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Nearshoring Software Development to Chile [2024 Guide]

Lead IT Recruiter in LATAM
Nearshoring Software Development to Chile [2024 Guide] - Alcor BPO profile
19 January 2024
10 min

The technology market is teeming with fierce competition. Talent shortages and escalating costs pose significant challenges for IT companies that strive to stay ahead of the curve. That’s why 87% of IT executives ponder nearshoring, particularly for cost-cutting reasons. In this regard, nearshoring software development to Chile shines as one of the go-to choices. 

 

I’m David Gomez, Lead IT Recruiter at Alcor, with 7 years of hands-on experience in the field. We offer software R&D as a service to US and European IT companies who expand abroad. 

 

Nearshoring Software Development to Chile [2024 Guide] - Alcor BPO

 

In this article,  I’ll take you through the Chilean IT market: explore the pros and cons of nearshoring to this destination, reveal local programmers’ wages, and share proven ways to hire software developers in Chile. So, let’s dive in!

 

IT Market in Chile: 2024 Overview

 

In the past decade, the Chilean tech industry has boomed like never before. This sector has become a key player in Chile’s economy thanks to widespread internet use, AI adoption, big data analytics, and the rise of mobile technologies. Numbers-wise, in 2020, the total tech market hit a whopping $6.4 billion, flexing its muscles at 2.5% of Chile’s GDP. And the fun doesn’t stop there — projections say it’s gearing up for another $4 billion growth from 2022 to 2027 at an 8.55% CAGR. 

 

This turbocharged advancement isn’t just luck; the Chilean government has been proactive with national digitalization. For instance, they pumped up the digital transformation budget by 64% last year. In addition, they launched the Chile Digital 2035 strategy to promote infrastructure development and digitalization of the public sector. No wonder Chile’s rocking the charts as the second country in Latin America for innovation.

 

The prominent sector of the country’s technological industry is IT outsourcing, predicted to pull in $1.87 billion in revenue by 2024. There are an estimated 8,000 tech companies in the country, about 200 of which are IT outsourcing ones. They mainly specialize in custom software development, IT managed services, SaaS, blockchain, and IoT services. It’s like a tech buffet, offering a menu to suit every taste. But is it truly a win for American IT companies to nearshore software development in Chile? Continue reading to find out!

 

Is it Profitable to Nearshore to Chile?

 

Pro: Qualified IT Workforce

One big draw for many US tech companies eyeing Chile as a nearshore destination is the treasure trove of skilled talent. This country is undoubtedly a goldmine of qualified IT gems, with a 45% density of senior programmers — the highest in the region. According to the Coursera Global Skills Report 2023, Chilean developers rank #4 in Latin America and the Caribbean for technology skills. They are particularly stellar at cloud computing, programming, operating systems, and data analysis. 

 

So, where do these tech maestros get their superpowers? Of course, at some of the best national institutions, like the University of Chile, Universidad Técnica Federico Santa Maria, Pontificia University Católica de Chile, University of Concepción, and University Diego Portales, that consistently rank in the top 30 in LATAM.

 

 

Pro: Cost Reduction

Another ace up Chile’s sleeve that attracts US IT companies to build nearshore dedicated software teams — is its modest rates. Picture this: you’re gearing up to develop an AI-based application, and you need a dream team — a tech lead or product manager, a business analyst, an AI engineer, an ML engineer, a data scientist, a DevOps developer, and a QA engineer. In the USA, the annual spend on assembling this team would clock in at around $825K, while the same AI developers based in Chile would cost you under $300K. It’s approximately a 65% cost reduction on labor expenses. Nearshoring software development to Chile sounds like a bargain, don’t you think?

 

 Chile USA
Tech Lead $47,000 $130,000
Business Analyst $35,000 $103,000
AI Engineer $42,000 $122,000
ML Engineer $45,000 $126,000
Data Scientist $40,000 $125,000
DevOps Developer $38,000 $128,000
QA Engineer $33,000 $91,000
Total $280,000 $825,000

 

Pro: Vibrant Startup Ecosystem

Chile proudly stands tall as one of the prominent innovation hubs in Latin America. Ranking 2nd in the Global Startups Ecosystem Index, the country boasts over 300 startup companies, clustered predominantly in its capital, Santiago. This nation has even birthed three unicorns: Betterfly, Cornershop, and NotCo, proving its status as a regional leader in digital transformation.

 

At the heart of this success story is Start-Up Chile. It’s a governmental accelerator that kickstarted in 2010 with a mission to supercharge Chile’s entrepreneurial talent and, in the long run, strengthen the country’s economic growth. The program has been a game-changer, supporting over 1,600 startups and engaging over 4,500 entrepreneurs from 85 countries. 

 

In a testament to its impact, venture capital investment soared by a staggering 1,722% during the 2020-2021 period, reaching an unprecedented $2.9 billion. It’s glaring proof that foreign businesses recognize Chile’s potential and are eager to play a role in its remarkable growth. 

 

Pro: Business-friendly Climate

Chile has a welcoming environment for doing nearshore business. According to the 2023 Kearney Global Services Location Index, this offshoring country snagged a place in the top 30, showcasing stellar scores in financial attractiveness, business environment, and tech skills. 

 

Foreign IT businesses that nearshore outsourcing in Chile can benefit from relatively low corporate tax rates at 25–27% and double taxation avoidance agreements. Plus, relocating talent is a breeze, taking only 15 days to snag a work visa. And here’s the cherry on top — Chile has a free trade agreement with 65 countries globally, including 28 member-states of the EU, the United States, Japan, China, and the Pacific Alliance. This eases foreign cooperation and increases its profitability. 

 

Pro: Political & Economic Stability

Chile is one of the most prosperous and politically stable countries in Latin America. The World Bank acknowledges its robust economy, emphasizing its fastest-growing rates in recent decades. This economic prowess allowed Chile to make significant strides in reducing poverty.

 

Despite the bumps caused by the pandemic, experts from the International Monetary Fund predict a steady climb, with the GDP per capita expected to soar and surpass $30,000 in 2024. If this happened, Chile would become the first country in South America to reach such a milestone. This stability provides a secure and predictable environment for foreign companies looking to nearshore developers in Chile.

 

Pro: Proximity & Time Zone

One more factor that lures US tech companies to nearshore software developers from Chile is its relatively insignificant time difference. For instance, Chilean IT hubs, such as Santiago, Valparaíso, and Concepción, have only a 2-hour difference with New York and a 5-hour difference with San Francisco. This minimal time gap becomes a game-changer for fostering productive cooperation between your in-house development team and the Chilean one.

 

 

Con: Developing Talent Pool

Chile can’t show off a vast IT talent pool like its neighbors Brazil or Mexico, boasting only 61,000 software developers. According to the National Training and Employment Service (SENCE), the country has an annual deficit of about 6,000 IT professionals. This shortage isn’t just a hiccup; it could lead to a $13 billion loss in growth by 2030. 

 

To tackle the challenge, the Chilean government has put its pedal to the metal with various educational programs. For instance, Talento Digital and Fundación Kodea are all about training the young generation in digital skills. In addition, Chile is putting its efforts to promote STEM education among the female population. The Girls in Tech Chile is on its mission to break barriers and pave the way for more women in the tech world. 

 

Con: English Proficiency 

Navigating the waters of clear and direct communication is a compass for effective work and outstanding results, especially when foreign companies set sail for nearshoring IT services to Chile or any other LATAM country. According to the English Proficiency Index, Chile ranks 52nd on the list, demonstrating moderate command of the language

 

But there is no need to worry, as about 50-55% of Chilean software developers boast an upper-intermediate proficiency in English, with approximately 20% at an advanced level. So, what’s the effective way of getting programmers well-versed in English? Your answer is a partnership with a service provider utilizing proven practices to assess candidates’ language skills. They’ll ensure the recruitment of top-notch talents in your nearshore development center. 

 

Con: Taxation Specifics

Dealing with the tax system for non-resident individuals doing business in Chile can be a real headache. Take dividends for non-resident shareholders, for instance — there’s a hefty 35% withholding tax (WHT). However, shareholders in countries with an active double tax treaty (DTT) with Chile can snag a 100% credit for corporate income tax.

 

But here’s the rub: if a Chilean company under the PIS gives dividends to a foreigner from a country without this tax treaty, only 65% of corporate taxes can be credited. In this scenario, foreign recipients end up shouldering a massive 44.45% overall tax burden in Chile. That’s an absolute rip-off! Thus, consider consulting local legal advisers for a smooth nearshore journey in Chile. 

 

chile_pros_cons - Alcor BPO

 

Conclusion: Chile’s skilled IT workforce, budget-friendly rates, and pleasant business and political environment are magnets for many US IT companies. Despite some drawbacks, big players like Microsoft, Oracle, IBM, HP, and Amazon have chosen Chile for nearshore software development and are already riding the wave.

 

Are There Risks of Nearshoring to Chile?

 

The rapid digitalization and cloud technology adoption, along with a sharp increase in Internet users in Latin America, have brought the issue of data protection to the foreground. According to the ITU Global Cybersecurity Index, Latin America and the Caribbean are the world’s least-prepared areas for cyberattacks. A Fortinet cybersecurity report reveals a staggering 360 billion cyberattack attempts recorded in Latin America during 2022, with private companies being common targets.

 

Even though Chile is doing quite well regarding data protection (for instance, the Chilean government launched the Chile Digital 2035 strategy to promote digital rights and cybersecurity proliferation), IT outsourcing is not the safest bet.  Therefore, I advise keeping your software development in-house by building your own tech team. Taking charge of data security on your own is far better than relying on third-party vendors. Keep reading to discover the ways of expanding to Chile.

 

Software Developer Salary in Chile vs US vs Other LATAM Countries

 

As mentioned earlier, it’s indeed cost-effective for US IT companies to hire nearshore programmers in Chile, where annual rewards are approximately three times lower. Let’s break it down with an example. The table below shows that a Back-End Developer in the USA earns about $122K a year, whereas their counterpart in Chile tends to receive $40,000 annually. 

 

 Positions Chile  USA Mexico Colombia Argentina
Full-Stack Software Developer $35,000  $130,000 $35,000 $36,000 $40,000
Front-End Software Developer $38,000  $109,000 $35,000 $30,000 $36,000
Back-End Software Developer $40,000 $122,000  $38,000 $36,000 $38,000
Mobile App
Developer
$36,000 $100,000  $34,000 $28,000 $36,000
Game
Developer
 $34,000 $100,000 $30,000 $30,000 $38,000
Data
Scientist
$40,000  $128,000 $32,000 $32,000 $40,000
DevOps
Developer
$38,000  $125,000 $35,000  $36,000  $38,000
Software Development
Engineer in Test
 $33,000 $91,000 $28,000 $23,000 $30,000
Embedded
Developer
 $32,000 $107,000 $30,000 $30,000 $32,000

Developer salaries were converted to US dollars at a relevant exchange rate for January 2024.

 

Comparing average programmer rates in the LATAM region, Chilean IT salaries are slightly higher than those in Colombia. The most significant differences are observed in Software Development Engineer in Test and Data Scientist wages. Overall, the average software developer salaries in the mentioned Latin American countries are pretty similar.

 

 

4 Ways to Hire Nearshore Developers in Chile

 

IT Outsourcing

If you own a non-technical business or have a side project that needs to be completed within a short timeframe, outsourcing software development to Chile can be a game-changer. This cooperation model allows you to unburden yourself from team and project management, enabling you to focus on core tasks. However, be aware of potential data breaches and cloudy pricing, which are especially dangerous for IT product companies.

 

Staff Augmentation

Companies that experience talent gaps or seasonal workflow spikes can take advantage of the staff augmentation option. This model involves a temporary collaboration with programmers or development teams provided by an outstaffing vendor. With staff augmentation, you can enjoy flexibility, scaling up or down the team, plus retaining control over the development process. However, team indifference, ambiguous product quality, data security, and potential overpricing can be areas of concern.

 

 IT Outsourcing  IT Outstaffing Tech Recruitment R&D Solution
Product quality low moderate high high
Team loyalty low low high high
Cost low* low* moderate moderate
Data security low low high high
Process supervision low moderate high high

                                                                                                                                                                                      *Possible hidden fees

IT Recruitment

For IT product companies eyeing international expansion with fewer risks, teaming up with an IT recruitment agency can be a golden ticket. In this scenario, you don’t just hand off your product development or rent a programming team (like in previous options); instead, you hire dedicated developers. This keeps all decision-making under your control, with no data security risks or hidden fees. Moreover, some IT recruitment agencies also offer an Employer of Record service (EoR), allowing you to employ developers without the need to set up a legal entity in the offshoring destination.

 

This solution benefited the IT company Gotransverse, which aimed to grow its engineering team with remote full-stack developers. Within a swift 1.5 months, they successfully filled 6 vacancies, including a product manager position. All of them were brought on board through the EoR service, liberating the client from employment and legal complexities.

 

R&D Solution

A comparable model to IT recruitment is establishing a software R&D center. This option stands out as a more comprehensive one, covering a whole array of operational services like tech hiring, legal and compliance support, payroll and accounting, real estate negotiations, and IT infrastructure setup. It’s like having a one-stop shop for all your expansion needs, ensuring a smooth and hassle-free journey into new territories. 

 

Look how a US-based IT company, People.ai, benefited from such a solution provided by Alcor:

 

Nearshoring Software Development to Chile [2024 Guide] - Alcor BPO

 

Hiring Developers in Chile Has Never Been Easier!

 

Would you like to reap all the benefits of expanding to Chile in a timely and cost-effective manner? If so, building an R&D center is your ultimate solution! 

 

Alcor is ready to be your guiding star in one of the Latin American or Eastern European destinations. With over 6 years in the market and 40 IT recruiters on board, we know how to find and hire top Chilean talents for your development team. Experience our fast recruitment — we guarantee to hire 20 software developers in 3 months. We also vouch for the quality of our services, as 98,6% of candidates pass the probation period with flying colors.

 

what_we_do - Alcor BPO

 

We’ll assign an account manager to handle all operational issues during our collaboration. Plus, we provide a full spectrum of consultations on taxation systems, labor laws, availability of talent, pay scales, and more.

 

Take your IT business to the next level by nearshoring to Chile. Contact us to embark on your journey to success!

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Contact Us

Contact us to receive a free analysis of your positions!

It includes the salary ranges and availability of the requested developers in Poland, Romania, and other countries in EE (as well as time-to-hire metrics and other KPIs for your case).

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