Truly a dark horse amongst off-shoring destinations, Argentina has tremendous mindshare amongst offshoring companies but no hype surrounding it. Yet, it is set to capture the world’s imagination as the next big destination in offshoring. That should not be surprising considering it offers all the fundamentals of an ideal offshore location: it is one of the least expensive markets in the world, it has a highly educated skilled workforce, it has a robust telecom network, and abundant supply of office-space.

Despite its low profile, the Argentine story has not been scripted overnight but has been brewing over a period of time along with its chequered economic history. The telecom deregulation in 1990s was a very successful experiment leading to the emergence of one of the fastest growing telecom markets in the world. Argentina developed very robust telecom networks with the highest penetration of Internet user in Latin America and phone penetration of over 45 per cent.

From 1990 to 2001, one peso equaled one dollar. It was the cradle for 80 per cent of the entrepreneurs in the Internet bubble in Latin America. Huge data centers were built. But when the bubble burst, it left in its wake, huge investment in technology, cheap bandwidth, efficient telephone communications, world-class buildings and most importantly trained manpower in software and technical skills. That was sustainable till the domestic economy was growing, but with the devaluation of the peso in 2002, demands from domestic market hit the wall.

Ironically, the devaluation of the peso proved a blessing in disguise as it forced the industry to explore the exports market. Simultaneously, as offshoring gained ground, hungry corporations fighting shrinking bottom lines and scouting for cheaper destinations could not have found a more fitting choice than Argentina to set up global delivery centers.

Today that sector is one of the most promising sectors of Argentina. According to IDC, Argentina’s IT outsourcing revenue is expected to more than triple to $445 million 2005, up from $132 million last year. Argentina’s software and IT sector has the potential to represent 3 per cent of the country’s GDP as compared to the current level of 0.7 percent in 2004, according to the industry chamber, Cessi.

Tomorrow’s destination?

Undoubtedly. It is already a destination of choice amongst top-tier IT services companies. From IBM, who had been one of the earliest players, the country boasts of names like EDS, NEC, Motorola, HP, Unisys, Oracle, PeopleSoft and TCS servicing clients in US and Europe. As more companies continue to trickle in, and existing companies chalk out ramp-up plans, Argentina’s pre-eminence is set to increase.

Already, companies like EDS have rolled out aggressive expansion plans, from 1300 to 1800 employees by this year-end. EDS, which started its Argentina operation about 12 years ago by serving automobile client Renault from Beunos Aires, has started its BPO operations as well about two years ago. “We offer financial services, purchase, HR and payroll services from Argentina,” says HR Director Guillermo Willis for EDS, Andina South.

Spanish language makes it an ideal base to target the Hispanic population in the US. The Hispanics are already the largest ethnic group in the US with more 40 million people. US corporations have increasingly realized the need to target this base of people with increasing disposable income. No wonder leading call centers like Teletech, Teleperformance, and companies like AOL, Marriott Hotel and American Express have set up their call centers in Argentina.

For Europe, Argentina is an extension of their identity as huge chunks of the population is made up of post World War 1 migrants from Europe. Following the War, till the 1950s there was a huge influx of people mostly from Italy and Spain. Today, the streets of Argentina have people speaking Spanish, Italian, Portuguese and English. This presents a boon to the multi-lingual countries in Europe.

This is precisely why Argentina is poised as the destination of tomorrow because the next wave of offshoring would be led by a need for multi-lingual call centers. Argentina’s population of mixed descent has ensured just that. Already companies in Argentina have started making inroads. For instance, last year Globant, a company in Argentina, won the Internet marketing campaign of EMC for Benelux and 17 other countries.

The European lineage also means that many people still hold dual passports which makes movement between locations that much more easier.

Cheapest destination:Even with all those factors, Argentina’s biggest draw is its cheap manpower. Despite tall management claims about process re-engineering and efficiency, offshoring is first and foremost about lower costs. The devaluation of the peso caused salaries to crash by two-thirds. Today, the average call-center salary at about $1 per hour and programmers’ salaries at $11 per hour is 15 per cent lesser than Bangalore, India, the leading offshoring destination in the world. While this advantage is likely to wane in a couple of years’ time, it is advantage Argentina for the time being.

Trained manpower: Another trump card that is likely to swing Argentina’s fortunes is the availability of trained manpower. According to the United Nations Human Development Report 2004, Argentina leads the Latin American countries for research scientists and engineers, with 684 per 1 million people.

Because jobs are still scarce, there is a mere 15 per cent agent turnover rate in Argentina, which is lower than India’s 40 per cent, and far lower than the 90 per cent turnover rate in US-based contact centers, according to Datamonitor’s report entitled “Call Center Outsourcing in Latin America and the Caribbean to 2008”.

The country has also taken a lead in developing expertise in open-source software. Due to the economic crisis, IT spending was curtailed and the Argentine government and companies had to look for cheaper alternatives. That knowledge is proving handy as it translates to commercial success. UK’s leading travel website Lastminute.com moved its core Unix and database administration to Globant.

Government Push Can Help

The government has not actively pitched for the sector. Compared to the high-profile campaigns of competing destinations like India, Philippines, Ireland, China and Eastern Europe, Argentina has been a little subdued in its positioning as an offshoring destination. Despite drawing big names to Beunos Aires, Argentina does not rank among the top offshore destination in any consultant’s report other than Datamonitor.

There are other instances when the government might have lost out an opportunity. Last year when the then CEO of HP Carly Fiorina visited Argentina, the President Nestor Kirchner stood her up despite her waiting for over an hour.

This prompted the Beunos Aires Herald to comment, “Kirchner should never stand up any lady for nearly an hour and least of all the superpower’s most famous businesswoman when he himself is the CEO of a country in default. Kirchner’s poor punctuality deserves to be made an issue because it is a constant.”

This is in stark contrast to the high-profile visit of Bill Gates to India in 2002, when he not only had an audience with the Prime Minister but eight Chief Ministers spent an entire afternoon vying with each other to woo Gates to their state for investment.

The Argentine government has provided fiscal incentives for the promotion of local companies. It has also set up special parks called Gone Franca to attract outsourcing companies. While Beunos Aires is by far, the leading center of attraction, the government has taken the initiative to develop a distributed cluster with Cordoba and Rosario as emerging centers.

Considering the excitement the outsourcing industry is generating within the country after the economic crisis, it’s only a matter of time before the excitement permeates the government, and then onto the world at large.