The Wrong Way Around the World

Forty hours of travel, that's what the Cebuanos have to look forward to. Their plane should be taking off shortly for a brief stop in Havanna (yes, that Havanna), then Frankfurt, then Bangkok, then Manila, and finally Cebu. It has been exhausing living with them, but now that they're leaving I really miss them. I got to know them well, and they included me entirely in their lives. I don't envy them trying to start an office where there is virtually no overlap with the US and CR, but I know they'll be happy to see their families again.

It was amazing that such a small group of people could bring such drama. God rolled up his sleaves and began some hard work on people. I feel honored to have seen lives being challenged up close, but this work is just getting started and it's been painful so far. I was completely out of my depth in knowing how to advise people, but I had a few right insticts that at least I was able to play a small part, mostly in prayer. Keep them in your prayers. They've got trials that no one saw coming.

Here are some pictures from their trip. The first is with the CR developers, and the second is with our company driver Alfredo and his wife at their house in the hills (a beautiful drive if a bit nauseating with all the switchbacks and potholes).

Cebuya

Our new Filipino employees from Cebu are training in Costa Rica. They moved into the condos where I live. We have two guys sharing the master bedroom in my place, and in the girl's condo there are four girls who volunteered to stay in the same room. They are very communal. They all went in for food and cook and eat every meal together. They invite me to join them every time. It's refreshing and I feel like an important guest rather than the host I expected to be.

There are fully bilingual between English and Cebuano their local dialect. They will switch between the two mid-sentence when talking to each other. Even though we share the same language they seem like a more alien culture than the Costa Ricans. The Filipino habits are more like what I expected from the Costa Ricans. I have to admit that I'm constantly surprised when they start speaking to me in English. It doesn't feel like we should speak the same language. It's not like they're ignorant or primitive either. They were all helping each other with their laptops, getting online, and uploading their digital photos. I've been adjusting so easily to Costa Rica that I began to feel that culture differences were not as severe as I had originally supposed. But the Filipinos are simply a very different culture.

Inflation

Costa Rica has a significantly higher rate of inflation than the United States. Doesn't this mean that over the long term (say ten years) the cost of employees in Costa Rica will be much greater and will offset the initial savings of outsourcing? I found this question interesting to think through.

Inflation is a devaluation of your currency. The increase implied in the term actually refers to the rising cost of goods. Think of a failed state that is experiencing hyperinflation where yesterday what was someone's life savings now can't buy a loaf of bread. There are a lot of reasons for inflation (many hotly debated) but the important point here is that Costa Rica's higher inflation rate means that in general their currency (losing value at a higher rate) will trade progressively worse against the dollar, and that employees may be paid more in their own currency but for the same or less cost to the US company.

I'm not suggesting that inflation doesn't ever cause real wage pressure. For instance the rising cost of oil applies (almost) uniformly, increasing the cost of all commodities and thus prices, decreasing employees' buying power, and increasing their wage demand. It's a vicious cycle. It is precisely because it applies uniformly that it is not meaningful in comparing wages between countries.

Now the actual cost of Costa Rican employees is not decreasing, so it's interesting to go on. Many of Costa Rica's goods (besides bannanas and coffee) are imported, so if their economy doesn't grow fast enough relative to others they will lose purchasing power (a factor that can cause of inflation). This is offset by money coming in from tourism and outsourcing. These dollars shift the value of their currency closer to the dollar and maintains their buying power despite inflation. Outsourcing significantly increases wages in real terms because of rising demand. HP recently opened a big office in CR and drove the average programmer wage up, a phenomenon that is already happening in India and China in a big way.

If wages are rising, and sometimes in big jumps caused by the arrival of a major investor, what makes outsourcing worthwhile? A company doing outsourcing gets an efficiency gain (more value for the dollar, minus startup and transition costs) which hopefully allows them to grow more than they would have otherwise. If they make solid long-term investments they can establish a capital base and growth rate that allows them to absorb the wage growth, so that ten years down the road they have made a net gain. Think of a loan where you face a rising long term cost due to intrest, but you get initial capital that hopefully allows you grow and get ahead of this debt. One caveat here is that this benefit is negated if competitors are receiving exactly the same benefit, but in that case outsourcing is required in order to remain competitive.