The Costa Rican outsourcing industry is preparing to step up its emerging IT expertise, as it builds on some existing successful outsourcing contracts while struggling with the agonies of moving rapidly out of third-world country status.

On the plus side, what may be the world's most ambitious outsourcing contract now has a Costa Rican segment. In 2003, Hewlett-Packard won a $3 billion outsourcing contract from Proctor & Gamble and has since added to it, elevating Costa Rica's role. What's more, Costa Rican companies are continuing to add resources and offices in the U.S. The Central American country is seen as the center of new alliances among Central American and Caribbean countries.

Taking note of the developments this past Sunday was no less that India's Minister of State of Outer Subjects, Rao Inderjit Singh, who said his country would donate $2 million to establish a Regional IT Training Center in Costa Rica.

On the negative side, officials from Costa Rica's telecommunications monopoly, ICE, said last week that they are alarmed at the siphoning off of revenues by VoIP telephoning and they have vowed to address the problem.

"Software development is growing here," said Federico Cartin Arteaga, executive of the Chamber of IT and Communications, in an interview. "Of 102 countries with indigenous software-development firms, Costa Rica ranks 14th. And we're a small country."

With a population of about 4 million, the Central American country boasts nearly 25,000 software professionals. Cartin--who was born in the U.S. and moved to Costa Rica as a child with his parents--said the IT industry took advantage of a grant from the Inter-American Development Bank to eliminate what seems to be an eternal problem of programmers everywhere: the gap between what universities teach and what companies need.

While the country has the obligatory call centers and tech-support operations, it has begun to carry out some imaginative tasks, too. Costa Rica is the land of coffee--they call it "grains of gold." Appropriately, a local IT company has developed a computerized solution for sorting the precious beans. The firm, Xeltron, is now working to develop the solution to sort rice and it sees a potential global market therein.

Costa Rica is also the land of high-quality but inexpensive dental work. Cartin says Align Technologies, with a team of Costa Rican orthodontists, makes molds of the teeth of U.S. patients in. The final artifacts are sent to the U.S. "We call this a third-generation call center," Cartin said.

Cartin didn't deny reports that the orthodontic system worked well enough that movie star Tom Cruise used it.

Several Costa Rican companies have set up offices in the U.S.--most of them in Silicon Valley--to attract outsourcing clients. For instance, Avantica Technologies has an office in Menlo Park, where scores of its software developers provide custom programming for several U.S. firms.

In addition to P & G, the other major U.S. company that has made substantial investments in Costa Rica is Intel. The semiconductor colossus not only manufactures processors, but also carries out some advanced design work there.