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Intel to create software development centre in Argentina

Facts, questions, and opportunities
Tue Sep 20 2005, 09:34
THE LOCAL MEDIA here has gone stark staring bonkers over the impending announcement of Intel's decision to build a software development center in the city of Cordoba, positioned at the geographical centre of Argentina.

The people at the company we kindly call La Intella are expected to make the an official announcement soon. Today, Craig Barret himself is expected to meet local businessmen, the country's ministry of Education and science & technology, Mr. Daniel Filmus, and also the country's Economy minister, Roberto Lavagna. The agreement is reportedly to be signed with the governor of Cordoba between today and tomorrow, in a strange case of amiguity and lack of information.

While we await the official details from Barret himself, there's a bit of information that has been widely circulated: the investment decision apparently took place in late August this year, after a four days long visit by Intel's Richard Wirt, General Manager of La Intella's "Software and Solutions Group" and Kostas Katsohirakis, someone the local media describes as the company's "new business director" but who strangely doesn't seem to have a biography up on the corporation's web site.

The government of Cordoba is said to have made a great deal of concessions to the company -including tax breaks and the construction of the building where the labs will be housed- to make them pick this location instead of Brazil's Sao Paulo and Mexico's capital. While the development might seem small -creating between 200 and 300 direct jobs of "highly skilled" positions -the governor puts the number at 500, probably counting indirect work created by it- it's certainly a good leading case for Argentina's second largest city after Buenos Aires, which is also on the verge of getting a multi-year investment commitment from german car maker Volkswagen. The country is on an increasingly successful quest to attract foreign IT investment targeting skilled jobs, now that the exchange rate of the local peso currency makes wages and foreign investment attractive. There's a window of opportunity given the country's booming economy, its highly skilled workforce and India's reported growing pains due to its flood of IT outsourcing work.

Reversal of fortune - and a free History lesson
During the '90s and while Silicon Valley's IT activity was booming, Argentina had everything backwards: a telco monopoly of two incumbents, each exploiting consumers in their exclusive geographical regions -the spaniards of Telefonica on the Southern half of the country and the French/Italians on the North- twarthing competition at every chance and keeping Internet access out of the reach of most of the population until around 1999.

Plus, to top this, the country was for almost a decade sustaining an economic policy of a fixed currency rate, where the peso was artificially pegged to the US dollar. This gradual overvaluation of the currency created a huge influx of "cheap imports" which destroyed local manufacturing jobs, lots of small business closed, and the economy slowly shifted from an industrial and manufacturing basis to a "local services" one. Unemployment skyrocketed and incredibly, the cost of utilities was increased every month not according to Argentina's inflation rate -the country had price deflation- but according to the US inflation rate. Needless to say, this didn't make investing in IT in Argentina very popular. Specially when -back then- average IT wages of $1,500 to $2,500 pesos a month meant up to $30,000 greenbacks a year. Plus, the country's limited international bandwidth made it unable to cope with local demand -I know, I lived that age-, so it couldn't even cope with the requirements of an outsourced, offshore operation.

It was only around the year 2000, when the local monopoly of the incumbents supposedly ended -there are still plenty of barriers of entry for new players- that the local internet market really took off, with companies like Global Crossing, then MCI-Worldcom, Impsat, and also the incumbent vampires, among others, all raced to build huge networks and fiber links to the US backbone. All this extra bandwidth capacity was never really put to good use until recently, as the economy was in the middle of steep slide downwards. To make a long story short: the lack of sustainability of the economic model based on a overvalued currency, a shrinking economy with a four year long recession, added to the country's inability to pay its debts to the IMF and private loans, made the economy collapse in late 2001.

After a devaluation of the currency in 2002 and a default on its debt, with all its implied uncertainty, the country began a painful but continuous recovery, finally restructuring its debt and enjoying what looks like finally a path of sustained growth, with the economy enjoying a growth rate of over 10% in the second quarter of 2005, and a consolidated investment growth of 86 percent from 2002 to 2004, restoring it to the average level of Latin American countries. Ironically, it went from being the "Most Expensive Country in the World" according to a yr2000 survey, to one among the least expensive in South America, making Buenos Aires more affordable than Bangalore India, or cities in Chile, Costa Rica and Brazil, ranking at #142 in the cost-of-living meter. Cordoba, home of Intel's software investment is a large city home of over a million people, with similar cost.

Argentina's favourable climate
Today finds Argentina with excellent connectivity in the international bandwidth front -the fiber networks are not as ubiquitous as one would like to see, and in some locations your only provider can be the abusive incumbents-, a well trained population, comparatively low wages, and a government that is promoting foreign IT investment both at the National and -in some instances- provincial levels, with Congress recently enacting a law (number 25,922 - or more commonly referred to as "the software promotion law" by the common guy) giving fiscal incentives to software development. This recovery climate might have played a role in La Intella's decision.

Previous to this sudden awakening to the software development world, the largest sector to benefit from the current economic climate and currency advantages were the "Call Centres", first headed by AOL's local subsidiary which back in 2002 started answering tech support calls for AOL customers in Puerto Rico and one year later started doing the same for AOL Mexico customers. With local companies with names like Genesys, Tele-Performance, IPlan or Apex América (of Chilean, Canadian, and Argentine investors - not related in any way with the Asian Apex of DVD kit fame), the argentine call centre market moved $150 millions in 2004 and has an estimated 20,000 people employed, according to reports - a 300% increase over the yr. 2003 figures. I bet users of Microsoft's products don't imagine their service calls are handled by people down here - or perhaps in Bangalore if luck does not favour you. Yet local players hint they're not competing with Bangalore, as local cost is a bit higher - yet they claim the quality is higher.

Intel software, great! Wait, what software?
This correspondent is still scratching his bald head over exactly what kind of software will Intel develop in the land of Tango, as Intel is still not a major software player, after a memorable rift with the Redmond Juggernaut known as Micro- Soft (pun intended) ten years ago. In an e-mail disclosed as part of the DOJ vs Microsoft trial, then-CEO Bill Gates wrote to Intel's then-chief Andy Grove, "I don't understand why Intel funds a group that is against Windows 95.". While La Intella's CEO defended the company's multimedia software, history goes that the Redmond juggernaut advised PC makers not to use Intel's NSP technology and the trial testimony of Intel's vice president Steven McGeady, was quite clear, saying Microsoft's pressure was effective and when Win95 was released, Intel's NSP software had been "shot in the head". So when and if this means Intel is going to get back to active desktop software development is anybody's guess. But even if it's just to "offshore" -or complement- some development of Intel's low level drivers and SDKs or compilers, it's going to be an interesting move to watch - for those who enjoy slow horse races.

While this investment pales in comparison with Intel's current efforts in India, the fact that Intel kept Argentina in mind -reportedly competing with Mexico and Brazil- certainly looks like a revolution. Will it succeed and will it pay off?. It's hard to bet, but it's certainly an opportunity for a country whose ruling class has short-sightedly focused for far too long on cows and cattle as the country's economic engine and listened to too many rabid parrots with axes to grind. But I digress. Intel's jobs page for Argentina has not been updated at the time of this writing to include any positions for software development, yet. So we guess it's going to be as usual, and things will take some more time to morph from announcement to reality. But as you know, all INQ stories eventually come true. I hope. µ

See Also
BusinessWeek: Argentina's Reversal of Fortune
Offshoring: India's IT skills crisis
Microsoft Rejoices as Argentina launches 'Cheap PC' programme
How Creative 'Commonists' rocked Argentina
Joseph Stiglitz and the "Argentina Consensus"
Linux Penguin dances tango in schools
Traveler reports: Argentina
Fernando's Expocomm 2004 coverage


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