Telecommunications Infrastructure
Computing & Internet Diffusion
Analysis: Strengths & Weaknesses
Analysis: Impacts on non-IT business
Analysis Impacts on IT business
Impacts on the IT business
The deregulation of the telecommunication industry paved the way for foreign investors to break into a market that had virtually been untapped. Following the highly anticipated liberalization that took place in November 2000, a flood of investment from abroad, in particular by technology firms, had almost saturated the federal capital, looking for opportunities to expand their products and flourish economically. With the new presence of IT firms in the country came a development of local talent that created small start-ups and became more specialized in the areas of software and hardware development, as well as computer programming.
The following paragraphs should provide readers with more insight as to how global firms such as IBM, Oracle, and Sun Microsystems, measure and evaluate countries such as Argentina to conduct business. From the standpoint of these high-caliber global IT firms, would Argentina be a country that these corporations would look to obtain quality hardware and software manufacturing, or better, would IBM consult an Argentine firm to design hardware or software for a new product they are attempting to launch? An alternative viewpoint that might be assumed by such firms is looking to Argentina not so much for what is can offer firms today, but rather, what Argentina will be able to offer in the upcoming years. For many international firms, Argentina is perceived as a country that contains a wealth of resources (educated and skilled labor force, infrastructure) that simply need to be developed more aggressively.
In the wake of the U.S. IT boom, heavy discussions by government officials and industry leaders to deregulate the telecommunications industry in Argentina were underway. Meanwhile, many multinational IT firms were examining Argentina as a country where there was much talent to be utilized and where there was also extensive land to be developed. With the highest per capita GDP, a highly educated middle class and a trained labor force, Buenos Aires was viewed by outsiders as a city that had great potential to emerge as one of the hubs for connectivity, internet start-ups and the coming wave of e-commerce. In addition, the De la Rua administration had clearly demonstrated its commitment to Internet expansion and commercial services by outlining initiatives that would increase Internet penetration nationwide. For many Latin American IT professionals, the greater Buenos Aires area was considered the incubator for Latin American start-up companies because as the trend indicated, most companies that looked to expand to Latin America, looked to Buenos Aires first. For these reasons, Argentina’s telecommunications expansion and development was predicted to have a flourishing future ahead without encountering too many obstacles in its path to success. And so it was, predications proved true and statistics yielded that in 1998 alone, local websites had increased from only 40 to over 200 in a matter of a six- month period. Computers sales also rose; an amazing 17% increase in sales from 1998 to 1999. Undoubtedly, this increase was directly attributed to the promotion and adoption of the Internet nationwide. Similarly, the number of home computers purchased had surged in 1999, with Compaq, IBM, and HP having the leading number of sales and market share inside the country. These statistics reflect the wave of technological improvements that went along with the liberalization of the telecommunications industry. Unfortunately for Argentina, the rapid expansion of foreign telecommunications industries within the country and the surge of local IT start-ups were forced to come to a halt once the country’s economic recession had deepened and threatened the future existence of such firms.
Although Argentina has a highly educated population, at the time of the IT expansion in 1999 and 2000, this human capital was just beginning to be discovered and utilized by domestic and global firms. As a result, the development of hardware and software design and manufacturing centers were in the more primitive stages of development. To get a business up and running, especially for novices to the IT sector, took twice as long as it would take a start-up in an industrialized, highly developed nations. Even with the aid of domestic and foreign capital being pumped into local start-up companies, personnel was continuously faced with the inefficiencies of the country and red-tape.
When the liberalization of the telecommunications industry in Argentina was being implemented, the country was in an economic recession. However, like other nations, Argentina remained optimistic because the new administration had outlined an economic recovery agenda that appeared would rescue the country from economic collapse. National telecommunications firms and technology firms, as well as foreign firms (Spanish and the U.S. in particular), were willing to take a gamble on Argentina, not anticipating that the economic recession could get any worse.
With unsustainable debt levels and a currency pegged to the strong U.S. dollars, fears amongst domestic and foreign investors who had invested heavily inside the country have only deepened. In recent months, Argentina has witnessed a wave of capital flight by investors who are desperately attempting to salvage investments made when the recession was not as threatening. Entering its 4th year of economic recession, which is only worsening, and coupled with the economic downturn of the U.S. economy in recent months, Argentina’s foreign direct investments have come to a serious halt. In addition, weak consumption amid this economic crisis has further weakened the state of nation. Cost cutting efforts by domestic firms has done little to regulate and stabilize revenues and with a default looming, the mood amongst many of these firms is negative.
With regards to investments in the technology sector within Argentina, global multinational firms are staying clear of Argentina. Rather than expanding there products lines, companies such as IBM and HP, have sizably reduced their inventories because there is no demand for the purchase of PC’s. Such firms have decided to weather the storm by remaining on the sidelines, patiently waiting for the economy to recuperate so that they will be once again able to exploit the wealth of opportunities that were once accessible to them.
