I recently returned from a visit to Chile, which launched an ambitious effort in 2000 to become an IT outsourcing hub. It did so in an effort to break its economic dependence on its mining industry. By offering massive subsidies, the Chilean government created an outsourcing industry that generated $800 million in revenue and employed 20,000 people in 2008. The Chilean Economic Development Agency (CORFO) asked my research team at Duke University to advise them on a way to grow this to a $5 billion industry by 2015.
I told them it was impossible. Chile had a population of 16 million people, and its universities graduated only 1,400 engineers per year. That put getting 100,000 additional IT workers for its outsourcing industry out of reach. Before long, the industry would start cannibalizing other important, technical professions. Civil engineers, mining engineers and university professors would abandon their posts for higher-paying IT service jobs. And salaries would increase to a point where the industry would cease to be competitive. I recommended Chile try to be more like Israel and less like India. Israel’s smaller, entrepreneurial population makes it a better model for Chile, whereas India’s much larger population gives it an advantage in pursuing the more traditional outsourcing industry model.