Caribbean locations bring offshoring close to home

Caribbean Business Locations Roy Harryman

Manufacturing, telecommunications and international finance all take place within the Eastern time zone.


This article originally appeared in Expansion Management.
Business-friendly locales of the Caribbean prove that offshoring doesn’t have to mean leaving the Western Hemisphere or even the United States.

Several island nations and the U.S. territory of Puerto Rico offer low-tax, low cost alternatives to the distant shores of India, China and the Philippines. In addition to proximity to the U.S. mainland, most are run by stable governments and provide legal protection that is uncertain in other overseas destinations.

Puerto Rico, in particular, is rolling out one blockbuster announcement after another as businesses expand on the island.

In the fiscal year ending June 30, 172 new manufacturing operations opened their doors, resulting in 7,659 new jobs. In addition, Amgen, Eli Lilly and Abbott Laboratories are investing in pharmaceutical manufacturing facilities with a total price tag of about $2 billion.

Amgen alone is planning a $1.2 billion laboratory complex that also includes plants and warehouses.

“As Puerto Rico’s manufacturing evolves, this process development laboratory will help advance the island’s economic activities toward scientific discovery and innovation,” said Madhu Balachandran, Amgen’s vice president for Puerto Rico Operations.

In August, four medical device manufacturing companies announced a combined $30 million expansion that will create 955 jobs. Becton Dickinson, St. Jude Medical, Tyco U.S.S.C. and Ethicon are expanding their operations there.

In addition, Bard Shannon announced in September that it would build a $45 million, 200,000-square-foot plant, resulting in 100 new jobs. 

“Puerto Rico is truly a global manufacturing powerhouse,” said Waldemar Ramirez, Human Resources director for Hewlet-Packard Puerto Rico. The company is considering building a new branch of HP Labs on the island to serve its thriving biotechnology and pharmaceutical industries.

But Puerto Rico isn’t the only bright spot in the region.

Barbados is the most easterly of the Caribbean islands and has become home to the informant technology, financial service and insurance industries.

It’s also experiencing growth in the call center industry. Technion is adding 100 seats to its 150-seat facility, while International Market Access is doubling the size of its 150-seat center. In addition, Zenodata, a U.S.-based data coding and document abstraction company, is adding 100 employees to its current 390.

The multilingual Netherlands Antilles, a group of islands north of Venezuela, is also well equipped for the call center and financial services industries. Its island of Curacao offers 220 acres of fully developed business parks. As part of the Kingdom of the Netherlands, the islands can ship products into the European Union duty-free.
Tax advantages
Caribbean nations and Puerto Rico offer low tax environments to expanding companies. Although Puerto Rico is a U.S. territory, federal corporate taxes are not imposed on island operations unless the profits are repatriated. Companies often maximize this tax advantage by reinvesting profits in their Puerto Rican enterprises or in international operations.

Manufacturing wages in Puerto Rico average between 20-30 percent below wages in the mainland United States, while unemployment is in double digits.

Manufacturing and export service companies pay a maximum of 7 percent corporate income tax to the government of Puerto Rico. This amount is reduced to 2 percent if a company is introducing new technologies to the island’s industry base. Tax laws also allow these companies to take advantage of accelerated depreciation of their property.
Barbados maintains a low corporate income tax rate of 2.5 percent that can be even lower for information services companies, investment firms and offshore banks. In addition, the nation has negotiated tax treaties with the United States and Canada to prevent double taxation. Corporate taxes are exempted for 15 years for manufacturers that export.

In the Netherlands Antilles, tax incentives are available to manufacturers locating in Industrial Park Brievengat on the island of Curacao. Benefits include: waiver of import duties; a 2 percent corporate income tax rate; real estate taxation exemption; and exemption of employees from personal income tax. Additional incentives reward export-oriented activities in designated economic zones.
Stability and proximity
Unlike the unrest that has abounded in parts of Central and South America, much of the Caribbean has experienced peace and stability. The region is easily accessed from the United States and is generally located in the Eastern time zone.

When companies create jobs in Puerto Rico, they are not sending them offshore because Puerto Ricans are U.S. citizens governed by the U.S. Constitution. The same protections that apply to mainland intellectual and real property are in place there.

The stability of Puerto Rico is continuing to draw new industries, including the island’s first aerospace engineering center. While Puerto Rico’s population is about 3.8 million, there is also a large Puerto Rican population on the U.S. mainland that may be willing to return home for the right job.

Pharmaceutical and medical equipment manufacturing companies have been operating in Puerto Rico for five decades. HP has been in production there for 30 years, with operations including manufacturing, sales and research.

“HP has over 1,800 employees and has never had any difficulties in hiring highly educated personnel,” said Ramirez.

The island offers a bilingual work force, with Spanish and English widely spoken. It is a launching pad for marketing to the Caribbean, Central and South American markets. This is evidenced by HP’s recent decision to move a key marketing office from Houston to Puerto Rico. The new office manages sales and marketing in Central America, the Caribbean and Ecuador as well as Puerto Rico.

“The dual cultural component of Latin American background and its close political and economic relationship with the U.S. makes Puerto Rico the perfect link for both the Anglo and Latin regional markets,” said Ramirez.

Other Caribbean locations also offer stability, direct and frequent air connections to the United States and familiar language and culture.

Barbados was governed by the United Kingdom until 1966. As a result, English is the dominant language. A flight from New York takes less than five hours. Daily freight and passenger flights reach the United States and Europe.

The Netherlands Antilles is served by major airlines. Workers speak the native language Papiamento, but English, Dutch and Spanish are also widely spoken. The islands are also strategically positioned for international businesses with their European connection and location between North and South America.