Research of the Argentinean ICT industry

Research of the Argentinean ICT industry

Market Overview

Argentina being a developing country, like most of its kind, has a telecom infrastructure that can be characterized as solid and the companies that offer services for this field are numerous. Furthermore, CESSI (the Argentine Chamber of Software and IT Services Companies) predicts a 19% growth for this year.

To better understand the rapid growth of the IT industry in the country let’s see some data from the recent past. By 2011, the IT industry was growing and the domestic software and IT services sectors were booming. From 67,000 qualified workers in 2012 the workforce grew to nearly 80,000 employees by the end of the 2013 spread among 1,000 companies. The total revenues of these companies increased in 2013 to approximately $4 billion, double the number of the 2012 revenues, around $2 billion. The exports of these 1,000 companies reached $900 million, a 28% increase from the previous year.

There are four main indicators that project that the demand for software and IT services will remain high:

  • the vast majority of the operating systems installed are obsolete and need upgrading
  • the increasing sophisticated technology and products being produced
  • more tech-educated workers due to the increase of tech curriculums and also the tech-savvy population
  • 4G service will be offered soon in the local market by telecom providers

Being one of the largest economies in the world, 22nd, and the second largest in South America, Argentina offers many opportunities in the ICT sector for new players. What is interesting is the tendency of the market to certain products and technologies. Argentina is an early adopter of “big data” and other complex technologies. It has one of the highest numbers of mobile phones per capita in the world and the highest number in the Americas and its fibre-optic broad band network will expand by 300% by the end of 2015.

Key Figures

  • Total ICT market: $60 billion, Telecom share is 40%
  • IT hardware and consumables: $4,411 million with $3,457 being imports and US companies have a 21% share.
  • PC equipment: 11.5 millions
  • Telephony (fixed lines): around 10 million
  • Mobile active devices: 55 million
  • Internet broadband connections: 4.7 million
  • Internet users: 27 millions
  • HR working in ICT industry: +365,000

Market competitiveness and structure

The explosive demand for information technology products has been matched with the sustainable growth in the Argentinean software industry and services, with an eye towards exporting to global markets.

Due to the dynamic growth of the domestic IT industry the government has placed significant role in this sector of the economy as a drive for the broader development of the country.

Some characteristics of the IT sector include:

  • Highly qualified human resources.
  • Academic excellence.
  • Innovation and creativity.
  • Proper telecommunications and computing infrastructure.
  • Competitive costs and prices.
  • Joint work between government, academia and the business sector.
  • Legal framework that encourages the development of the sector.

Argentina as an IT regional leader

In the recent past the domestic companies have been investing on an effort to reach other markets, especially in Latin America and US. Software and  IT services companies have been exploring the US market and trying to engage institutional customers such us the IMF and World Bank and also had presence in the SXSW Interactive Festival in Austin with an Argentinean hosted booth.

A new trade organization, CESSI, was established to strengthen and expand the reach of IT companies abroad. The initiative has hundreds of member and some of the most important domestic companies are part of it. Although sales automation tools have made it easier than ever to close a deal, still there are clients that want to do business over a long dinner. And these are the client personas that Argentinean companies are facing when trying to expand across Latin America. However, the biggest market for Argentina’s IT export companies is the US, that accounts for 50% of total exports.

Due to the high demand but medium supply, the IT sector will continue to grow exponentially as it has for the past 10 years, and it’s also a reason why IT professionals don’t take jobs abroad. Demand from other countries, such as Peru, does exist and although the target for Argentinean companies is to be the regional market leader, other emerging competitive markets like Brazil and Mexico crave that role too. As the CESSI organization gets more publicity and companies from regional tech hubs join, the network will have greater reach and better impact to the local scene. The promotion and also the financial support it has provide to its members has been substantial and along with tax breaks and training incentives, the new initiative is set to creating 50,000 new IT jobs by the end of the year, in addition to the 30,000 jobs already generated over the past 3 years.

Prospects and Opportunities

There are various major opportunities for IT companies to enter the Argentinean market with solutions and products around network implementation, management and maintenance, legacy applications, wireless LANs, RTE (real time infrastructure) implementations, remote operation processing, back-up, critical mission services, disaster recovery systems, Internet and network security systems, document digitalization, digital asset management, storage, utility computing, and information systems for rural areas (traceability, RFID, etc.).

It goes without saying that cloud computing and virtualization-related services will continue to see high demand as in every other market. The increased use of e-banking, e-commerce and e-government provide many opportunities for IT services in these fields. Especially for software products, there are large projects in the security and business development fields.

The 2020 project

The 2020 project is a combination of efforts from the academic community, the public sector and the IT industry community  that has as a main goal to identify new technologies that would have a great impact in the Argentinean ICT sector in the period described. A certain timeframe was created in order to describe the education talent needed to enable the development of the ICT sector and also the relationship between the public-private and the academic sector.

The initiative is focused in certain sectors in the technology industry such as software engineering, image technologies embedded software etc. but also affects the application and transversal areas as well. Below is the calculated effect in terms of employment, turnover and exports in the local economy when the 2020 project is bound to be completed.

Variable 2010 2020
Employment 60,100 134,100
Turnover USD 2,582,000,000 USD 7,330,000,000
Exports USD 663,000,000 USD 2,960,000,000
Added Value per Capita USD 45,962 USD 54,661

IT education

The investment in generating more and more IT talent has been significant in the recent years with universities and enterprises partnering to create technopoles, technological parks. Special programs for incubators and technological parks are in place by SECYT (Programa Especial de Incubadoras, Parques y Polos Tecnológicos), and universities show an increasing interest in these activities. Some examples include the Instituto Tecnológico de Córdoba (ITC), in which six universities are part of it in the Córdoba Province and the Clúster Córdoba Technology also is a member since 2002.

Another technological center-incubator for IT enterprises is the Palmira Technological and industrial park (ParqueTecnológico e Industrial de Palmira – PASIP) in which participates the The Universidad Nacional de Cuyo (Mendoza).

Although the City of Buenos Aires is the major player and most companies are located there, there are also significant poles, clusters and regional institutions in several provinces throughout the country: Buenos Aires (Greater Buenos Aires, Mar del Plata, Tandil, Bahia Blanca) Santa Fe (Rosario, Santa Fe City, Rafaela, Sunchales), Córdoba (Córdoba City, Villa Maria), Mendoza, San Luis, San Juan, Salta, Jujuy, Tucumán, Chaco, Corrientes , Entre Ríos, Neuquén, Río Negro. What is a common element between these advanced clusters is the availability in talented human resources, the support from a top in-the-line university that enables entrepreneurs to go after their dreams and create the tendency for cooperation and innovation.

Trade events and associations

A major trade event for equipment providers, broadcasting, cable and multimedia is being held during October usually and it features the latest technologies developed by the largest companies in the world. You can find more about this year’s event at CAPER: http://caper.org.ar/la_expo.php

If you want to do business in Argentina through a local partner or reseller then take a look at the following trade associations:

CESSI (Chamber for Information Technology Companies in Argentina): http://www.cessi.org.ar

IT and Communications Trade Association (CICOMRA): http://www.cicomra.org.ar

Strengths and Weaknesses

Argentina, as any developing country, has various strengths and weaknesses in the IT sector but what is interesting in this case is that both pros and cons are driven mainly by the Argentine Government. The local government pushed for more privatization and deregulation during the last decade, an initiative that boosted the tech scene opening many opportunities and creating the proper environment for foreign direct investments.

The results were very promising and hundreds of new small and medium-sized enterprises (SMEs) were built, and the difficulties they had to endure were strong enough for them to deal with the current climate as well. On the other hand, it is the same reason why so many hurdles have been created for businesses in their effort to thrive. For example, the stricter legislation to reduce prices in the telecom sector is slowing down the growth of the sector and the internet adoption in the country.

Another example of the positive impact the government had in the growth of the ICT sector is the price stability as well as the economic predictability that have created a good environment for foreign capitals to enter Argentina. You don’t have to register or to request permission to invest in local companies and you can have complete ownership of an Argentinean company, something that is found very rare in Latin America where other countries are more conservative. To eliminate the barriers for foreign investors on the local stock exchange, any investment made doesn’t require a government approval so the financial endorsement can move pretty fast.

A significant advantage for the IT sector in Argentina is found in its educational system. It has one the most educated population in all Latin America and the Caribbean and therefore, it attracts companies to build products and services which in turn fuels the continuous sector growth. This pays well in terms of leveraging the economic crisis so the local talent can be employed in firms like IBM, Microsoft and Oracle that launched local branches in Argentina. The benefit of building products at a lower cost during this economic climate has proven to be an unfair advantage that the local talent can exploit. Especially for Microsoft, which built relationships with the local government to fight piracy in exchange of creating synergies for the development of new software products. If there wasn’t for the availability of local talent then this cooperation would be impossible to happen and the development of local technology from educated professionals unsuitable.

Yet another feature that works as an incentive is the investment in infrastructure that was built in cooperation with multinational firms. This, in turn, helped to create many companies in software, hardware and support services around the telecommunications growth and the connecting ability that it provided to people. This infrastructure is built to serve anything from mobile to high speed wireless internet for home consumers and everything else and it is this connectivity that boosted the highest growth any Latin America country has seen.

Many other developing countries face significant problems due to the lack of infrastructure, which helps to attract many businesses to settle in the region and the opportunities it creates since you don’t have to built everything from nothing. For Argentina, this core feature was already in place when ICT was spreading throughout the world and it will to do so in the near future.

Most companies in the IT sector are placed in the region of Buenos Aires as we mentioned above and this creates the perfect environment for information flow and access. What the local government could do more to enable the creation of more projects would probably be to provide more incentives for companies that would locate within these boundaries.

The local software industry has developed products mainly as a response to meet local demand and few companies focus on exporting products and services. This situation has its benefits as the domestic companies have the upper hand when compared to the overseas competition but it is also a barrier to create and offer higher quality exportable products.

The domestic software makers have been creating products mainly for the national market. That means that they have the advantage of building software products that are or could be customized for the needs on any local customer. For example, ERP software products that are on the market offer certain features that adapt to the current demand and meet the variety of rules and regulations. Also, the price levels are in such way so they can be purchased by any company regardless of the financial status and they can always find customized solutions to tackle their problems.

But this tactic has its disadvantages as well, with the narrow range of products being one of them. The focus to the local market has limited their view of the international advancements and competition. Although that the geographic proximity to their customers has helped them to deal with local demand, when going global its proven to be a disadvantage to meet the demanding needs of overseas customers and to create the critical mass to make such efforts profitable.

The local software makers won’t abandon their efforts to seek share in the global market with improved products and creating high-grade jobs. Contrary to other high-tech industries, the entry barriers are really low and there are countless examples of countries that manage to create a solid software environment with exportable products without having traditional knowledge in the development and marketing to become world leaders in the supply of such products such as Ireland, India and more recently Costa Rica and Uruguay.

 

 Infographic

ICT industry of Argentina-Elioplus.com

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