Audiovisual Institute of Uruguay in the framework of the Ministryof Education and Culture with the objectives of promoting, providing incentives and stimulating thecreation, production, co-production, distribution and exhibition of Uruguayan cinematographic andaudiovisual works in the country and abroad. In addition, the Cinematographic and Audiovisual Fundwas created to support the development and production of projects of this type, and empowers theExecutive Branch to exempt customs duties and import and export taxes and to grant temporaryadmission for movies and audiovisual material of national production or those co-produced withother countries.Institutions * One business association worth noticing is the Uruguayan Chamber ofInformation Technology (CUTI). Headquartered in Montevideo and with morethan 20 years of existence, CUTI’s objective is to “drive the sustainabledevelopment of the information and communication technology industry,expanding markets, facilitating growth and globalization of its members and emphasizing thedevelopment of people and social responsibility.”CUTI has approximately 300 members (September 2011) and provides statistical information on theindustry, collected in annual company surveys, business opportunities, support for internationalpositioning, training and promotion of member products.Website: www.cuti.org.uy * The Telecommunications Chamber of Uruguay includes manycompanies from the sector and has formed commissions accordingto the area of activity. One of these is for call centers, where thelargest companies of the industry participate.Website: www.telecomunicaciones.org.uy23
  • 24. * The Audiovisual Chamber of Uruguay includes major companiesin the industry and works in three central areas: institutionalrelations, professional formation and market expansion.Website: www.audiovisual.com.uy * The Uruguay Film Commission & Promotion Office (UFC&PO) works with the Audiovisual Chamber of Uruguay, the Film and Audiovisual Institute of Uruguay and the Montevideo Locations Office. It provides a collective platform to attract audiovisual activities to the country, connecting Uruguayan companies and professionals, while offering a structure to jointly promote Uruguayan audiovisual projects.Website: www.uruguayfilmcommission.com.uy* Audiovisual and Cinematographic Institute of Uruguay (ICAU), http://icau.mec.gub.uy24
  • 25. Uruguay in Synthesis (2010)15 Official Name República Oriental del Uruguay Geographical Location South America, bordering Argentina and Brazil Capital Montevideo 2 176,215 km . 95% of the territory has soil suitable for agriculture and Surface Area livestock activities. Population (2010) 3.3 millions Population Growth (2010) 0.35% (annual) GDP per capita (2010) USD 11,996 Currency Uruguayan Peso ($) Literacy Rate 98% Life Expectancy at Birth 77 years Form of Government Democratic republic with presidential system Political Divisions 19 departments Time Zone GMT - 03:00 Official Language Spanish Main Economic Indicators 2005-2010 Indicadores 2005 2006 2007 2008 2009 2010Annual GDP growth rate 7.5% 4.3% 7.3% 8.6% 2.6% 8.5%GDP, USD millions 17,398 19,823 23,902 31,177 31,322 40,265Population (Millions) 3.31 3.31 3.32 3.33 3.34 3.36GDP per Cápita (USD) 5,263 5,981 7,191 9,351 9,364 11,996Unemployment rate (% of EAP) 12.20% 10.90% 9.20% 7.70% 7.30% 6.80%Exchange rate peso / USD, Annual 24.4 24.0 23.4 20.9 22.6 20.06AverageExchange Rate (Annual Average Variation) -1.56% -2.50% -10.65% 7.73% -11.12%Consumer prices (Accumulated Annual 4.90% 6.38% 8.50% 9.19% 5.90% 6.93%Variation in % )Exports (USD millions), goods and services 5,085 5,787 6,933 9,372 8,647 10,666Imports (USD millions), goods and services 4,693 5,877 6,775 10,333 7,957 9,875Current Account Surplus / Deficit (USD 393 -90 158 -961 690 791millions)Current Account Surplus / Deficit (% of 2.3% -0.5% 0.7% -3.1% 2.2% 2.0%GDP)Overall fiscal balance (% of GDP) -0.4% -0.5% 0.0% -1.5% -1.7% -1.1%Gross capital formation (% of GDP) 17.7% 19.4% 19.6% 22.3% 17.2% 17.9%Gross foreign debt (% of GDP) 80.2% 69.2% 68.3% 53.0% 69.9% 57.2%Foreign direct investment (USD millions) 847.4 1,494 1,330 2,106 1,593 2,358Foreign direct investment (% of GDP) 4.9% 7.5% 5.6% 6.8% 5.1% 5.9%15 Sources: Data referred to GDP were taken from IMF, Foreign Trade data, FDI, Exchange Rate, International Reserves andForeign Debt were taken from Central Bank of Uruguay (BCU); population growth rates, literacy, unemployment andconsumer prices were provided by the National Institute of Stadistics.25
  • 26. Investor ServicesAbout UsUruguay XXI is the country’s investment and export promotion agency. Among other functions,Uruguay XXI provides free of charge support to foreign investors, either for those who are evaluatingwhere to make investments as well as those currently operating in Uruguay.Our Investor ServicesUruguay XXI is the first point of contact for foreign investors. Services we provide include: Macro and Sectorial Information. Uruguay XXI periodically conducts studies on Uruguay and the various sectors of the economy. Tailor-made information. We prepare customized information to answer specific questions, such as macroeconomic data, labor market information, tax and legal aspects, incentive programs for investments, location and costs. Contact with key players. We provide contact with government agencies, industry players, financial institutions, R&D centers and potential partners, among others. Promotion. We promote investment opportunities at strategic events, business missions and round tables. Facilitation of foreign investor visits, including organization of meetings with public authorities, suppliers, potential partners and business chambers. Publication of investment opportunities. On our website, we periodically publish information on investment projects by public entities and private companies. www.uruguayxxi.gub.uy inversiones@uruguayxxi.gub.uy26