Argentina is undoubtedly one of the richest markets for nearshore IT talent. However, official and unofficial inflation indexes and a weakened Argentinean peso influx make its long-term value proposition seem questionable. If that is not enough, it has to be considered that exceedingly favorable and concrete incentives for the IT industry speaks of Argentina’s dead-set ambition to be a nearshore powerhouse for years to come. We talked to some folks in the trenches to understand their opinions about Argentina’s current and future state of doing business.
“Over the last three years we have seen a large increase in demand…most IT resources are already hired and working for companies. A few years ago, you could fetch developers from the freelance market or from recent university graduates, we didn’t have the constraints you see in other markets. Nowadays we are seeing those constraints because the amount of new graduates is not on par with the amount of new jobs and projects,” said Javier Delgado, CEO at Quadion, a Argentinean software development firm focused on enterprise and mobile solutions.
Despite that assessment, the situation is far from grave, Delgado went on to say that “Finding junior level developers or semi-senior level developers is not that hard…we still have a good amount of developers available, even though it is scarcer than before.”
Valerio Adrian Anacleto, CEO of Epidata, deals with contracting senior IT minds as his company Epidata was the first Latin American software firm to focus exclusively on software architecture. “We are 35,000 engineers below what the market needs, currently Argentina is producing about 3,500 new engineers every year. You have to take that indicator in context, for example, Brazil is lacking 100,000 and the US probably far more,” stated Anacleto. He added that with the current demand and the current labor supply, you can find the right developer for the right price, and that price is still pretty favorable. “Our engineers are four to five times cheaper than engineers in the US. A junior level engineer costs 800 per month, a semi-senior level between 1,500 to 2,500 or maybe 3,000 depending on experience, a senior level one 2,500 to 3,500, and a senior level two [8-10 years experience] costs from 3,500 to 4,500 USD. Those are salary costs with total employment cost being salary plus 30 percent or so,” remarked Anacleto.
Promotion of Software Developments
He went on to say that the 30 percent can actually be less because of the Software Promotion law and host of other government incentives Argentina has implemented over the last several years to boost the industry that accounts for around one percent of Argentina’s GDP, equal to that of wine. According to Delgado, the supply shortage has not yet shifted wages upward in Buenos Aires, but he sees it as a risk in the future. Delgado did reveal that the supply shortage has increased wage rates in Argentina’s second tier cities like Rosario, Mendoza, Tandil, Mar de Plata, and Córdoba.
As far as using Argentina as a launch pad for nearshore operations, the evidence of successful Argentinean companies is hard to refute. The government knows labor supply is the key ingredient, 65 percent of 21,000 beneficiaries of CONTROL + F and CONTROL + A (large scale government IT training programs) are currently working, and the program plans to train another 20,000 by 2015.
“Here, like other countries in Latin America, exist highly protective labor laws. Despite that, any company that wants to invest in Argentina will be perfectly able to hire and grow a business; they will have something new and different to offer and will be able to find guys to work,” commented Anacleto while sort of insinuating that the tie goes to the new business when employees are looking at options. “And you don’t have to pay 50 percent more than the market wage to attract people, many companies did that in past, I won’t name names, but it was bad for the companies themselves because they ran out of money and it was bad for the market.”
Inflation and the IT Sector
Inflation touches all aspects of Argentine society, egregiously underestimated by the government as we have reported in the past; many unofficial bodies (that paradoxically report the real inflation rate) say it averages close to 30 percent. The tech sector must respond to the needs of their employees and their foreign clients at the same time.
“Most IT companies provide raises once or twice per year to compensate for inflation…when we raise wages we also raise our costs locally. For those of us that export our services it is not as easy to raise our costs outside of Argentina, sometimes we can shift part of that cost while the other part is absorbed by the strengthening of the US dollar against the Argentinean peso,” affirmed Delgado.
Delgado informed that there are unofficial yet valid and accepted city specific inflation indexes that can be used to calibrate local pricing. “Locally, everybody knows the real inflation index and everybody accepts it. When we have to export we cannot do that, we have to comply with the national index, which is the official one. It is difficult to explain to a US client that you have an inflation index different from the official one, and when you have to explain the reason for increased costs based on an inflation index that is seemingly not the real one. We have to be creative…and provide more sophisticated solutions we can charge more for,” he said.
“I have had employees or friends that have come from Europe or the US to live here and they enjoy it a lot for a few years. But it always gets to the point where they get tired because the game is always changing…we Argentinians are used to it, you have pretty good times and very bad times, maybe you take a loan one year and conditions change the next – you have to adapt,” added Cecilia Iros, current CEO of Suma, a translations and localization company based in Córdoba.