It costs a multinational somewhere between $29,000 to $31,000 annually per employee to have an operation in Costa Rica, with about half of that the cost directly related to the worker and the rest related to everything else, from phones to rent, computers to furniture.
That nugget bubbled to the surface on Oct. 30 at WorldCity’s CEO Club, an every-other-month gathering for the heads of multinational operations in South Florida. The event is sponsored by Telefonica and international law firm Diaz Reus.
DHL Global Forwarding’s Samuel Israel, CEO of its Latin America operation, was leading the discussion and recounting the company’s decision to open a financial service center in Colombia nine months ago. His operation has roughly 3,500 employees for its Latin America and Caribbean operations. Of that total, 80 are in South Florida.
Overall, most multinationals in South Florida oversee about four or five employees for every worker based here, according to past WorldCity research, although there are exceptions, such as DHL.
With some companies represented at the CEO Club — DHL, UPS, APL, Hellmann Worldwide Logistics, GAP — cost is a driving factor with where to locate employees. It is, generally speaking, more expensive to be in Miami than somewhere in Latin America or even Asia, particularly with entry-level or mid-level positions.
In other cases — LAN, American Airlines, Medtronic — specific reasons that favor Miami overcome the cost-per-employee issue.
“It’s not about crying here,” Israel said, in reference to the logistics industry and the decision to open in Bogota, “but we work with very small margins.”
UPS, APL, which is the world’s fifth-largest shipping line, and Hellmann, the world’s largest privately held freight forwarder, all have similar operations in Costa Rica, which is known for its educated and bi-lingual, English-speaking workforce. Generally speaking, companies use these operations to oversee finance, accounts payable, accounts receivable and similar functions.
For Carlos Velez, who oversees APL’s Latin America operation as vice president and has gone from 45 employees in Costa Rica three years ago to 170 today, “salaries have skyrocketed” there. APL’s total operational cost is $29,000 per employee, he said.
” ‘If the work can be done in Colombia or in Panama or in Costa Rica,’ ” Velez said he is asked, ” ‘Why can’t it be done in Shanghai or Hong Kong?’ Mexico is more expensive than Costa Rica but then Shanghai (calls) and says I can do that work cheaper. Little by little, I am losing to Shanghai. I have lost four people to Shanghai.”
Hellmann’s motivation for opening in Costa Rica was employee poaching in Miami, said Frank Scheibner, president and CEO for the Americas. Hellmann’s total annual operational costs in Costa Rica are “very close, very close” to APL’s at $31,000 per employee.
“We would hire someone for an accounts payable position paying $50,000 and six weeks later (another company) would come along and pay the same person $60,000. Finally, I said enough is enough.”
But, he agreed with Costa Rica APL’s Velez. “Costa Rica has become quite expensive.”
“Colombia probably doesn’t have the same good image,” he said. “Costa Rica has done a fantastic job marketing its reputation. Colombia, on the opposite side, does not have an excellent reputation but people realize it has changed dramatically. Main shortcoming there is language,” a weakness in English when compared to Costa Rica.
In fact, Israel said, DHL’s per-employee costs are 30-35 percent lower in Colombia.
Israel then somewhat apologetically mentioned a nickname Miami has acquired, to some knowing chuckles. “And now I am going to be a little nasty. Some call Miami un mal necessario,” or necessary evil.
For GAP, “Miami is still an important place,” said Mark D’Sa, who oversees GAP Latin America and the Caribbean as senior director. “Central America competes against India, Hong Kong, South Korea.”
But, he said, “We are constantly reviewing what could be moved out of Miami.”
Not every company views Miami the same way. LAN, the Chilean-owned airlines, for example, has its North America headquarters in Miami, and has issues, according to Claudia Silva, who oversees LAN Cargo as a vice president, with another country mentioned during the discussion: Panama.
“I have serious issues with Panama,” Silva said. “We have operated in Panama in the past. It’s good for southbound flows but not a good competitor for northbound flows.
“Miami is still more interesting,” he said. “We use wide bodies (passenger jets) that are very good for cargo. In Latin America, most of the planes are narrow bodies,” because of passenger demand.
For American Airlines’ Carmen Taylor, who oversees its Latin America and Caribbean cargo operations from Miami, framed it similarly, then added another benefit that would bring a smile to economic development and chamber officials.
“We have more triple sevens out of Miami than anywhere in the network,” she said of the Boeing 777, a large, wide-body jet suitable for passengers and, in the belly, cargo. “But Miami will continue to have an attractiveness but not just in Latin America.
“I had a European friend come and he bought two apartments,” she said. “There’s no reason the city can’t be a Niece or Malibu. It has weather, it has beaches. I can’t believe I get paid to work here.”
“Miami can attract talent well,” added Medtronic’s Jim Hogan, senior managing director for Latin America. “I am trying to move someone from Buenos Aries to Mexico City right now. That’s a tough sell. But I can get anybody to move to Miami.”
There are always silver linings to challenging situations, of course. Helping Miami a little at the moment might just be the dip in real estate prices, one of the major factors in making South Florida expensive just a few short years ago, according to Steve Flowers, president of the Americas region for UPS.
“It’s made Miami more competitive,” he said.