Argentina's 'Silicon Valley' thrives

Three-and-a-half years ago, Ernesto Krawchik was working out of his house, debugging code on a single computer that he shared with his business partner, while his 1-year-old son tugged at his pant legs.

Coming on the heels of the country's economic collapse, it was a far cry from his days as president of Oracle-Argentina during the tech explosion of the 1990s. "At the time our company was formed, no one took us seriously," Mr. Krawchik says.

Today that company, Idea Factory Software (IFS), employs 90 tech professionals and will add another 100 over the next year. At IFS's office in the San Telmo neighborhood, known for its tango shows, dozens of 20-somethings punch away at their keyboards, solving the software needs of major international corporations.

Welcome to what could be called "El Barrio Silicon" - Argentina's version of Silicon Valley. Since Argentina's $142 billion debt default in 2001, the largest by any country in history, dozens of software start-ups have sprouted, and existing tech firms have seen unprecedented growth. Ironically, it was the disaster that spawned the boom. From the ashes of the crisis, businesses, universities, and the government began working together for the first time to cultivate the information-technology industry. Though relatively small in size, it is one of the unsung heroes of the country's economic recovery.

"The idea for this newfound collaboration is modeled on the technology hubs in the US such as Research Triangle Park and the Route 128 corridor in Boston," which revolve around Duke University and MIT, says Alejandro Prince, president of Prince and Cooke, a research firm based here.

Going strictly by numbers, the IT industry barely registers in Argentina, accounting for less than 1 percent of an economy fueled by soy and beef exports. But its growth rate is one of the highest. According to the Argentine Software Chamber of Commerce, industry revenue grew 45 percent in 2004, compared with 2002. Tech exports climbed 83 percent.

One reason for the growth has been the recent outsourcing phenomenon that has spotlighted India in particular. EDS Inc., the computer-services firm founded by Texas billionaire Ross Perot, forecasts having 1,750 employees here this year, up from 1,250 last year, and more than double the 700 employees of 2000.

Argentina has long had the potential to develop an IT industry. According to the United Nations Human Development Report 2004, Argentina ranks first among Latin American countries in number of Internet users per capita. It is also No. 1 among Latin American countries for research scientists and engineers, with 684 per 1 million people, according to the same report.

Still, Krawchik says, until now, "Argentina has never seriously worked to convert its intellectual talent into a competitive advantage."

Technology leaders here explain that the 2001 crisis forced the National Central University, or UNICEN, a leading Argentine school, to wean itself from government funding, partnering instead with private businesses. IFS was its first partner, employing 10 students.

Today, UNICEN, 200 miles south of Buenos Aires, is the hub of a technology park, which consists of 30 companies.

The government is also playing an increased role. This month, the Ministry of Economy, together with Intel and Microsoft, unveiled "Mi PC," which enables Argentines to buy computers for less than $500, a 30 percent reduction from market price. Paul Otellini, who will replace Craig Barrett as Intel CEO next month, spoke to industry leaders here last week, estimating that 400,000 computers will be sold this year through "Mi PC."

Last year, 255 government officials, business leaders, and academics spent nine months producing a strategic 10-year plan for the IT industry. It contains 30 measures, including doubling the number of private-sector IT jobs and exports in the next three years. One measure, the Promotion of Software Industry Law, already implemented, reduces taxes by 60 percent for IT companies.

Still, not everyone is bullish on Argentina. In AT&Kearney's 2004 Offshore Location Attractiveness Index, Argentina ranked 15th, finishing behind the Philippines and Malaysia; among Latin American countries, Brazil was ranked seventh and Chile finished ninth. In the World Economic Forum's 2004-2005 Global Competitiveness Report, Argentina ranked No. 74.

Even skeptics, however, admit that Argentina is on the right track. While working in California's Silicon Valley from 1998 to 1999, Guillermo Marsicovetere, president of Sun Microsystem's Latin America Southern Cone division, never once recommended investing in Argentina. But today, back in his native Buenos Aires, he describes the current government as "stable and predictable." Given Argentina's history, that's a huge compliment.

As more multinationals diversify their offshore operations, weaning themselves from a dependency on India, Argentine start-ups stand to gain, experts say. EDS, despite its own large operation in Argentina, last month selected IFS as one of its primary software providers.

And increasingly, people like Krawchik are leaving corporate giants to join Argentina's up-and-comers. Mauro Capponi, a software engineer, left international technology consultant Accenture to join IFS. "Your work is more visible here, and you are more valued," he says.

The slogan on Krawchik's business card could best sum up their hope: "Argentine talent for the world."