Thomas White Global Investing
Chile
Chile Stamp
April 1, 2011
A postcard from the Americas
Chile: The next IT hub

Santiago

The fact that half of Chile’s workforce is based in the capital, Santiago, is an added attraction for overseas firms outsourcing their technology operations to Chile-based IT companies.

India, the IT and outsourcing capital of the world, has competition. A country less than a quarter of India’s size and only slightly more populous than the most crowded Indian city is doggedly positioning itself as the next IT hub. For some time now, Chile’s IT industry has been striving to garner business from North America, the largest and the most important market for global IT service providers and outsourcers, and if statistics are anything to go by, the sector is making tidy progress. The Chilean IT industry grew its revenues 18.5% to $3.5 billion in 2010 on the strength of this North American push and investments in the industry have been increasing 8%-10% a year.

For sure, the Chilean IT industry is still very small, even by Chile’s standards. It accounts for a mere 1.7% of the country’s economy now. However, what is remarkable about Chile’s IT ambitions is the strategy the tiny nation has adopted to compete with IT superpower India and other established players like Mexico, Brazil, and Argentina in the global market. In a rapidly changing, globalized, and technology-driven world, IT service providers and outsourcers have typically employed large workforces in order to provide services across technologies and business segments. But Chile has turned this conventional growth strategy on its head. Without the benefit of scale — the country’s total workforce is only about 7 million — Chilean IT companies are targeting specific industries and providing value-added specialized services.

According to a former CEO of Chile-IT, a government-backed, non-profit organization that facilitates the entry of Chilean IT companies into the U.S., Chile specializes in providing software and services for the mining, industrial, financial, and government markets. Some of the niche areas that Chile-IT’s 500-odd member companies have been focusing on are mobile banking and digital marketing, among others. Chile-IT’s member companies include IT consulting company Datco, data center design firm Eticsa, applications development outfit Coasin Global Services, online banking systems maker Excelsys, Web development specialist Ki Technology, and manager of data centers for utilities Synapsis.

Chile has been relying on not just value-addition and specialization but also its inherent advantages to bag IT service and outsourcing contracts from foreign clients, especially those in the U.S. For instance, besides being politically and economically the most stable economy in the region, Chile has a sophisticated telecom infrastructure, the highest Internet and broadband penetration rates in Latin America, and, most importantly, a work culture similar to that of the U.S. What’s more, the country is in the same time zone as New York and the eastern U.S. The fact that half of Chile’s workforce is based in the capital, Santiago, is an added attraction for overseas firms outsourcing their technology operations to Chilean IT companies.

Nonetheless, the Chilean IT industry’s initial success couldn’t have been possible without the help of the federal government, which has been investing heavily in the IT and BPO sectors. Being the world’s largest exporter of copper, Chile has been taking advantage of the copper boom and the consequent trade surplus to provide attractive incentives to companies in the IT sector. But its primary role has been to lay the social foundation for the growth of the IT industry. Thanks to its advanced education system, arguably the best in Latin America, Chile produces highly skilled graduates, especially in subjects such as programming and analytics. It is on the back of this talent pool that the country has been able to mold itself into an exporter of specialized IT services.

Last year Chile got into the news for its innovative use of technology to rescue 33 people trapped in a copper mine. The years ahead will likely see Chile staying in the news for being an exporter of innovative information technology services as well.

 

Image Credit: chano_garrido under a Creative Commons license

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