By Colin Barraclough
Argentina's cattle-rich Pampas are a far cry from Silicon Valley, yet its heartland province of Córdoba is fast emerging as one of Latin America's leading software-development hubs. In recent years, Córdoba's governor, José Manuel de la Sota, has persuaded a growing list of blue-chip multinationals to set up research and manufacturing units in the region.
Lured by a potent mix of tax breaks, subsidies, and provincial infrastructure spending, Motorola (MOT ), Volkswagen (VLKAY ), and Lockheed Martin (LMT ) have all invested in the region. Now the governor has notched up another success by lassoing giant chipmaker Intel (INTC ).
Intel Chairman Craig Barrett flew to Argentina on Sept. 19 to sign a letter of intent with de la Sota, agreeing to create a software-research facility at a university campus in Córdoba. That's only its third such center outside the U.S. Barrett considered four possible locations, finally opting for Córdoba because of its cluster of technical institutes, mature local software businesses, and an incentives package that de la Sota enshrined in the province's industrial-promotion law.
"Córdoba's investment framework is well developed and written into local law," says Esteban Galuzzi, Intel's general manager for the Southern Cone, a region that encompasses Argentina, Bolivia, Brazil, Chile, Paraguay, and Uruguay. "We essentially knew what was on offer. Still, once the province found out that we were prospecting, they were extremely active in approaching us."
Governor de la Sota, 55, has presided over Córdoba, a province of 3.1 million people, since 1999. The former lawyer won a second four-year term in 2003. Like the country's 22 other provincial governors, he enjoys substantial autonomy from the federal government in Buenos Aires. He has put that independence to good use, drawing foreign investors to a regional city that has punched above its weight since Jesuit monks chose it as the location of Argentina's first university in 1613.
Shortly into his first administration, de la Sota cut provincial tax rates on businesses by 30%, tightened spending, and announced a package of tax breaks and province-funded upgrades to transportation and communications links to assist incoming investors. In 2000, the mix persuaded Motorola to build a $40 million software-development center in the province, one of only 14 such facilities in the world, by donating a plot of land and footing the bill to train the outfit's 500 employees.
The year before, de la Sota flew to Germany for face-to-face talks with Volkswagen's top managers, pledging to build a new road to an existing VW plant in Córdoba if the company injected new funds. The visit paid off: VW subsequently unveiled a new $200 million transmission unit at its plant. Lockheed Martin, which manufactures military training aircraft in Córdoba, received tax breaks when it took on extra staff.
The province's business-friendly climate is paying other dividends. During his first two years in office, de la Sota silenced critics of his tax cut by boosting tax revenues by 4.1%. More recently, Córdoba's economy has outperformed the rest of Argentina. In 2004, gross domestic product rose 9.7%, compared with 9% at the national level. Unemployment fell to 11.5% in December, 2004, while nationwide it was 12.1%. Moreover, the city of Córdoba boasts the highest proportion of college graduates -- 12% of the population -- in Latin America.
Yet Córdoba is primarily an agricultural province: A full quarter of its income is earned from soybeans, wheat, maize, and livestock farming. Indeed, Córdoba accounts for 15% of Argentina's cattle production.
Intel's software lab is scheduled to open in early 2006. The chipmaker will employ 430 software developers, but Córdoba will pay a 7.5% cash subsidy toward salary costs for eight years and find the $1.5 million needed to build the lab on the province's National Technology University campus. Intel also stands to pick up locally developed knowledge in medical software, which fits into its core "digital health" business line.
. Despite the low dollar terms of the Intel deal, landing such a marquee name is a coup for de la Sota. Competition for such investments is fierce: Officials in Chile are still smarting from losing out to Costa Rica in 1996, when Intel created its first testing facility in Latin America.
What makes de la Sota's coup all the more surprising is that it comes amid a sustained campaign of hostility toward foreign business by Argentina's President, Néstor Kirchner. Kirchner, who took office in 2003, has maintained a price freeze in the government-regulated utility and telecom sectors that was first imposed in 2002, despite the Argentine peso's 70% drop in value against the U.S. dollar in that period. Unable to maintain profitability or weaken the President's inflexible stance, foreign companies such as France Télécom (FTE ) and engineering group Suez have pulled out of the country.
In March, Kirchner urged consumers to boycott Royal Dutch/Shell after the company announced a 3.4% hike in gasoline prices. Within 24 hours, pro-Kirchner activists had barricaded scores of Shell stations across the country. Sales fell as much as 60% over the next month, forcing the company to drop the hike.
Intel managers point out that, in contrast to the utility and telecom sectors, software is not government-regulated. Indeed, they laud the Kirchner administration for what they describe as consistently pro-technology and pro-education policies. "Argentina's research funding is doubling each year, the government is promoting technology in schools, and the education budget will soon reach 6% of GDP," says Galuzzi. "The technical universities are feeding a huge number of software graduates each year into a competent and well-run industry."
Richard Wirt, head of Intel's software and solutions group, twice visited Córdoba to assess the quality of education in technology and hard sciences, research capabilities, and resident software businesses. "Only when these items each had a solid check mark did we look at the business side," he says. And thanks to de la Sota's incentives package, that part made sense, too.
Barraclough is a writer based in Buenos Aires