Will India price itself out of the market?

Over the course of the last 7 months we have seen two effects. The first is that the USD devalued sharply compared to all mayor currencies like the Euro and the Yen. And the second effect is that the Chinese Yuan and the Indian Rupee appreciated their currencies against the USD. However, not so for the Argentine Peso. The Argentine Peso has followed the road downward with the USD and even devalued a bit over July to keep its competitive edge.

Please see the following overview:

The combined effect makes outsourcing locations like India, China and Eastern European countries less competitive and outsourcing to Argentina more competitive. The wage rate gap between India and Argentina is thereby closing. When you add that Argentina is in the same time zone as the USA and that it has equal cultural bearings then you can make the calculation yourself. South America, specifically Argentina, increased in attractiveness.

We then look at the average wage rate differential between Argentina and India over 2006. When you deduct 11 % (8 % appreciation Rupee + 3 % depreciation of the Peso) from the 27 % ITO wage differential over 2006 you come to a differential of 16 % over 2007. We see that the gap between Argentina and India is closing.

When we consider the future we see that the Indian economy is seriously overheating which puts even more pressure on the Indian government to appreciate the Rupee against the USD. The government of the United States is also putting a lot of pressure on the Chinese government to appreciate the Yuan against the USD to narrow the current account deficit the USA has with China. Both situations are good news for Argentina that is actually getting more competitive in the face of appreciations of the currencies of competing outsource locations. The Argentine government has given a firm commitment to keep the Peso cheap compared to the USD.

About Connaxis

Connaxis is an Outsourcing Consultancy and Service Delivery Company based in Buenos Aires, Argentina. Our services include Captive Centers and Managed Solutions. One of the activities of the Connaxis Service Delivery Center is its Internet Solution. The Internet Solution offers Web Design; Programming; Internet Marketing; Translations and Multi Lingual Support Services. Connaxis helps companies stay competitive and operates as an extension of the client organization.

For more information on Connaxis

http://www.connaxis.com/outsource-argentina │+54 11 4807 6908

Peter van Grinsven

Peter.van.grinsven@connaxis.com│ Managing Director

Why outsource to Argentina?

Why outsource to Argentina?

Two and a half years ago a Dutch call centre asked Connaxis to investigate the possibilities of the Argentine market. On my arrival there I was constantly impressed by the advantages of outsourcing to Argentina. For a job advertisement I had placed in a major newspaper I received 300 responses. The applicants all spoke two or three languages and requested salaries of just 800 Argentine pesos (€220) per month. Moreover, the country turned out to have an excellent technological infrastructure. When I met my future wife during a trip to Uruguay, it really was the icing on the cake.

My client gave me the order to set up a subsidiary in Argentina. This subsidiary has grown significantly over the past two and a half years. From an initial base of eight staff in August 2004, by the end of 2006 the subsidiary was employing over 150 people.

Another client wanted to start up a company in the tourism sector. We helped this company set up a business in Argentina, creating the website, renting an office and hiring the first employees. The company is now Argentina’s number two in motor home rentals.

After these successful experiences, I decided to help more companies globalise their activities.

“Why Argentina?” you probably wonder. First of all because of the wage costs. To give you some examples: an English-speaking call centre employee costs €2,25 per hour, a designer €4,50 per hour and a senior programmer around €9,50 gross per hour. In short, wage costs are comparable to those of India. Wage costs in Argentina are less than a fourth of the norm in the Netherlands. Furthermore, Argentina has a highly educated labour force. 98% of Argentines have European ancestors and many speak a second language. A large proportion of the population attends bilingual schools from an early age. These are major factors for Dutch entrepreneurs considering outsourcing.

The following table gives a further analysis of the advantages of investing in Argentina:

Criterion	Description	Score	Details
Personnel	Labour costs	++	€9,50 P/H Senior Programmer. €4,50 P/H Designer. €2,25 P/H Call centre employee English/Spanish.
	Skills/ availability	++	Languages: Spanish, English, Italian, French, Portuguese. Strengths: Design, Marketing, Advertising, Programming.
	Labour law	+	It is relatively inexpensive to dismiss an employee.
	Time difference	++	Approximately the same time zone as the USA and 4 or 5 hours time difference from Europe.
	Culture	++	Argentine culture has a strong Euro-centric focus.
	Work ethos	+	Highly-skilled and hardworking labour force.
	Unions	--	Since President Kirchner took office the labour unions have become more powerful.
Infrastructure	Proximity/ Accessibility	--
	Business tax	o	Business tax is comparable to most European countries. No tax holidays for foreign direct investments.
	IT Infrastructure	++	Good, stable and modern infrastructure.
	Bureaucracy	o
Stability	Political stability	+	Stability has returned to Argentina after a turbulent period at the time of the devaluation.
	Macro-economic stability	o	A risky recovery has been achieved since 2002 by boosting consumer spending and placing price controls on consumer goods.
	Legal and regulatory	--	Sluggish legal procedures. Good framework for software through the privacy protection law and through a special software law.
	Corruption controls	o	Needs improvement.

+ + Beneficial; – – Disadvantageous; o Neutral:

Moreover, Buenos Aires is a very cosmopolitan city with thirteen million inhabitants and it is the fifth-cheapest capital city in the world (Mercer, Cost of living report, 2004). Aside from its numerous advantages Argentina does have some drawbacks, such as increasing inflation, red tape and some corruption issues. Nevertheless, the advantages far outweigh the disadvantages. Ten years ago companies started outsourcing to Ireland, five years ago to India and it is now South America’s turn, with Argentina leading the way.

How does Argentina stand out from other low-cost countries?

Argentina is distinguished by its vast group of available and highly-educated staff pool, its European culture and very attractive costs. In Argentina you can outsource high-quality work at competitive prices, including web-design, translation, desktop publishing, technical drawing, medical studies and, of course, programming. Any job that can be done in first world countries, can be done in Argentina for a far lower price. In addition, South America as a whole, and Argentina in particular, is an appealing growth market. Argentina had an impressive growth rate of 9.2% in 2006 and an expected growth rate of 7.8% in 2007.

About Connaxis

Connaxis is an independent consultancy agency that helps companies outsource activities. Activities can be established abroad in the client’s name or they can be carried out by the Connaxis Service Delivery Centre. One of the activities of the Service Delivery Centre is its internet solution, offering a complete package with full website maintenance for very reasonable prices. We offer web design, programming and internet marketing. Connaxis helps companies stay competitive and operates as an extension of the client organisation.

For more information on Connaxis

http://www.connaxis.com/outsource-argentina │ 0054 11 4807 6908

Peter van Grinsven

Peter.van.grinsven@connaxis.com│ Managing Director