Narayan AmmachchiArequipa, according to Sanjiva Nath, is “Peru’s best kept IT industry secret.” Nath is the CEO and founder of Zagile, a business based in San Francisco, California, specializing in the development of a digital platform for software information management (SIM). Zagile, currently working with students and professors from the Computer Science Professional Program at San Pablo’s Catholic University, set up its operation in Arequipa only a year ago.
Zagile serves clients in the United States, Europe and South America.
David Chandler, an ex-developer with Google, also noticed the potential of this Peruvian city. Chandler moved to Arequipa, primarily in search of a place that would help him relieve of asthma, but soon discovered that the city offered not only health benefits but also a location to set up the Zuriel Corporation, a company specializing in the development of cell phone and Web apps.
These are just a couple of examples of the technology businesses that Arequipa has managed to attract. Arequipa, with just over 831,000 inhabitants, is the second largest city in Peru.
Many are of the opinion that it could even become Peru’s Silicone Valley as it has a growing academic community (there are over seven universities), offering master’sand doctoral degrees in the IT field.
“Many businesses are recruiting talent from Arequipa, and setting up operations there,” states Kenneth Lopez, General Manager at Tekton Labs, a business specializing in software and digital communication development. “It has come to be known as an area undergoing development, where qualified professionals can be found.”
According to PromPeru, there is a surge in the number of businesses offering software development services, IT services, BPO services, and contact centers. Other cities – such as Trujillo, Chiclayo, Piura and Tacna – are also experiencing a significant economic growth, states David Edery, PromPeru’s Service Exportation Coordinator.
Decentralization Encourages Growth
Nearly a third of Peru’s population lives in the capital Lima, causing a negative impact on other states. Most of the executives we interviewed suggested that Peru must bolster telecom and other infrastructure in other states to ease pressure on Lima and promote growth in other parts of the country.
“Peru is a very centralized country,” states Lopez. “In the provincial cities, there is not enough emphasis on education, there is not enough supply of talent, and there are Internet access and connectivity problems; all of which resulted in a much slower rate of growth.”
According to Carlos Castillo, Commercial Manager at SupraNetworks, a Peruvian telecommunication consultancy firm, connectivity is scarce. The bandwidth currently offered by operators such as Claro, Movistar and Nextel is “limited and costly, which makes it extremely difficult for provincial businesses to develop.”
The connectivity issue is further complicated by the geographic nature of the country. The Andes mountain range, the Pacific Desert, and the vast tropical rainforest all cause difficulties.
Work on the National Dorsal Fiber Optic Network, spanning 13,400 km, is set to begin in 2016. It is hoped that this network will help integrate the Peruvian provincial capitals, and open up high capacity networks.
The Ministry of Economics and Finance (MEF) awarded Azteca Comunicaciones Peru(a business from Mexico’s Grupo Salinas), the contract to install the network.
This project will result in significant benefits for nearly all provincial capitals, although they will only be felt in the long-term. It is, however, already considered to be the biggest factor contributing to the improvement of many Peruvian secondary cities.
“Decentralization is going to result in significant development; strengthening these secondary cities, generating new business possibilities, and ensuring the industry’s needs are met”, states PromPeru’s David Edery.
He points to the fact that the availability of real estate space in the capital city will not be sufficient in the future, which will mean that businesses will start looking outside Lima. “For example, some contact centers are considering cities such as Arequipa, Trujillo and Chiclayo, as well as Tacna, Piura and Junin.” He says Lima would still remain the biggest supplier of trained human resources for call centers.
Availability of Human Resources
According to Carlos San Roman, Managing Director of Adecco Peru, the Peruvian cities with a greater potential in attracting businesses in IT, software development and BPO are Arequipa, Trujillo and Chiclayo.
“There are over 350,000 inhabitants between the ages of 15 and 39 years living in these three cities, with a large number of universities and technological institutions offering careers in the technology industry, as well as telecommunication facilities and possibilities for an adequate infrastructure,” he said.
However, low level of education and lack of English speaking workers are masking their lure, eh added.
Today, according to Carlos Castillo from SupraNetworks, there are very few IT businesses servicing the secondary Peruvian cities. While many public and private organizations do have projects, as well as the budget needed to complete them, they are not able to find providers offering the solutions they require. “You really have to know the client, as well as their needs, in order to be able to offer a solution. You have to be able to provide good value, as their resources are limited”, he states.
Tacna’s Free Trade Zone
Tacna’s Free Trade Zone (ZOFRATACNA) was created in 2002 in order to encourage investment in a wide range of industries including, packaging, technology and BPO.
A small city on the Bolivian and Chilean borders, Tacna has around 337,500 inhabitants and accounts for 4.8% of the national GDP. Its performance as the free trade zone could well be replicated in other parts of Peru. “It is an initiative that could well help free up pressure on the capital city,” explains David Edery, from PromPeru.
Currently, PromPeru (an organization working to promote Peru) is renewing efforts in ZOFRATACNA, by opening up 500 positions, to be filled by contact center operators. “The free trade zone’s administration decided to make these positions available to the private sector,” states Edery. “The free trade zone offers tax breaks as long as the businesses are involved in exports. And, if we take into account the fact that 42% of the billing at these contact centers is for exporting services, Tacna becomes a viable option for these types of businesses.”
There are plans for the construction of a new contact center in Tacna. The center will benefit from all the necessary infrastructure, with the added tributary and tariff benefits afforded by operating within a free trade zone. Over 1000 operators are currently being trained.
“We are very interested in supporting the development of this free trade zone, as it could give Peruvian businesses and the country as a whole a new look,” states PromPeru’s Service Exportation Coordinator. Cities that could follow Tacna’s example are Piura, Trujillo and Chiclayo. In fact, it is likely that new data centers will be installed in Piura, as it is the city through which submarine fiber optics enter the country.
Ready for a Take Off
Arequipa is the main provincial city showing growth in the technology services, BPO services and contact center industries, among others. According to PromPeru, it is followed by others such as, Piura, Chiclayo, Trujillo, Junin and, of course, Tacna.
“Although there are business venture programs in place, there is still much to be done,” added Lopez. “They have to start attracting new businesses, as there is talent available, what are lacking are opportunities.”
According to SupraNetworks’ Carlos Castillo, though these cities offer less expensive office space, they are running short of talented human resources. “In Lima, the rent of a 70 square meter office space can cost up to $3,000 per month, in a provincial city the cost can be as low as $1,000.”
In fact, in 2015, once the elections for the mayors and regional representatives have finished, his company is planning to expand outside Lima. This year, there will not be a huge amount of effort put into projects to attract investors or open up new technology businesses, as local authorities will be focusing on the elections. “Whenever there is uncertainty as to who will be making the decisions, these types of initiatives start getting complicated”, he states.
What is needed to help these secondary cities attract investors? On one hand, educational standards need to be improved, especially when it comes to teaching English and technical terms, states Carlos San Roman, Managing Director at Adecco Peru. On the other hand, “the level of unreliability in these cities is high, and this type of business, which has been proven to be 100% reliable, could help to improve the quality of life and provide a real employment alternative,” he said.
In his experience, it is vital you get to know the individual business needs. “You need to be able to trust that in these cities the quality of human resources will be sufficient to meet your requirements, as well as being confident that operations will run as smoothly as they do in Lima.” In contrast to the local businessmen in Lima, who still feel the need to have their platform, contact center or IT outsourcing providers “just around the corner” foreign businessmen are of the opinion that, the decision to set up business in one of these outlying cities is made, based purely on considerations such as available human capital or infrastructure.
There are great investment opportunities to be had in these secondary cities, and once the connectivity and infrastructure challenges are overcome, something in which the installation of the National Dorsal Fiber Optic Network will play a large part, businesses will start flocking to them. Decentralization will make it abundantly clear that there is much more to Peru than just Lima.
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