Costa Rica's recent vote and approval of the Central America Free Trade Agreement has put the nation of 4 million people in the spotlight as a potential trade partner for U.S. firms. But savvy global companies—and even savvier buyers—have considered this hidden high-tech gem a prime location for sourcing opportunities for more than a decade.

If your picture of Costa Rica is one of banana trees and coffee plantations, it's time to upgrade to a digital camera. While agricultural products remain a major export of Costa Rica, this country has rapidly become a growing pocket of high-tech expertise in Central America. Much of the high-tech focus started in 1996 when semiconductor giant Intel decided to locate a plant here. Two years later electronics was the largest contributor to the country's manufacturing output, capital investment, employment and exports with more than 11,000 employees.

According to the Los Angeles Times, by 2006 the information technology and medical device manufacturing industries in Costa Rica employed about 30,000 workers in more than 300 companies, with most of that business materializing in the last decade.

"Costa Rica has shifted its economic focus from traditional manufacturing common to Central America such as textiles to more value-added industries like electronic components and medical devices," says Jaime Quintana, vice president and regional director for global logistics firm DHL Express in Central America. "Costa Rica's government is very focused on attracting outside investment. Foreign businesses can get easier access to government officials in Costa Rica to set up businesses than in many other countries in this region."

Perhaps nowhere is Costa Rica's growth shift more apparent than in the software sector. The Chamber of Software Producers of Costa Rica (Caprosoft) was created in 1998 by 15 software firms to promote the country's resources in software development—and it's working.

"There is a niche developing here around software development as a result of the high-tech focus brought about by Intel's decision to start a lot of this area's high-tech activity," says Quintana. "That has created this technological niche and even focused some of the local schools and universities on high-tech."

The "new San Jose" (Costa Rica's appropriately named capital and high-tech center) is home to a blossoming software and IT industry. One of those companies is ArtinSoft, a 15-year old software migration specialist in San Jose.

ArtinSoft board member Carlos Manuel González says the high-tech industry in Costa Rica is more developed than in most of its neighboring countries because Costa Rica has spent "decades supporting public education in a way other developing countries have not. And the results are apparent when companies arrive and find a highly educated population, fluent in English and with an excellent attitude towards technology."

But in addition to high-tech manufacturing and software development, there is a rapidly developing market for service industries such as call centers and IT service support centers to serve the U.S. market. "I heard an estimate that there are 25,000 to 30,000 people employed in these industries today," says Quintana.

In 2006, Hewlett Packard announced a major expansion of its call-center operation in Costa Rica which handles IT and service calls for a variety of multinational companies. Also last year, Fujitsu Consulting unveiled plans to open a new call center facility at San Jose's Ultra Park free trade zone. Steve Kirchoff, executive vice president of Fujitsu Consulting, said at the time that "Costa Rica provides a well-educated workforce familiar with U.S. culture and language. Further, its geographic and time zone proximity to the U.S. makes Costa Rica an ideal partner."

Costa Rica's very high literacy rate is clearly one of the things attracting multinational companies looking for a good location for call centers and manufacturing plants. According to a 2006 report from the United Nations, Costa Rica has a 95% literacy rate, well above that of China (91%), Brazil (89%) and India (61%), and on par with the U.S.

In addition, Costa Rica's booming tourism industry has encouraged many Costa Ricans to learn English and become much more familiar with U.S.-based business practices than other countries in the region, making it a natural fit for a variety of U.S-focused customer service-related businesses.

Buyers with experience in doing business in other global markets may find the business climate in Costa Rica somewhat similar, but experts point out there are some major differences to consider before diving in.

Costa Rica may feel familiar because there are few unique business practices and customs to be aware of, which is an advantage to buyers looking to strike up relationships with Costa Rican companies. Many Asian countries, for example, have very different business customs from the U.S. which can impede the pace of business. (In fact, more companies in Costa Rica are familiarizing themselves with Asian languages and business customs to become a potential market for Asian companies as well.)

But unlike some other global sourcing hotspots, Costa Rica does not have a reputation for "back door" business practices such as bribes, or the political instability that can make multinational corporations hesitant to invest.

"There has been a major campaign focusing on business ethics from the Costa Rican government after a series of corruption scandals," says González. "Therefore gifts should be carefully handled and follow standards set by the companies."

Jose Coto, regional sales and operations director at Costa Rica Supply Chain and Services (CRCSCS) in Alajuela, says in recent years the business community in Costa Rica has cut back on its giving and receiving of gifts "thus reducing the chances of influencing people to make commercial and professional decisions."

Sergio Castro, Latin America logistics director for APL Logistics, which has a location in Heredia, tells Purchasing, "Costa Rica offers economic and political stability, dedicated and professional business contacts, a very low corruption level and an intense interest in progress."

But buyers take note: Roy Calderon, Latin American sourcing manager for HB Fuller in St. Paul, Minn., says aggressive negotiation with Costa Rican suppliers does not work well and a handshake deal is not uncommon. "Costa Ricans would usually rather do business with a company they trust even if it means sacrificing some of the profit instead of going for a higher profit with a possible troublemaker."

English is so common that language issues are rarely a problem in doing business with Costa Rican companies. Costa Rica's tourism growth has driven the country to make some much-needed improvements in its transportation infrastructure in recent years and businesses in the region are benefiting.

For example the port operations in the city of Caldera were recently outsourced to a private contractor, which has improved the port's efficiency. Quintana says today Costa Rica is "three or four days from Miami by ocean freight, and there is a lot of air freight capability to Miami." Its small geographic size means logistics providers can cover the country more easily. For example, DHL currently has about 1,300 employees in Costa Rica and operates two flights daily to Miami from San Jose.

But road traffic, especially in its major cities such as San Jose, can be difficult. Quintana recommends that buyers coming to Costa Rica for meetings be prepared to offer some flexibility on meeting times, depending on traffic and route. "A lack of punctuality should not be taken as a lack of respect or formality—it's often just the usual city traffic causing it."

"Costa Rica's logistics infrastructure still needs more investment," says Castro. "Some streets have no names or there aren't zip codes, so some technology that works in other areas can't be applied here."