Argentine IT Market

SPOTLIGHT: ARGENTINA Argentine IT Market Alejandro Oliveros, Universidad Nacional de La Plata T he g row ing tendenc y toward outsourcing IT offshore has created new opportunities in Argentina, which has experienced significant growth in IT use and development. Academic research has increased in this area as well, leading to an interesting convergence between the academic community and IT industry. Furthermore, the government has developed policies to promote growth in the IT industry. The IT Market Around 75 percent of IT investments in Argentina are in hardware (personal devices, in particular);1 the rest is fairly equally divided between software and IT services. This profile differs from that of most other Latin America countries, where IT services investments are bigger than software investments. Between 2007 and 2011, the yearly growth rate of IT investments was more than 20 percent (except for 2009), and International Data Corporation (IDC) forecasts a 19 percent growth rate between 2012 and 2015. Governmental distribution of personal devices has helped push this growth. Since 2010, the federal government has distributed 56 IT Pro July/August 2012 2 million Classmate PC Netbooks to students at elementar y and secondary schools. This program has also distributed 200,000 Netbooks to elementar y teachers and secondary professors. Eighty percent of the total IT growth between 2007 and 2011 was hardware-related; however, that percentage is expected to drop to 50 percent in 2015. The majority of software shipments come from international firms and software development services. According the World Trade Organization, in 2008 (last year of WTO data), Argentina was the 11th exporter of computer services (defined as hardware and software-related services and data-processing services), with US$900 million in exports. The year-to-year growth of global exports was 28 percent, while the growth of Argentinian exports was 37 percent.2 However, most of these exports were softwaredevelopment services exported as an internal transfer within international corporations, which would influence the data. According the National Enterprise Association of Software and IT Services (CESSI),3 the exports of software and IT services were $504 million in 2010 Published by the IEEE Computer Society and are expected to reach $905 million this year. Considering the two sets of data, I estimate that exports of software and software development services were $700 million in 2008 and could top one billion by 2013. Software Companies There are various groups of companies developing software products for the market or offering software services for customers. First of all, local independent software vendors have historically focused on enterprise resource planning (ERP) products (such as Sistemas Bejerman, Axoft, and Calypso). This group is leading the local small and medium businesses and extends to international markets. In the last 10 to 15 years, companies have also emerged that sell software-related services—such as software development, software maintenance, quality assurance, project management, and software process improvement consultation. These companies (such as Globant, Pragma, Grupo ASSA, and Baufest) have subsidiaries in several countries, including Latin America (Bolivia, Brazil, Chile, Colombia, Mexico, and Uruguay), 1520-9202/12/$31.00 © 2012 IEEE the US, and Europe (Spain and the UK). There are also international companies developing services for customers (such as Motorola Solutions, Motorola Mobility, IBM, and Accenture). These companies provide software engineering services to external clients by developing services through local offices. This kind of operation has helped spread new softwaredevelopment practices. Other international companies (such as Sabre and Oracle) develop internal services to support software systems and clients. For example, Oracle adapts financial products for local markets. This group of companies has had a smaller impact on Argentina’s IT industry than the first two. Finally, several universities are developing software and providing services as an act of knowledge transfer to industry (including the School of Computing at the Universidad Nacional de La Plata and the School of Science at National Central University). This improves the skills of graduates, transfers stateof-the-art technology, and increases the schools’ economic resources. Use Cases Some local software companies have a remarkable level of international operations. Here, I briefly describe three strategies enacted by these software companies. The first case is the oldest of the three and has been a pioneer in international operations. The second is the largest local company in Argentina, and the last one quickly moved its headquarters from Argentina to the US. These success stories exemplify the kinds of opportunities available to Argentina’s software companies. Intersoft/Oracle Intersoft Argentina, founded in 1983, was a pioneer in developing application software under Unix and quickly focused on objectoriented programming. Then, it began to use Java just one or two years after its first public implementation in 1995. Intersoft has taken a unique approach to business development. For example, in 1993, it incorporated Russian programmers into its development team and began constructing a software factory in Russia. In 1991, it developed a relational database that, in 1994, had 400 customers. In 1997, key Intersoft employees and owners created Fuego as an American company with precursory ideas about business process management. This approach to BPM drove BEA to buy Fuego in 2006. That same year, Oracle bought BEA to reinforce its Fusion strategy, and the original Fuego team joined Oracle’s technology department. The Intersoft experience exemplifies the potential for innovation in the Argentinian IT market. Early on, the company exploited new technologies and development models, such as offshore outsourcing and global software development. High-quality products resulted from its early detection of technological trends and its ability to manage the associated risks. Intersoft moved from a local market to the international market, yet it has benefited from maintaining a strong relationship with academia through both local and international universities. Globant Four engineers founded Globant in 2003 to provide software development services to global companies. In 2010, Globant had over 2,000 employees and $57 million in revenues. It has offices in Argentina and six other countries, and it has been the focus of case studies at Harvard University 4 and Stanford University 5 and of a graduate report at MIT.6 In 2012, an IDC survey recognized it as a top 10 vendor in mobile applications development. Globant blends a highly productive development process with a business model that leverages the opportunities of offshore outsourcing. It has also had success in applying the Scrum development approach for global software development (including remote daily meetings). Globant focused its business plans on the international market from the start. It owes its growth to its ability to sell software development services and to its highly trained employees. Paradoxically, Globant has developed its local business thanks to international companies installing development centers in Argentina. It also has maintained a strong relationship with academia. Core SecurityTechnology Core Securit yTechnolog y was founded in 1996 by six graduates of ORT School (a technical school equivalent to a US high school). From the beginning, Core focused on predictive security and took an innovative approach, quickly moving into the US market. Its revenue grew from $3.4 million in 2004 to $10 million in 2010. It obtained a capital contribution from Morgan & Stanley for $4.5 million (in 2004). The company hired a new top management team so the original team could focus on technology research and development. By the end of 2011, it had 1,400 customers—a 30 percent increase over 2010. Some of its clients include Cisco, McAfee, Symantec, the Federal Bureau of Investigation (FBI), the Central Intelligence Agency, Boeing, AT&T, and Motorola (www.coresecurity. com/content/customers). Core’s competitive advantage stems from quickly recognizing the advantages of an IT security computer.org/ITPro 57 SPOTLIGHT: ARGENTINA approach and the need for expert corporate managers. Cross-Cutting View The key challenges that the Argentine IT industry faces are its market size, a lack of funding, and a lack of human resources. Market Size Software companies that focus on the domestic market have limited potential in Argentina. Consequently, in the first half of 2011, more than 56 percent of software companies in Argentina exported software and IT services, and 58.6 percent of software and IT-services exports went to the US.3 However, as with Intersoft, Globant, and Core, companies can overcome this constraint by quickly branching out to the international IT market. Government (at all levels) can contribute to a growth in demand by reducing its internal software development efforts and increasing its procurement efforts. Lack of Funding In Argentinean financial systems there is a lack of funding for the kind of business developed by software or IT services companies. Companies can address this issue by accessing international venture capital markets to finance their growth. Proactive politics by the government has partially satisfied the software industry’s need for capital with its Fonsoft funding (Fondo Fiduciario de Promoción de la Industria del Software [Trust Fund for the Promotion of the Software Industry]). Fonsoft helps finance the development and evolution of software products and processes. Lack of Skilled IT Professionals This is a major concern for the industry. At Argentinian universities, undergraduate students often drop out prior to graduation, lured into 58 IT Pro July/August 2012 industry by high salaries. Some IT companies are satisfied with the student’s skills, because they need programmers more than engineers. However, the negative impact on IT graduation rates could create in the medium term a bottleneck of highly skilled resources. This lack of skilled IT people is a resource-allocation problem. The industry is concentrated in a few geographic areas and doesn’t exploit distributed software development approaches to access all available resources. There’s also an excess of employees in internal development in companies and government. or “commercial missions” to developed markets. These companies have organized “clusters” around the country, starting in the bigger cities and then expanding to smaller cities. Then these clusters evolved to share more complex activities, such as training or process improvement activities. An interesting impact of the clusters (or “polos informáticos”) was developing a strong collaboration with universities in terms of training, creating job opportunities for students and graduates, and developing graduate studies. References Harnessing Opportunities Several areas present opportunities for the IT industry to grow. Offshore outsourcing Offshore outsourcing presents a big opportunity beyond the advantages of sharing a time zone with the US and benefiting from the exchange rate. Argentinian companies and subsidiaries of international companies have shown that outsourcing can work as long as there are sufficient resources, high productivity, and continuity. Certification The Fonsoft program offers funding for certification processes, such as Capability Maturity Model Integration or International Standards Organization (ISO) certification. This movement began with the goal of accessing international markets and was reinforced with Fonsoft financial support. Education The academy is making a big effort to improve IT undergraduate and graduate studies by accrediting university studies. Some local and international software companies began sharing the costs of commercial activities such international expositions 1. O. Guzman, Latin America IT Spending Patterns: The Latin America Black Book 4Q 2011, IDC, 2012. 2. “International Trade Statistics 2010,” World Trade Organization, 2010, p. 148; www.wto.org/english/res_e/ statis_e/its2010_e/its2010_e.pdf. 3. “Observatorio Permanente de la Industria de Software y Servicios Informáticos [Permanently Monitoring the Software Industry and Information Technology Services],” tech report, CESSI, Feb. 2012; www. cessi.org.ar/documentacion/OPPSI_ ReporteSemestralSectorSoftware_ 31_06_11.pdf. 4. M. Khaire, G.A. Herrero, and C. Scott, Globant, Harvard Business School, Product # 811059-PDF-ENG, Mar. 2011. 5. “Global Entrepreneurship and the Successful Growth Strategies of EarlyStage Companies,” World Economic Forum, 2012; www3.weforum.org/ doc s / W EF_ Ent r e pr eneu r sh ip_ Report_2011.pdf. 6. S. Mu ra k a m i et a l., “Globa nt, Leading the IT Revolution in Latin America,” G-Lab, Sloan School of Management, MIT, Jan. 2008. Alejandro Oliveros is a professor of software engineering at the Universidad Nacional de La Plata and is currently in charge of research groups at Universidad Argentina de la Empresa and Universidad de Belgrano. Contact him at [email protected].