The Central American Free Trade Agreement (CAFTA) goes into effect on January 1st, ending tariffs on more than US$33 billion in goods traded between the U.S. and Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and the Dominican Republic. Economic development officials in those countries are hopeful that U.S. companies will "near-source" services to Central America, taking advantage of time-zone compatibility and proximity to American markets. Costa Rica already boasts 24,500 call center and IT workers serving other markets. One benefit that Nicaragua brings to U.S. outsourcing is bi-lingual operators, the result of the civil war exodus of citizens to English-speaking countries during the 1980s and the subsequent return of them and their children.

This near-sourcing concept is very popular in Europe, where German, French, and British companies outsource support services and production to Eastern European countries where labor is cheaper, the population is younger, and education is good.

For North-American firms, especially LSPs, near-shoring functions like project management and vendor management to Latin America offers several advantages over offshoring to India or China:

• Savings in labor costs
• Significant time-zone advantage over China or India — Central America is in the Central Time Zone, and Argentina is 1-2 hours ahead of the East Coast, compared to up to 17 hours to India.
• Cultural identity — a common complaint that companies offshoring to India and China have is that there is a mismatch in expectations and that communication suffers. Latin Americans grow up eating Big Macs and watching the same cartoons that North Americans do.

Full disclosure: Renato Beninatto of Common Sense Advisory is Latin American (but not Hispanic), and we nearshore some of our activities to Argentina (where they do speak Spanish).