By Arturo Cortés – International Relations Student

Why are multinational corporations moving from Asia to Latin America? For many decades, Asia has been considered to be a hub for innovation, where companies can run their businesses and create high-added value to their products or services, while at the same time reducing their expenses (offshoring). Since the COVID-19 pandemic began, multiple companies have realized that it is better and more efficient to run their businesses from nearer locations (nearshoring), which at the same time is a worldwide trend, called “regionalization”. Therefore, throughout this article, a set of qualities, challenges, and possible futures about Latin America will be presented with the intention to comprehend how Latin America can benefit from “nearshoring” and bring development to the region in the mid-long term.

Thus, what are the main “qualities” or attributes of Latin America to attract more Foreign Direct Investment (FDI) through nearshoring and boost development in the region? The first element that must be mentioned is its human resource. The Global Talent Competitiveness Index (GTCI) in its 2020 edition, ranked Chile, Costa Rica (37th worldwide), Trinidad & Tobago, Uruguay & Argentina as the top 5 countries with the best human resources in Latin America. The index indicates that the human resource available in these countries provide an extra added-value, knowledge, and capabilities in high-tech environments (e.g., engineering) to these companies (Marin, 2021). Furthermore, Latin American countries enjoy one advantage (at least when referring to the North American market) which is the similarity in the time zones and the closeness to this market (Forbes, 2021). Additionally, it is considered to be an “affordable” market, where the workforce is qualified, but the operational costs can still be reduced significantly (same happens in Asia, but in recent years costs have been increasing considerably) (Yifan Xie, 2021). All these are characteristics that describe the role that Latin America might eventually play in bringing development through nearshoring.

Nevertheless, multiple challenges must be overcome too, such as: The improvement of education (must), infrastructure (Latin America ranks poorly in multiple indexes), internet connectivity and accessibility, productivity levels, among others. Thus, it would be ideal to focus on the first two, education and infrastructure. According to the “Latin America & the Caribbean 2030: future scenarios” report, Latin American governments will struggle to find the economic resources to improve their education or infrastructure as they are facing an era of slow growth and financial deficits (IDB, 2020). Still, if Latin American governments want to successfully compete against the Asian markets, key investments are required on education and infrastructure to (simultaneously) improve internet connectivity and competitivity levels throughout the region.

Therefore, what possible futures could be experienced by Latin America if improvements are done or not done in any of the areas already mentioned? The report mentioned above states 3 possible scenarios: Muddling through (Latin American systems will unfold along a path consistent with their historical development, or well, nothing changes), governance on the rise or an illicit world afloat (governance strengthens or it erodes), and finally, toward integration or fragmentation prevails (toward Integration explores a future in which regional coordination fosters economic growth, while fragmentation prevails establishes that political and economic forces might continue to pull the region’s countries toward different economic poles) (IDB, 2020). These are the possible scenarios that could be faced by Latin America in the mid-long term depending on the decisions taken in the upcoming years.

In conclusion, Latin American governments have an opportunity to take advantage of this new “nearshoring” trend that is being experienced throughout Latin America, but in order to do so and compete in the long term against the Asian region (offshoring), Latin American governments must take the lead and make key investments in infrastructure and education, so qualities like the ones mentioned above, but specially the human talent, can be further exploded to boost development in Latin America, and experience a rise on governance and a stronger integration in the regional market.

MOXIE es el Canal de ULACIT (www.ulacit.ac.cr), producido por y para los estudiantes universitarios, en alianza con el medio periodístico independiente Delfino.cr, con el propósito de brindarles un espacio para generar y difundir sus ideas.  Se llama Moxie - que en inglés urbano significa tener la capacidad de enfrentar las dificultades con inteligencia, audacia y valentía - en honor a nuestros alumnos, cuyo “moxie” los caracteriza.

References
  • Forbes. (2021, May 10). Costa Rica ocupa el primer lugar en talento humano de CA. https://forbescentroamerica.com/2021/05/10/costa-rica-ocupa-el-primer-lugar-en-talento-humano-de-ca/
  • IDB. (2020). Latin America and the Caribbean: Future scenarios 2030. https://publications.iadb.org/publications/english/document/Latin-America-and-the-Caribbean-2030-Future-Scenarios.pdf
  • Marin, M. (2021, May 12). Talento humano costarricense destaca a nivel regional según estudio internacional. El Observador. https://observador.cr/talento-humano-costarricense-destaca-a-nivel-regional-segun-estudio-internacional/
  • Yifan Xie, S. (2021, March 29). China, long a source of deflation, starts raising prices for the world. The Wall Street Journal.https://www.wsj.com/articles/china-long-a-source-of-deflation-starts-raising-prices-for-the-world-11617015600