The top pros and cons of outsourcing to Costa Rica

1.5K

Costa Rica is one of the top outsourcing destinations in Latin America for major companies like Amazon, Intel, Microsoft, etc.

But what makes outsourcing to Costa Rica so popular?

Although Costa Rica is more expensive than other Latin American countries like Brazil, Argentina, etc., it offers a highly-skilled workforce, innovative technology, and many more benefits to make it worthwhile!

In this article, we’ll explore all these advantages while also discussing their challenges and legal considerations. We’ll also highlight three popular Costa Rican outsourcing companies. 

Let’s go!

Table of Contents

• 6 incredible advantages of outsourcing to Costa Rica
• 2 key challenges of outsourcing to Costa Rica
• 3 legal aspects to know when outsourcing to Costa Rica
• 3 popular Costa Rican outsourcing companies

6 incredible advantages of outsourcing to Costa Rica

Here are six reasons why you should outsource to Costa Rica today:

1. Affordable skilled labor

The World Economic Forum calls the Costa Rican workforce the top human capital in Latin America.

This can be attributed to the flourishing education sector in Costa Rica, which houses the region’s top universities, such as:

• Instituto Tecnológico de Costa Rica (TEC).
• INCAE Business School.
• Universidad de Costa Rica (UCR).

As a result, approximately 3,500 engineers and 7,000 science, technology, engineering, and math graduates enter the workforce every year.

Foreign companies from the United Kingdom and the United States can hire these skilled employees at low wages, owing to Costa Rica’s low cost of living. 

For example, according to SalaryExploler, the average annual salary of a software developer in Costa Rica is USD 39,549, which is lower than in developed countries like the United States (USD 86,800) or the United Kingdom (USD 86,785).

As a result, you can scale your company economically by hiring skilled talent like software engineers, programmers, BPO employees, etc., in a cost-effective way.

Check out our article to learn more about the average salary in Costa Rica.

2. Superior infrastructure and technology

San Jose is called the Silicon Valley of Latin America due to the growth of information technology in the region.

The Global Innovation Index rates Costa Rica as the third-most innovative Latin American country. Major companies like IBM, Microsoft, Intel, etc., have their development centers and factories in the country. 

The country has also been developing its digital technology to encourage outsourcing in Costa Rica. It boasts full redundancy (alternate network devices) in telecommunication to ensure connectivity even if any network device or path fails. Additionally, Costa Rica has fiber optic submarine cables to provide fast connectivity across the country. 

As a result of these efforts, the service sector, including BPO, customer support, IT outsourcing, etc., accounts for around 49% of Costa Rica’s foreign trade exports. This is twice the average found across most Organization for Economic Co-operation and Development (OECD) countries. 

3. Low attrition among developers

An outsourcing company would prefer to work with a development team that’s likely to stay for a longer time. This way, the company can enjoy uninterrupted workflow and save overhead costs like frequent hiring.

Additionally, continuing with the same team ensures data security which is vital while outsourcing software development services. For example, a company building a new product prototype needs to ensure that the idea doesn’t leak to its competitors. 

If there’s a high attrition rate, it’ll be difficult to ensure data security as new employees may not be loyal to the company.

4. Ease of communication

Located in Central America, Costa Rica uses the Central Standard Time Zone, which is just two hours behind countries like Canada and the US. The real-time communication and overlapping work hours make Costa Rica a convenient nearshore outsourcing destination for Canadian and US companies.

Companies offshoring from other countries can choose a working shift closer to their home countries’ regular work hours. 

5. Business-friendly government initiatives

One of the critical factors that transformed the country into the technological hub of Latin America is the Costa Rican government’s commitment to education. The Costa Rican government puts aside 7.4% of the total GDP towards cultivating talent in the country.

Education in the country is affordable and focuses on Research, Science, Technology, and Math (STEM) to make Costa Ricans job-ready. As a result, it’s one of the most educated populations in Latin America, with a literacy rate of 97.86%.

Apart from good education, it offers many programs to support outsourcing. For starters, the MenTe program encourages women in STEM fields, and the San Jose Tech Pole Project transforms old buildings into tech offices and facilities.

Additionally, the Costa Rican government cultivates a favorable business environment by setting up free trade zones like the Lindora Park and the Euro Center. These areas offer cost-effective benefits like tax incentives under the Free Trade Zone Regime to encourage multinational companies to set up businesses and invest in the country.

Companies can enlist the help of the Costa Rican Investment Promotion Agency to check out the investment opportunities in the country.

6. Good language proficiency

The English Proficiency Index rates Costa Rica as moderately proficient, placing it at the 44th rank among 112 countries. This makes it the fourth-largest country in Latin America to speak fluent English. English proficiency benefits the outsourcing companies in many ways, such as:

• Easy communication: With no language barriers, outsourcing companies can communicate instructions easily, boosting productivity.
• Time and cost-saving: You can avoid additional costs due to miscommunication. And increase turnaround time as you don’t have to spend time explaining things to your offshore outsourcing team. 

This makes it an ideal nearshore location for companies from North America, the UK, etc., that use English as the primary language for communication. 

Moreover, Costa Ricans are fluent in Spanish. You can take advantage of the country’s bilingual talent pool by outsourcing processes like customer service, where they can cater to your English and Spanish clients – boosting service quality. 

However, outsourcing to Costa Rica doesn’t come without a few setbacks. Read on to find key points you should consider before outsourcing to Costa Rica. 

2 key challenges of outsourcing to Costa Rica

Costa Rica, located in Central America, presents very few outsourcing challenges compared to Eastern Europe. Let’s look at them in detail before you consider outsourcing to Costa Rica:

1. Shortage of skilled developers

Since Costa Rica is a small country, the number of skilled software developers or programmers is very low. Due to the excellent education system, these developers are highly skilled but aren’t enough to cater to the growing software outsourcing sectors. 

The shortage of skilled labor creates a competitive field, raising employees’ wages. For example, the labor cost in Costa Rica is higher than in any other Latin American country. The average annual salary of a software engineer in Argentina (USD 4,770) or Mexico (USD 18,358) is low when compared to Costa Rica (USD 41,983). 

As a result, small-scale companies may not be able to afford outsourcing to Costa Rica. 

2. Difficult tax and legal system

The labor laws in Costa Rica vary across industries. Moreover, most Costa Rican labor laws are employee-friendly, making it difficult for companies to navigate.

For example, foreign companies outsourcing to Costa Rica must know the difference between different employee contracts to avoid misclassification. You could be fined heavily if your outsourcing firm unknowingly classifies regular employees under temporary employment contracts. 

Additionally, your company’s size determines the fees or taxes you have to pay. So you must know the basic laws and regulations of the country to avoid legal trouble as well as have a smooth outsourcing process.

With that said, let’s check out some common Costa Rican laws you should know before outsourcing to the country.

3 legal aspects to know when outsourcing to Costa Rica

Before outsourcing to Costa Rica, here are three laws and regulations you should be aware of:

1. Type of contract

There are two main types of contracts you should be familiar with:

A. Regular employment contract

Under this standard employment contract, you can hire an employee for an indefinite period for any outsourcing service until you or your employee decides to end the agreement. 

For instance, the contract would end if you fire your employee or your employee resigns/retires.

B. Temporary employee contract

This contract can only be used in special situations, such as hiring a temporary replacement employee to cover for your permanent employee who may be on medical or maternity leave. 

However, if a temporary employee contract extends beyond a year, the government recognizes it as a regular contract.

2. Number of working hours

Costa Rica has three work schedules to cater to nearshoring and other outsourcing companies:

• Day shift: The maximum working time is 48 hours/week, based on six daytime shifts of eight hours each (05:00 am – 7:00 pm).
• Night shift: The maximum working time is 36 hours per week, falling between 7:00 pm – 05:00 am the next day.
• Mixed shift: This shift includes both day and night hours. Employees may work from 12:00 (noon) – 10:30 pm or 1:30 am – 12:00 (noon). The maximum working hours are 42 hours per week, seven hours per day.

3. Employee benefits

Every Costa Rican employee is entitled to an aguinaldo (Christmas bonus), equivalent to a month’s pay. This should be paid within the first 20 days of December. 

Female employees enjoy one month of maternity leave before the birth of their child and three months of leave after. The employer should pay half of the salary for these months, while the Social Service Administration pays the rest. 

Additionally, salaried employees are entitled to 10 days of national paid holidays. If an employee works on these days, they should be paid double their normal salary. 

Knowing these benefits will help you become a responsible employer, treat your employees right, and decide if this is the right country for your company.

And if it is, check out the major outsourcing companies of Costa Rica.

3 popular Costa Rican outsourcing companies

Here are three Costa Rican companies that’ll help outsource your business:

1. 10Pearls

10Pearls is a software development company based in San Jose, Costa Rica, with offices in six other countries. The company helps businesses with cloud architecture, web development, product management, agile development processes, staff augmentation, etc.

Key features

• Builds low-risk user prototypes to test on real customers before making your investment.
• Offers excellent data security throughout the product development process.
• Delivers quality products well ahead of time with reduced development costs.

2. Bill Gosling Outsourcing

Founded by Kenny Johnston, Bill Gosling Outsourcing is an outsourcing company with offices in San Jose, Costa Rica, and five other countries. It offers agile business process outsourcing solutions such as live customer support, content services, B2B collections, etc.

Key features

• Creates a unique customer experience best suited for your business and product.
• Manages your client orders, details, databases, etc., through ALLTRAC, a customer relationship management (CRM) platform.
• Offers Flight Plan, a membership program that transforms your company’s customer experience by combining the best business practices together. 

3. HatchWorks Technologies

HatchWorks Technologies is an award-winning cloud application and software development company. With offices in San Jose, Latin America, and throughout the US, the firm offers excellent software development solutions for companies looking to outsource to Costa Rica.

Key features

• Provides custom software development for new products or redesigns existing products to suit your company’s needs.
• Hosts, monitors, and optimizes your cloud applications.
• Offers software product development, web development, cloud-managed application services, data management, analytics, etc.

Wrapping up

Emerging technology, affordable talent pool, tax incentives, and easy communication make Costa Rica an attractive outsourcing destination. 

However, you should keep in mind things like complex laws and employee benefits to have a smooth, uninterrupted outsourcing experience in the country. The easiest way to navigate these issues is by hiring the right outsourcing company.

You can use this guide to learn more about these factors and decide if Costa Rica is the right choice for outsourcing your business operations.