Argentina’s Reemerges in the Nearshore Market

Reforms by new President Mauricio Macri — combined with the country’s well-educated, creative workforce — will spur Argentina’s re-emergence.

argentina outsourcing

The fact that Argentina retains a strong export sector is impressive given the political interference businesses there endured in recent years. In 2011, in a clumsy attempt to check declines in Argentina’s foreign exchange reserves, then-President Cristina Fernandez de Kirchner forced importers to export goods of equal value.

The result was a like bad rendition of the television show Shark Tank, with industry winners forced to try their hand in all manner of unfamiliar businesses. One Buenos Aires Porsche dealer took the high road and tried its hand at exporting wine. Other car dealers resorted to exports of everything from peanuts to chicken feed.

The assault on business was compounded by inflation that kept creeping higher. The government met inflation with denial, lowballing official records of consumer prices. It even went so far as to fine an independent institute that published more robust data. Amid this sad saga, the International Monetary Fund (IMF) stopped accepting the inflation figures submitted by Argentina, a “thanks, but try again” that was without precedent in IMF history. Instead of annual, year-end bonuses, software development firms in Buenos Aires paid out bonuses earlier in the year in order to retain employees amid the inflationary environment.

Now all that’s set to change. Since taking office in December, President Mauricio Macri has nixed Cristina Fernandez’s export taxes, lifted currency controls to let the peso float freely, and offered to settle with holdout bondholders from the country’s 2001 default. And he’s made it clear that knowledge exports are a priority.

Macri recently appointed Carlos Gabriel Pallotti, a successful entrepreneur, to serve as point man in an office specially designed to bolster ITC services and grow the BPO/ITO industry. Pallotti told Nearshore Americas that Argentina plans to create 80,000 tech jobs over the next four years. In the next eight years, as initiatives to train coders, programmers, and quants take hold, the number of tech jobs will increase by 200,000.

Argentina Outsourcing Re-positions in the Nearshore

Still, re-building Argentina’s BPO/ITO position will be difficult. The nearshore is tipping toward cyclical consolidation, as suggested by M&A activity, as well as slower overall growth, as hinted by the trend toward shorter-length outsourcing contracts.

Argentina will not be able to re-enter the top echelon of global BPO/ITO the way other countries did in the past. In particular, it seems likely that Argentina will have to forego contact center stardom, largely because its cost of delivery is simply too high for CRM services. “Argentina is now the single most expensive major offshore contact center delivery location in the world,” wrote former Ovum analyst Peter Ryan last October.

Ryan’s view is supported by Ovum research that prices Argentina’s inbound customer care at $26 per agent-hour. That represents a cost increase of 15% in just two years, and it brings Argentina on par with the United States in terms of agent-hour costs. Truth is, today there are a number of nearshore locales better suited to deliver these services, and the trend toward automation will only bedevil any attempt to re-enter the contact center market with delivery based on a large number of human agents.

Many firms that specialize in higher-value services also remain a bit wary. One major software firm recently told Nearshore Americas that while they are in fact expanding in Buenos Aires, they’re scaling up in Peru as well. The tandem moves appear to be part of a hedging strategy.

New Initiatives and Underlying Strengths of Argentina Outsourcing

The new government’s initiatives may have to rebuild an industry, but it doesn’t have to create a vibrant services sector from scratch. Argentina has the best English-speaking population of any country in Latin America, according to Education First.

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Argentina outsourcing

The nation is full of universities capable of producing thousands of top-notch engineers every year. Given the strength of the country’s work force, reaching the government’s goal of 200,000 tech workers in eight years’ time is realistic.

Currently, software development is ripe for further expansion. Research on IT wages recently concluded by Nearshore Americas found, among other insights, that Argentina is very competitive compared to other South American markets when it comes to wages for software developers, system administrators, and other critical jobs. And while the Buenos Aires market has grown fast, the underlying talent base can support further growth. Moreover, despite the numerous troubles faced by businesses in Argentina in recent years, software-development firms in Buenos Aires consistently pay a lower “loaded” wage — the wage plus bonuses, vacation time, etc. — than in many other markets in the region. This is a critical source of competitiveness that is likely to endure for years.

Smaller, niche sectors are poised for rapid expansion. Digital agency exec Martin Sorrell is enthusiastic about the country’s creative talent and more confident than ever that he will be able to tap that talent pool.

As Argentina shakes off the effects of political and economic mismanagement, it does so with unique strengths. The capital of Buenos Aires, with its European flair, doesn’t hurt. Macri’s reforms will certainly help. Foremost among other factors though, the country’s well-educated, creative workforce will be the key to the Argentina’s reemergence on the global outsourcing stage.

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