Mauricio Macri’s presidential election victory in November was a clear signal to Diego Saez Gil that it was time to move back to Argentina and take his growing “connected luggage” startup with him.
By the time Macri took office the following month, Saez Gil was already staffing an office for his Bluesmart baggage company in Buenos Aires’ Palermo neighborhood, on the way to hiring 21 software developers, designers and customer support personnel – more than double the staff at its headquarters in New York.
“We started thinking about the talent we needed to scale the company, and at the same time we saw the new government,” Saez Gil said in a telephone interview. “That was the catalyst to say Argentina seems a really good place to go.”
As he looks to grow his company, which produces luggage that automatically locks and can be tracked via a smart-phone app, Saez Gil said his home country offers the best mix of startup-friendly cost structure and a highly educated population with engineering skills.
And when Macri removed long-standing currency controls, eased reserve and deposit requirements for overseas investors and cut a deal with its foreign creditors, effectively reopening international debt markets, Saez Gil was convinced Argentina would no longer scare off potential investors.
Like other tech business leaders interviewed by Reuters, he was also attracted by the potential of the president’s now-passed “entrepreneurs’ law” allowing businesses to more easily be incorporated.
Under pressure to turn around a sagging economy long reliant on commodities like beef and soybeans, Macri is hoping a nascent tech sector can provide a fresh source of growth.
Raising investment in the tech sector to 1.5% of gross domestic product is one of his government’s key goals as it looks to boost production and employment.
While pleased with the new government’s first steps, Saez Gil and other Argentine business owners such as Martin Migoya, co-founder and chief technology officer of services provider Globant, say Argentina still lacks the kind of market liquidity and depth needed to list their shares there.
Additionally, the country’s size presents a problem.
“Argentina is a good market, but it’s not big enough to think about a multinational company just serving Argentina,” Migoya told Reuters in a phone interview. “So by definition, entrepreneurs in Argentina need to think in a global way. That’s not very common and we need to foster that.”
If Bluesmart eventually goes public, as Saez Gil hopes, the Nasdaq is a more likely venue than Buenos Aires’ stock market. Local Argentine investors have a better handle on businesses like mining, agribusiness and utilities than tech, he said.
That limited awareness is just one of several obstacles to tech expansion in Argentina. Business owners say that even under Macri’s more business-friendly administration there are still many challenges that include stifling taxes and difficulty obtaining financing from banks.
Near-Shoring
Nevertheless, in a development that could help more tech startups, a growing number of multinationals have in recent years outsourced thousands of positions to Latin America’s third largest economy.
Companies such as JPMorgan Chase, Citigroup (C), Accenture (ACN) and Chevron have shifted research, accounting and call center jobs in English and Spanish to Argentina.
The moves, most of which predate Macri’s election win, take advantage of Argentina’s relative abundance of bilingual college graduates. They have made it a hub for “near-shoring,” in which companies outsource to Latin America rather than to distant locations like India and the Philippines.
Chevron (CVX), for example, has for about a decade employed staffers in Argentina who provide accounting services and IT support for many of its affiliates in Latin America, the United States and the United Kingdom.
JPMorgan (JPM) last year opened its first Latin America-based global support hub in Argentina, months before Macri’s election.
The bank, which previously had only an investment banking operation there with around 140 employees, now has about 700 with some 100 in roles like software development, systems analysis and securities processing, the bank’s senior country officer, Facundo Gomez Minujin, told Reuters.
The outsourcing moves could foster a virtuous cycle creating “a large body of technically savvy and technically trained people,” said Sramana Mitra, founder and CEO of One Million by One Million, a global support network that includes Hernan Kazah, co-founder of Argentine online auction house MercadoLibre (MELI).
Gomez Minujin said JPMorgan plans to hire nearly 400 more tech workers in the next year in similar roles to the initial 100, many of whom will serve U.S. operations and clients.
Overall, Argentina’s outsourcing, or “near-shoring” sector boasts 105,000-115,000 full-time equivalent positions (FTEs) in global services, according to industry tracker Everest Group.
That makes it the leader in South America and only about 20,000 FTEs behind Latin America tech services leader Mexico.
“Despite macroeconomic instability in recent years, Argentina continues to witness new center set-up activity,” said Salil Dani, Everest Group’s vice president of global sourcing.
In the last 24 months, 12 new outsourcing service providers have opened there, matching Mexico and more than doubling the pace in much larger Brazil, Everest data shows, although still well behind India.
They are attracted by Argentina’s time zone and cheap currency, down more than 75% against the dollar since 2011. But many also rave about its workers’ English and engineering skills.
“Argentina is the best place in Latin America for setting up shop,” said Dileepan Siva, chief revenue officer at digital commerce software provider Moovweb who has a long history working with tech companies like eBay and Twitter.
Embracing Tech
Mentoring and networking groups such as Endeavor, started in Buenos Aires in 1997 by two Americans, have helped connect startups like Bluesmart’s Saez Gil with those who own multinational companies, like MercadoLibre chief executive Marcos Galperin.
Tech champions MercadoLibre and Globant as well as community listings firm OLX and travel site Despegar—all valued at more than $1 billion—were the stars of the only session Macri led at the recent Argentina Business and Investment Forum organized by his government in Buenos Aires.
Macri’s embrace of the tech sector is not new. As mayor of Buenos Aires he created a technology district and awarded companies that opened or moved there a 10-year tax break.
But there have been no targeted steps to bolster the sector since his election, and the government’s most recent budget aims to cut funding for the Ministry of Science, Technology and Productive Innovation by more than 30%.
“We’re not expecting the effort in technology from Argentina to come entirely from the public sector,” Finance Minister Alfonso Prat-Gay recently told Reuters in New York.
“It’s about deregulation, opening up the conditions for local and foreign players to be involved. So I think it’s wrong to just look at the budget and conclude that our priorities are not there.”
