Argentine Software Ready to Take Off, Once and For All
Boosted by the devaluation that came during its economic crisis in 2001, Argentina’s software industry has managed to achieve some important goals in recent years. The proof can be seen in the growing number of companies and jobs, as well as rising exports. However, if it is to become recognized worldwide, the sector must resolve to strengthen itself, once and for all. Despite all its potential, the slow pace of the government’s assistance efforts, the continued ups and downs of the Argentine economy, and the shortage of business confidence are key reasons behind the modest growth of software “made in Argentina.”
Between 2002 and 2003, Argentina’s software sector increased sales by 20%, grew its workforce by 33%, and expanded its exports by 42%, according to official data collected by the country’s chamber of information-technology companies (CESSI). Creativity, speed, human capital and technology are among the main reasons for the expansion.
The growth trend first became noticeable back in the 1990s, when economic “convertibility” – which pegged one Argentine peso to each U.S. dollar – allowed the country’s technology companies to bring themselves up to date with the latest innovations in the IT marketplace. The sector enjoyed an upward trend in the number of attractive software projects undertaken by local companies and by large service companies that were being privatized. These included the country’s postal service, telecom sector, and gas and electricity utilities.
“At the time, a lot of these projects were ‘world class,’ in terms of famous platforms like SAP and other technologies,” explains Ernesto Galíndez, chief executive of TGV, a software company that provides consulting services and custom-made products. “These implementations were in no way inferior to those done in Europe. There may have been a difference in the number of users in European projects, but the sort of work and the results achieved in Argentina were top-drawer.”
Apart from the abundant technology and funding of those years, Argentina enjoyed another resource that was essential in dealing with competition – human resources. The country knew how to expand sales in the technology sector by taking full advantage of the experience and creativity of its professionals.
“The most solid, hardworking, honest firms survived the crisis of 2001, and they have figured out how to plan for the future,” notes Carolina Bandoli, marketing and sales manager of Hipernet, a company that exports 80% of its production to Venezuela, Mexico, Brazil, Peru and Chile. “Because they needed to survive, and were inventive and creative, Argentina’s small and midsize companies are now the driving force behind the country’s export boom and the broader development of Argentina’s software industry.”
Ramón García Martínez, director of the graduate program in software engineering at the Technological Institute of Buenos Aires (ITBA), agrees. “Argentina’s technical skills are on a very high level. So is local knowledge of English, the language that professionals use in software programming. Moreover, generally speaking, Argentine professionals are better trained than their counterparts in other countries of the region, and they are used to working longer hours.”
For all that, it was the devaluation of the peso during the 2001 economic crisis that gave the definitive push forward for Argentine software. The subsequent exchange rate of one dollar for three pesos allowed Argentine exporters in every sector to offer highly competitive prices to their foreign customers. The software sector took advantage of this opportunity to boost its exports to $170 million.
“To a great extent, devaluation was the trigger that forced companies of all sorts to reorganize,” says Pablo Aristizabal, chief executive and founder of Competir.com, a successful Argentine e-learning company. “This was especially so for companies involved in producing information-based services and goods. They took advantage of the opportunity to lower their costs and deploy their skilled workers to restructure their software development factories. They satisfied domestic demand and leveraged the high quality and competitiveness they developed at home when they went abroad.” Aritizabal’s firm provides integrated software packages to customers in Spain, Mexico, Chile, Uruguay, and the Dominican Republic.
Martínez cites another factor that has contributed to expansion in the software sector. “The national congress has passed several initiatives, including a law that considers the production of software as an industrial activity.” This law will help development, he says. Moreover, a law for the promotion of the software industry has been partially approved, “and it will clearly help the sector.” As Martinez notes, funding has also ready been provided to specific companies by Fontar, an organization that certifies and accredits international quality practices and industry norms such as SW-CMM, SW-CMMI and ISO.
The biggest markets for Argentine products are Europe – especially Spain – and Latin America, which share a common language and other characteristics with Argentina. Now, the industry is trying to expand beyond the continent, into other countries of Europe and Asia.
Strategies for Opening New Markets
The great majority of Argentine software companies are small and midsized. To penetrate difficult markets like the United States, Europe and Asia they are resorting to alliances, export partnerships, and commercial agreements with other countries. Business associations have played a key role in this process, along with the Argentine government, which has accompanied companies on trade missions and presentations of specific projects.
At the end of 2003, for example, the Forum for Information Services and Software Competitiveness was established with help from Argentina’s ministry of industry, commerce, and small and midsize companies. Its goal is to discuss and analyze policies in this sector.
Moreover, the Technology Center of the City of Buenos Aires was also created. Its goal is to establish a very strong community of software developers and providers. “I consider it very important to sign up without having to compete,” notes Bandoli. “This non-profit organization has already brought together 40 companies that are working together to promote mutual ties and to develop in the academic realm.” One example is an agreement with the University of Buenos Aires that Hipernet, TGV and other firms have promoted.
Regarding relationships between business and academia, Martinez says the challenge “is to maintain educational plans that are dynamic enough to be carried out. A good program should contain both theoretical concepts that are fundamental to software engineering as well as new paradigms and market technologies.”
Rafael Bielsa, Argentina’s foreign minister, has already set in motion 30 business projects for China, a market especially tempting for Argentina. Following a successful presentation in China, an agreement was recently signed between Argentina and China to start up 25 projects that will distribute software in Thailand, Malaysia and Singapore.
The goal of this agreement, between two countries that are so different, is to hunt for new information technology products. China will provide the hardware; Argentina will provide the software. Several hundred million dollars worth of sales are expected. Meanwhile, over the past year, the foreign ministry’s Export.Ar Foundation has organized several trade missions, such as a trip to Mexico that drew 100 Argentine companies.
The Argentine government is interested in supporting the software sector, which generates a higher level of added value than traditional sectors. Generally speaking, Argentina is known for exporting commodities (above all, agricultural), where little added value comes from labor or manufacturing processes.
“Argentina is now considered a place with potential for offshore development and for developing low-cost applications. However, the country has yet to realize that potential,” notes Martinez.
Special Challenges of Emerging Markets
Many good intentions and ambitious goals are involved in creating these technological centers and mapping out plans for governmental assistance. Yet much remains to be done. This year, the software industry will contribute barely 0.71% of Argentina’s GDP.
“Like the great majority of small and midsize companies in Latin America, we have to deal with the unique problems of emerging markets,” notes Aristizabal. “We also have to deal with recessionary conditions that force us to continually redesign our product line. We need to find new opportunities for generating social and economic value in a sustained way.”
According to Aristizabal, one of the challenges is that “it is difficult to get the highest-quality automated tools and latest-generation hardware now that it is very expensive for Argentina to pay for its imports in dollars.”
Bandoli believes that the government “has a lot to do. If business people don’t get involved, no government is going to solve anything. That’s why one of the goals of the Technological Center is to get companies involved in collaborating with the government’s plans.”
Argentina’s remote location could also play a negative role. According to Aristizabal, “We are not in a strategic area; we are not near the main concentrations of wealth, such as Europe and the United States. Nor do we have high volumes of production, the way India does. Our advantage is that we have developed highly specialized software in such sectors as banking, agriculture, petroleum and air transport.”
Regarding India, one of Argentina’s main competitors on the world map, “when it is time to sell in Spain, they don’t have the language advantage we have. Spanish executives have told me they have problems communicating [in India], and we have more cultural links with them,” adds Galíndez.
As Argentine businessmen consider various ways of improving their prospects, CESSI hopes to rack up revenues of more than $1.14 billion this year, a growth rate of 15%. Moreover, current estimates call for employment in the sector to grow by 10% and exports to rise by almost 30% this year.