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Costa Rica Rides High-Tech Wave

U.S. firms are drawn by the country's lower costs, educated and bilingual workforce, political stability, tax breaks and proximity.

March 18, 2006|Marla Dickerson | Times Staff Writer

SAN JOSE, Costa Rica — The crates that leave this Central American nation these days are more likely to be stuffed with microchips and telecom components than the bananas that once represented Costa Rica's plantation economy.

With little fanfare, Costa Rica has attracted hundreds of millions of dollars in investment from some of the best-known names in technology, including Intel Corp., Hewlett-Packard Co. and Microsoft Corp.

Medical device makers and pharmaceutical companies are sprouting in the tropical heat. And the nation is becoming a hub for call centers and back-office outsourcing.

Seattle-based Washington Mutual Inc. recently announced it would cut 600 loan processing jobs in Chatsworth and move some of them to Costa Rica. Palo Alto-based HP plans to nearly triple its business service workforce here to 3,500 workers within two years. The lure: lower costs, an educated, bilingual workforce, political stability, fat tax incentives and its location.

"We're shooting to be the Irish," Roberto Leiton Garro, an executive at Art in Soft, a Costa Rican software company, said of his nation's ambitions to emulate the Celtic Tiger.

Indeed, like Ireland before it, this small nation is leveraging talent and technology to catapult an agrarian economy into the Digital Age. In the process, it is capitalizing on a trend known as "near-sourcing" that has American firms establishing facilities closer to home.

Although Mexico, Nicaragua and other Latin American nations have benefited as well, Costa Rica's focus on tech-related industries has helped it achieve Central America's highest standard of living and surprising stature in the tech world.

It ranks third behind powerhouses India and China as the most competitive offshore destination, according to a 2005 report on outsourcing by two consulting firms. Not bad for a country roughly the size of Vermont and New Hampshire combined, and whose population of just over 4 million is less than half the size of Los Angeles County's.

When medical device maker MedTech Group Inc. was looking for a low-cost location to put a plant, giants China and India loomed as obvious choices.

But the New Jersey-based manufacturer of surgical tools and other medical products chose Costa Rica, where health science firms such as Baxter International Inc. and Boston Scientific Corp. had already set up shop.

Now when MedTech President George Blank needs to call someone in the Costa Rican plant, he knows the facility is just an hour behind East Coast time. And instead of spending nearly a day traveling to Asia, he can be in the capital, San Jose, within 4 1/2 hours on a nonstop flight.

When he lands, he finds plenty of English speakers attuned to the needs of the U.S. market. He says he has never been asked to pay a bribe, a routine cost of doing business in many developing countries. And Blank says he doesn't lose sleep worrying that a competitor will swipe his company's designs, a risk in places such as China, where intellectual property rules aren't widely enforced.

"The actual going and doing and seeing and working is much easier than it is in China," said Blank, whose Costa Rica plant began production in early 2005. "Business conditions are a little easier."

Costa Rica exports more software per capita than any other country in Latin America. Computer components have supplanted bananas as the nation's largest export product. Combined, the information technology and medical clusters employ about 30,000 workers in more than 300 companies, with most of that business materializing in the last decade.

A lot is riding on Costa Rica's ability to continue developing these sectors, which pay better than tourism and agriculture, the other pillars of its economy. With unemployment high, one-fifth of households mired in poverty and the economy growing more slowly than many would like, Costa Rican officials are banking on tech-related exports and services to keep the country climbing toward its goal of becoming the first developed nation in Central America.

Obstacles abound, the most obvious being Costa Rica's modest population, which can't produce the hoards of skilled workers needed to keep it among the top offshore destinations, said Mark Minevich, one of the authors of the outsourcing report.

He envisions Costa Rica following the path of Singapore, a small, tech-savvy nation that partners with bigger countries such as Malaysia and Indonesia, which provide much of the workforce for major projects.

"The strategy for [Costa Rica] is to do joint ventures," said Minevich, co-chair of the BTM Institute, a technology think tank based in Stamford, Conn. "And they're going to have to focus on niches."

Costa Rica's conversion from a largely farm-based economy to a tech-led one has its roots dating back more than a century. The nation made primary education free and compulsory in 1870, according to the Costa Rican Investment Board, a private entity.

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