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New IT Center: Viña del Mar, Chile

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Genshare's new center in Chile will boost the country's credibility as an IT center and improve competitiveness, experts say.

CHRONICLE SPECIAL
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This year, the American multinational General Electric and UST Global, an IT outsourcing company with headquarters in California, will be joining forces to open a new software-development center. But the joint venture (JV) won't be based in the usual global high-tech hotbeds of, say, Silicon Valley or Bangalore, as one might expect. Rather they're opening the centre in the Chilean coastal town of Viña del Mar. Called Genshare, the center will involve a US$30 million investment and is expected to provide some 1,000 new jobs over five years as it works closely with UST's centers of excellence in India. What better way to show how IT can play a big role in all of Latin America's economic recovery.

Joe Nalkara, COO of UST Global, says the company’s arrival in Chile reflects how it's "taking advantage of the maturity of India’s IT market while diversifying [its] portfolio of services in another country," adding to the eight countries where it already has a footprint. UST chose Chile because "it provides a combination of both a strong workforce and economic stability,” he says. Its location is also an important factor, which will help UST cover yet another time zone in order to provide round-the-clock service more easily.

With the center expecting to employ between 200 and 250 engineers and other IT experts by the end of next year, Alejandro Bottan, president of GE in Chile, cites the positive repercussions of the joint venture on the labor market. Chile's software sector, he says, "will quickly transform itself into a great generator of jobs by requiring an increasing number of young trained professionals and enjoying growing revenues.”

Bottan also notes, “Because [GE is] a global company with operations in more than 120 countries, we have significant demand for software programs and systems.” The technology center will also serve third-party customers worldwide, especially in the U.S. and Europe.”

It's not just UST and GE that are bullish about the economic impact that IT can have. Recent figures from IT research firm IDC show why. Its analysts forecast that the overall sector will generate 690,000 new jobs and potentially create 6,000 new companies throughout Latin America over the next five years.

In many respects, Genshare's opening in Viña del Mar gives the entire country greater credibility in the global IT outsourcing arena. "The joint venture has a great deal of importance for Chile, given that India has positioned itself as an IT leader,” notes Gustavo Donoso, professor at the Catholic University of Temuco’s school of information engineering in southern Chile. Donoso hopes that the center will provide inspiration for other global companies to pursue a similar strategy.

Alejandro Mellado, who also teaches at the Temuco school of information engineering, says initiatives like Genshare "significantly improve Chile’s competitiveness [given their ability to help the country] develop skilled human capital [in a field that's] clearly oriented toward foreign markets.”

Mellado, however, tempers his enthusiasm with a note of caution about the extent to which Genshare alone can address the country's unemployment, which Chile's National Institute of Statistics (INE) reports was 10.2 percent in the third quarter of last year. While the joint venture will create jobs for trained, technical personnel, he says, “it’s the untrained [unemployed] who have the fewest opportunities.”

But as Enrique Canessa, professor of engineering and science at Adolfo Ibáñez University in Valparaíso, says if Genshare is successful, it will help employment throughout the area in Chile where the center is based known as the Fifth Region.

WELCOME NEWS

For cities such as Viña del Mar's neighboring Valparaíso, it's welcome news. "The city has excellent university centers and R&D labs, but its economy is depressed and unemployment is high," says Hernán Astudillo, professor of IT at Federico Santa María Technical University in Valparaíso. The city's unemployment is among the highest in the country, reaching 16.6 percent in July this year, according to the INE. Astudillo also puts the JV into a broader perspective, asserting, “Investment in IT will have a permanent impact [on the whole region] in that it permits, directly or indirectly, significant segments of Latin America's population to emerge from poverty, strengthens local industry and establishes prospects for global growth."

GenShare is just the tip of the iceberg for Chile and a region that generally depends a great deal on the export of raw materials, rather than service sectors. Initiatives such as Genshare "will bring mobility and higher expectations to IT professionals, improve training and eventually create spin-off companies," predicts Eduardo González, professor of engineering and sciences at Adolfo Ibáñez University.

The key, says Astudillo, is to understand how to showcase each country's strengths when wooing foreign IT investors. Panama, for example, could be the destination for IT services investments “because of its low costs and high educational standards". In contrast, Uruguay could concentrate on project development "because of its critical mass of professionals”.

Overall, González says Brazil is best placed to attract the largest proportion of IT investment, and not simply because of its sheer size. “Brazil has shown that it is a predictable, stable manager of its economy, [which is reassuring for] international investors," he says. Economic stability -- as well as being a member of NAFTA, the North American regional free-trade union, and physical proximity to the U.S. -- also bode well for Mexico, he says, while "to a lesser extent, and because of sound political conditions, Chile, Colombia and Peru offer the IT sector good opportunities.”

WALLS COME TUMBLING DOWN

But it's not a given that foreign IT investors will pour into the region, and several issues need to be continually addressed to encourage an inflow of capital. One is the level of technical and professional education. In the case of Genshare, Bottan acknowledges that getting a sufficient number of professionals with a solid knowledge of information systems could be a big barrier during the development phase of the project.

Language, too, could also be a barrier at Genshare. "The training will be in English and Chileans will have to travel to India," Canessa notes. "If they don’t have a good command of English, it will hard for them -- at least in the beginning -- to understand the accent in that country. Nevertheless, this could be counterbalanced by the fact that people in software development refer to a lot of technical concepts in English every day.”

The subtle cultural differences between India and Latin America can also throw a project like Genshare off course.“Indian professionals tend to be very analytical, systematic and structured when dealing with software design, and they have a great capacity for work," says Canessa. "This could clash with what I believe is Chileans' more informal way of working. It is a very good idea that local professionals are trained in India in order to submerge them in the [country’s] work culture.” For that reason, Genshare plans to start off by sending up to 40 Chilean professionals to India to be trained, notes Bottan.

All this translates into an enormous opportunity for one particular constituency: the region's higher educational institutions. A burgeoning IT sector, says Donoso, represents "a unique opportunity” for universities such as his to encourage more students to study IT, and increase their chances of employment after graduation. After all, he says, "demand for these professionals will continue growing for at least the next 20 years.”

Ultimately, adds González, local higher education will become much stronger if universities and training centers are able to tie their curricula more closely with the needs of IT companies. And who knows? There could be a new Silicon Valley in the making. As he says: “Don’t forget that good universities and technical training centers in several countries contribute to the vitality that new IT companies need in order to flourish.”

Republished with permission from http://www.knowledge.wharton.upenn.edu -- the online research and business analysis journal of the Wharton School of the University of Pennsylvania.

 

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