Argentina: More near-shore than offshore

When most companies think tech outsourcing, they think India. Not so home-grown dot-com survivor Lastminute.com, which recently named Argentina as its offshoring destination of choice.

The UK dot-com darling has handed all of its core Unix and database administration operations to an offshore tech company called Globant based in Buenos Aires. Lastminute's US CTO Chip Steinmetz, admitted in a recent interview with ZDNet UK that the venture was "very high-risk", but said Argentina was attractive because of the weak local currency, the fact that a lot of the population have dual-European passports and the time difference, which allows for 24-hour support of a European business.

Software programming wages in Buenos Aires are about $11 an hour, or around 15 percent lower than in India's high-tech capital of Bangalore. This in itself wouldn't mean much without indigenous tech expertise, but thanks to massive investment in IT in the decade preceding the country's economic collapse in 2001, there is no shortage of programming skills.

ZDNet UK spoke with Globant's head of business development, Martin Migoya, about the outsourcing opportunities in Argentina and the way his company is using IP telephony to turn offshore into near-shore.

What factors have contributed to turning Argentina into a potential off-shoring destination?
A:In December 2001, there was a big devaluation and salaries went down a lot, to approximately one-fifth of the salaries you have here. But in the 10 years before that there was a huge investment in technology, so we have now a huge infrastructure of cheap bandwidth and efficient telephone communications and world-class buildings which combine to make Argentina a very attractive offshore destination.

From 1990 to 2001, one peso equalled one dollar. We had that fixed right. Buenos Aires was one of the most expensive places in the world to live. Having that money, all the companies were investing a lot; Argentina was a cradle for 80 percent of the entrepreneurs in the Internet bubble in Latin America. Huge data centres were built and all the telephone companies were privatised. Companies needed to invest in IT to stay competitive in that environment. In 2001 after devaluation, we went down to three pesos to one dollar -- so all the investment up to that point was still there but the relative cost of living and salaries had dropped. A new opportunity was born there and we are trying to take advantage of that.

I have read that software programmer salaries in Argentina are about 15 percent lower than in India?

They are lower because the market is not over-fished. That is one of the interesting things. This advantage will probably disappear in two to three years, but that's the way it is.

What factors are responsible for the open-source expertise that you ascribe to the Argentine tech industry?
When there was a lot of investment in IT in Argentina -- there wasn't much call for open-source software or the skills to implement it. But following the devaluation in 2001, there was a special need for those tools because they were free. There was a market need for those tools in Buenos Aires.

Because you couldn't afford to buy in proprietary technology anymore?
Yeah, that's right. That is why we have that big market of people doing these kinds of things. Companies needed to stop investing in things such SAP but still find a way of doing the same thing in a cheaper way.

So while other countries have only recently woken up to the potential saving they can make from using open source, Argentina had those cost-savings forced on it three years ago and is consequently ahead of the curve now?
Yes, that was the case.

Globant isn't the only company offering offshoring services to US and European companies -- what differentiates you from the competition?
We are working hard on making offshoring more palatable by killing the distance problem that afflicts the whole process. What we are doing for customer is installing an IP Telephony hotline that connects them with us for free. With Lastminute.com and EMC, for example, we have these direct phones, and now we are working to integrate the two PBXs. This means you can make these calls over a normal phone by typing in five digits and connect with Buenos Aires, immediately, at no cost.

One of the advantages Lastminute cited is that your contractors have European passports and were able to come over and work on site for several months. What's the background to this?
What you have to understand about Argentina is that before the First World War - say 1914 - there were only two or three million people living in the country. Starting with the First World War and ending in about 1950 there was a massive immigration from Italy and Spain. Today you walk through Buenos Aires and all you see is European people. Of course, we are South Americans but of these people of European descent, about 70 per cent have European passports. We don't have a very big cultural gap between the European guys and the Argentinean people.

We consider Argentinean people to be the most European population in Latin America. There are also a lot of English speakers as we start learning English from five or six - English is almost obligatory.

If a lot of your guys have European passports and salaries are lower in Argentina than Europe -- why don't they simply relocate over here?
That is true. But we are providing opportunities to people in Argentina that no one else is. We are the vehicle for these opportunities. It is very good to work for Globant, in terms of the conditions we give to our employees and the different companies they can work for. We also have concrete contracts which mean employees have to stay with us for at least two years before they can go and work for someone else.

If Argentina has all this going for it -- why haven't we heard more about its offshoring potential and tech pedigree?
Our government and politicians are not making a big effort to push Argentina as an offshoring destination. Sometimes we are happy with that as it means we don't have so much local competition. At the same time smaller countries than ourselves such as Ireland, the Czech Republic or Romania get more press than we do. There are some programmes that help us as local companies to grow but they are not really making a big enough effort. I was recently in Egypt at a big exhibition and there were huge stands constructed by the government to push small companies. Those are the kind of things that need to be done. Our government is not taking that role.

How would you answer the claim that the very economic and political instability in Argentina that has driven down wages and made you an attractive off-shoring destination, is also deterring other companies because of the perceived fragility of the economy?
Today, Argentina is growing steadily, the political factors are quite stable but even in the worst case we will take advantage of that. All our market is in the US or UK and all the delivery part is in Buenos Aires so all we have to do is continue to deliver the services. And we are confident that we will be able to continue to expand. Argentina has an excellent network of public universities and we are one of the premium employers in Buenos Aires and have attracted staff from IBM and EDS.