Chile has attracted considerable attention from foreign companies as an offshoring location, given its first-rate regulatory and living environment, attractive risk profile, low infrastructure costs, and openness to trade¹ (see “What executives are asking about Latin America”). Analysis by the McKinsey Global Institute (MGI), however, finds that Chile’s limited potential as a domestic market lowers its appeal to multinational companies interested in establishing captive centers, while its small base of IT vendors lowers its appeal to companies seeking to outsource services.

MGI examined Chile’s position relative to ten other low-wage countries² along six dimensions that companies consider when choosing an offshore location: costs (including labor costs), market potential, the vendor landscape, risk profiles, the overall environment, and the quality of infrastructure. (The full report, The Emerging Global Labor Market, Part II—The Supply of Offshore Talent in Services, is available free of charge online.)

We found that Chile’s risk profile, which is better than that of both China and India, is the most attractive among all of the Latin American countries we studied (exhibit). Chile scores especially...