It's been several years since the word "innovation" began to crop up everywhere. Due to the massive emergence of new consumer technologies and the advent of the digital world, we had to apply the word innovation to all the new things around us. But it is not something recent. In fact, all ages have had their innovative moment. The most recent occurred 20 years ago, at a time when the Internet was emerging with the aim of reaching the masses. The immediate consequence was the dot.com phenomenon. Argentina became a hotbed of ideas and projects, several of which opened new paths and conquered the interest of investors around the world.
There was failure, too. Just as those times harbored projects like MercadoLibre, Despegar and Officenet, there was also a huge number of projects that did not succeed due to a lack of understanding of the real situation, to limited experience in fund management or to mistakes in medium and long term visions.
There was an additional factor. While during the late 90´s new dot.com startups emerged every day, one of the most serious crises in Argentina's history was looming. In 2001 the Internet companies, the telecommunications sector and Argentina as a whole burst.
However, what happened in those years added experience. And one of the actors that appeared at the time was the Endeavor Foundation which became a fundamental space to support projects that, in its view, would be able to transform the economy. "The organization was and is an important part of the entrepreneurial ecosystem´s growth within the country. We supported enterprises like MercadoLibre, Globant and Officenet, among others, and we helped them grow. Today they are large multinational and Argentine companies which have a direct or indirect connection with a great part of the beginning of technology companies in Buenos Aires. It is what we call the multiplier effect," they pointed out from the Foundation.
The explosion of the phenomenon and of the bubble became the framework for new different entrepreneur-oriented spaces. Just as Endeavor expanded to the Patagonia, Cuyo, the northwest of Argentina, Rosario, Cordoba and the province of Buenos Aires, investment funds started to appear, many of them created by the dot.com entrepreneurs of the first stage, which intended to support those who had good ideas for their concrete implementation.
In the last decade there was an emergence of incubators and accelerators dedicated to supporting innovative projects so that they could be further developed with the aid of basic and necessary tools to turn an idea into a business.
The evolution resulted in maturity to such an extent that today there are actors from the public sector, not just the private one, being part of different networks that support, with different tools, the so-called "entrepreneurial ecosystem". Such has been the progress that today we are discussing the approval of a draft law that would enable the creation of companies in one day.
IT and Innovation
After the dot.com crisis and the Argentine debacle the country witnessed a new phenomenon: the development of quality software and information services, but with an additional element.
The devaluation at the beginning of the millennium facilitated products’ global competitiveness. In 2005 tax benefits helped promote the software industry, one year after being declared an industry. It was the time when world class information technology companies being founded.
"The style of services created by Globant, which is quite diversified, is one of the most innovative. Then there is Grupo Assa, and after them many other companies moving in a similar direction. Some are engaged in the development of business processes (BPO), others in web and mobile technologies, and that is the differential that Argentina was able to develop over the last 10 years and which puts the country in a special place in Latin America and in the world," said Alejandro Artopoulos, Learning Technologies Laboratory Director at the University of San Andrés (UDESA).
Norberto Lerendegui, Director of the School of Engineering and Technology at Buenos Aires Institute of Technology (ITBA), has a similar vision: "there is a lot of computer application activity in web products. Those IT areas that pay attention to creativity in both mobile and web applications for online businesses are the ones that stand out."
In 10 years the software and computer services industry went from a business of just over USD 1.279 billion to one that, by the end of 2015, moved almost USD 3.5 billion. Of this volume, exports increased from USD 247 million in 2005 to more than USD 1 billion a decade later.
In turn, that trend translated into the generation of employment, which increased from 32,900 employees to 81,800 professionals in the same period, according to the Argentine Software and IT Services Chamber of Commerce (CESSI).
The growth and the experience developed over the years are tempting "other countries to emulate the business models created in Argentina, as in the Globant case, that is, they want to consolidate themselves into models outside neighboring countries or outside Latin America," added Artopoulos.
The Internet is to thank for this phenomenon. "The Internet opened a room with thousands of doors and each can be explored because they all lead to new businesses, nothing is already established," pointed Lerendegui.
This is where the power of creativity and innovation lie. The digital world poses problems. Creativity aims to solve them. The entrepreneurial spirit of the average Argentine, coupled with the experience gathered from so many crises and from finding solutions to problems with scarce resources, are the greatest strength of this country. That is what any experienced investor should consider first if they want to take risks with the knowledge that they will win.
That also explains how during the past decade multinational companies have decided to set up software and services development centers in the country. The public education system, even with its deficiencies and its crises, continues strong. And in those places where there is a state university there is also an enterprise hub that bets on its evolution.
What is most interesting is that, unlike other activities, this one is not exclusive to the metropolitan area. There are hubs and clusters distributed in different areas of the country: besides those in Buenos Aires we can add the ones in Córdoba, Santa Fe, Tucumán and the Argentine Northwest area, Cuyo, and Patagonia. There are creative forces aiming to address the specific issues of the economies of each of those regions.
Services and Innovation
Argentina exports knowledge-based services for more than USD 6.5 billion annually. Its focus: legal, accounting, engineering, software and computer services and audiovisual production. Opportunities to climb positions positions globally.
Today Argentina is on the services radar. This is explained by the work that has been done for two decades by entrepreneurs who succeeded in transforming aspects of society with their ideas, and by the political and academic initiatives to collaborate in a move that, at the end of the chain, generates foreign exchange and employment, two key variables for an emerging country.
Today Argentina exports knowledge-based services for more than USD 6.5 billion annually, which enables it to get on the podium of services that generate the highest level of foreign exchange after the agro-industrial and automotive industries.
The knowledge-based services (SBC, for its initials in Spanish) address several areas: legal, accounting, engineering, software and computer services, architecture, consulting and audiovisual production. Should any changes occur in the latter segment, in the short-medium term, the country would climb positions globally.
"The audiovisual segment boomed almost 10 years ago driven by the great creativity of Argentine professionals and by technical expertise. But the recognition does not only come from Oscar-winning movies but also because this category includes advertising," said Luis Galeazzi, President of Argencon, the entity that gathers SBC companies in the country.
While in recent years official policies linked to the dollar made costs skyrocket and many production companies took the decision to move to other countries, Argentines are still in charge of the work, a clear indication of the level of talent coming out of the country.
"Rising costs and legislation for the protection of unions have turned it into a very rigid segment, while the nature of the audiovisual market is flexible because the activity is unstable, not permanent and the work is project-based. Argentina's audiovisual industry is very creative, very original, but when it comes down to the field, much of the business is lost. It is an industry with a huge projection but has to face these obstacles," added the executive.
In 2014 Argentina was, along with Spain, one of the Ibero-American countries that promoted the largest number of feature films, according to the Ibero-American Audiovisual Observatory, with 404 productions, even ranking higher than Brazil. A similar behavior was seen when evaluating digital feature films. Argentina was once again in second place, on the same level as Ecuador, and behind Portugal.
From Argencon they pointed out that the currency devaluation allowed the production costs to adjust but they also clarified that not everything depends on the dollar. "Aid from the State is needed in order to promote the national industry, for example, by taking part of the cost of production to invest in the sector," said Galeazzi.
This is an aspect that today is being analysed by the Argentine government with the aim of promoting the development of a segment which, should it obtain the tax benefits the software industry achieved 11 years ago, could multiply several times the level of production, of employment and, therefore, of foreign exchange generation.
Meanwhile, the main SBCs are professional services, that is, legal services, accounting services, audits, taxes, and so on, which are carried out from Argentina for major multinationals in the world. "Of the USD 6.5 billion that the country exported in SBCs in 2015, USD 4.5 billion corresponded to that category," said Galeazzi. It is what explains the existence of more than 40 shared services centers in the country.
Transnational companies usually have four or five global service centers distributed in different parts of the planet. Argentina is one of those chosen centers. It is a place that already has a consolidated presence in the international radar. Education and diversity, attitude and experience, a mature market, the advantage of proximity (at a cultural level, with countries in the region and Europe, and it has a favorable time zone), the Argentine culture and the price-quality relationship are considered the six key factors in choosing the country to invest in SBCs, according to Nearshore Americas consulting firm.
"Our universities are strong in these areas. There is high professional quality. And this makes the country competitive in high-end services. Argentina is no longer competitive for the most basic services. Due to our social structure, Argentina is not a cheap labor country. We are neither as expensive as the great world centers nor too cheap. We are in a medium price range and with high added value. We no longer are the cheapest place, but that is OK, because our socioeconomic level is not low," concluded the President of Argencon.
Where to look
According to Alejandro Artopoulos, Learning Technologies Laboratory Director at UDESA, the sectors which any good investor should pay attention to in Argentina are: e-commerce, microelectronics and IT for the agribusiness sector.
The e-commerce sector seems to be self-explanatory. The creators of MercadoLibre, Despegar and OLX were Argentines. And today the country is again pioneering initiatives connected to the online sale of products and services.
But the UDESA professor also referred to microelectronics. He mentioned a case in Bahia Blanca (Province of Buenos Aires), where a company created a product with its own microchip. "Argentina has the capacity to design microprocessors autonomously. And this can be transferred to electronics in general and arouse interest."
"Another important subject is agrotics. This sector will soon take a great leap. There is a challenge to find the right application in a very dynamic market, where we will see a strong boost from investors," he said.