I have discussed the advantages of nearshoring when compared to the traditional offshore model in a related blog. In this blog I will discuss why AAJ choose Argentina to build our dedicated development center. We need to first look at the factors we evaluated to determine the location. We assessed 20 different factors and graded each location to come up with our top three locations.
The 20 factors for evaluating each location, were:
- GNP growth rate
- Economic stability
- Growth and maturity of technology sector
- Creativity and Critical Thinking
- K12 education system
- University systems
- Robust infrastructure
- Unemployment and Turnover rates
- Labor rates
- Political stability
- Fair labor laws
- English fluency
- Cultural Affinity
- Direct Taxes
- Indirect Taxes
- Regulatory environment
- Enforcement of trade agreements protecting IP
- Partner Ecosystem
Our top three locations, based on our grading system, were:
- Costa Rica
Then we interviewed multiple partners, universities, government officials, and other stakeholders to select the final country. I will say that it was a very close race. I think the deciding factor was that we recently bought Vista Technologies, a premier SharePoint Consulting organization. Vista had ties to Argentina so we could leverage personal contacts to get to the people we needed. So let’s go over the factors and see how Argentina stacked up.
Argentina boasts the third largest population in South America with 41mm citizens. So when compared to Costa Rica, Argentina offered a larger population base to pull from. Columbia is slightly larger that Argentina, but there was no relative advantage.
The GNP for Argentina has been steady for 10 years. Growth has been roughly 1%. Argentina has the second highest GNP in South America and is number 23 in the world. This is ahead of Columbia and far exceeds Costa Rica.
- Economic Stability
Contrary to what you would think, some instability in an economy can be a good thing. It keeps relative prices lower, thus reducing the relative cost of goods and services. Argentina is a good example. Their economy has experienced fluctuations and because of this the relative cost rates have remained lower. However, Argentina is a larger country and so the economic risk is less than with a smaller GNP. Argentina offers stability, but with enough fluctuation that rates are still relatively lower.
- Growth and maturity of the technology industry
Argentina’s nearshore industry started gaining traction around the turn of the century, so it has had time to mature is technology ecosystem. Argentina technology community has been well known for a number of years. There are numerous think tanks and research and development centers. Costa Rica was also very mature, however, Columbia was newer and has not made all the investments required as of yet.
- Creativity and Critical Thinking
While this is a more subjective criteria that others; it was a very important decision criteria in the selection process. We were looking for specific skills sets that matched the demands of our clients.
With the explosion of mobility and analytics, UX/UI design has become a true differentiator. We were looking for a location that was artistic and design centric. Argentina was that place. Argentina is a country that supports and fosters creativity. There is large network of UX/UI freelancers. Much of the design work being done in the Silicon Valley is being produced in Argentina. After review of the LATAM locations, Argentina had a sizeable advantage when looking at the design work being produced and the artistic nature of the culture itself.
In addition to design, we wanted to find a location that had made large investments into research and think tanks. Argentina has definitely invested in both. AAJ has been fortunate to begin partnerships with several. But more important to the actual facilities and groups, we wanted an environment where asking questions and thinking through solutions was the norm. We did want to build teams that were afraid to question or challenge us. If we gave the team a solution that could be improved, we wanted the team to tell us. While this sounds like common sense, cultural differences can lead to this more than most care to admit. It is hard to stand up to a boss or a client and say they are wrong. So for us, it was important for our operations be located in an area where this type of behavior is both welcomed and rewarded. After researching multiple areas, we believe that Argentina provided this type of environment.
- K12 education
Argentina has a literacy rate of nearly 98%, which among the highest in LATAM.
- University Systems
Argentina boasts the largest proportion of university graduates in Latin America. Incidentally, Rosario is a hub of higher education institutions. The commitment to education is woven into the cultural fabric in Argentina. There are no campuses, nor university life similar to the US. Most students live at home and work while going to school. There are no “freshmen,” “sophomore” etc., to speak of. Graduates get a much more technical and hands-on education when compared to the US. Because most students have to work to go to school (although attendance does not entail tuition fees), most of them start working as interns during the 2nd year of their 6-year university career, and many end up working full-time by the time they graduate.
- Robust Infrastructure
Argentina has state of the art telecommunications and fiber optic networks. They are much more advanced than most LATAM countries. They are the regional leaders in technology infrastructure.
- Unemployment Rates access to resources
Unemployment rates for the last 5 years have remained between 7% to 8% in Argentina and Columbia and around 10% for Costa Rica. These rates, and the continued transition to of the economies technology focus, ensures that there will be a solid pipeline of resources readily available.
- Labor Rates
Argentina is middle of the road in terms of labor rates in South America, but they have one of the highest output and productivity levels. Argentina is has the most cost efficient labor rates when compared to Brazil, Costa Rica and Mexico. Columbia is the only country with a lower overall labor cost rate.
- Political Stability
Political instability peaked in 2001 when the country had as many as five presidents in just two weeks. Things improved from 2003 under President Nestor Kirchner, and in 2007, his wife Christina Kirchner was elected as Argentina’s first woman president. After political stability returned in 2003, the country saw average growth of close to 9% for the next few years. Argentina has not had political instability since 2003.
- Fair Labor Laws
Section 14 of the Argentina Constitution establishes a number of workers’ rights, including dignified and equitable working conditions; limited working hours; paid rest and vacations; fair remuneration; minimum vital and adjustable wage; equal pay for equal work; participation in the profits of enterprises, with control of production and collaboration in the management; protection against arbitrary dismissal; stability of the civil servant; and free and democratic labor union organization.
- English Proficiency
As this map shows, Argentina has one of the highest rates for English proficiency in the world.
While Argentina is further away than Columbia or Costa Rica, it actually scores very high on accessibility. There are many flights from all parts of the world into Argentina. It is much easier to get into and out of than most South American countries. Mexico and Costa Rica also scored high in this category for US based companies.
- Cultural Affinity
Argentina scored very high in this category. Argentina culture is very close to the European and American cultures. The high cultural affinity between the US and Argentina means that our nearshore consultants can master the cultural nuisances that help improve communication, enhance collaboration, and increase productivity. Building mission critical apps requires a high degree of communication between internal and outsourced resources. Doing so in Argentina carries less risk than Asia because the quality of communication is higher due to the inherent cultural affinity.
Another advantage of having a high degree of cultural affinity is understanding regulations and the business norms in standard operating procedures. The higher degree of regulation, the higher degree of affinity required. If outsourcing more than a single process, it quickly becomes evident why most offshore companies cannot provide a wide range of vertical expertise. Nearshore resources in Argentina can circumvent this issue and develop higher and more varied levels of vertical expertise due to their natural understanding of US regulations and business norms.
- Direct Taxes
Argentina is high on direct taxes. The higher taxes do increase costs, however the money is spent on building and maintaining infrastructure.
- Indirect Taxes
Argentina has one of the lowest indirect tax structures. Consumption taxes and fee based taxes are much lower in Argentina that in most LATAM countries.
- Regulatory Environment
Argentina does have a complex regulatory environment that can create a barrier to entry for new businesses. We did look at this being an impediment to selecting Argentina, but because they scored high in the other categories, we took on the challenge. For companies who are offshoring to Argentina the regulatory environment will have little or no impact on you. AAJ has done all of the work in advance and so there are no ongoing impediments.
- Protection of Trade Secrets
Most offshore countries have a reputation when it comes to patent and copyright infringement. Not much can be done when intellectual property is stolen, even if the US judicial system tries to enforce international treaties and agreements. By contrast, Argentina has stricter enforcement of intellectual property rights. The Argentinian government is more likely to work with the US government to enforce trade regulations, more than certain Far East or Latin American countries (China or Venezuela for instance).
- Partner Eco-system
Argentina and Costa Rica scored the highest grade for maintaining a partner eco-system. Argentina has a network of companies that can help provide resources when needed. Many of these companies focus on a specific technology or solution. This is a positive because there may be times when a specific expertise may be needed. In those occasions, having a network of partners makes it much easier to satisfy client needs.
So basically AAJ selected Argentina because they had the size, scale, universities, cultural affinity, infrastructure and cost structure that we needed to insure success for our clients. Argentina is an artistic and technology-driven culture and the resources to support large outsourcing projects. The quality of the people, processes, and infrastructure are among the best in the world. The productivity of the Argentina teams is the highest in LATAM and they are the most proficient when it comes to specking the English language. All of these factors led us to choose Argentina for our nearshore Global Development Center.
In my next blog I will talk about why we choose Rosario for the location of our development center. Until then, have a happy,