BUENOS AIRES — Domingo Faustino Sarmiento, the 19th century activist and intellectual who went on to be Argentina's seventh president, was a firm believer in the education.
"May the entire Republic be a school," he famously said.
Sarmiento understood how education and the knowledge people gain from it can contribute to social equality. Little did he suspect, however, that knowledge would also one day be a major source of export revenue.
Thanks to the Internet and globalization, Knowledge Based Services (KBS), which barely existed in Argentine 20 years ago, are now the country's third leading export after soy (and related businesses) and the automotive sector, which generated $20 billion and $9.6 billion respectively in 2014.
Research and development, advertising, computer animation, engineering, auditing, legal advice, programming etc.. There seems to be no end to the services promoted by the Argencon agency, which touts a long list of firms that seem to need just an Internet connection to take their products and services to clients worldwide. Argencon estimates that the sectors it promotes now employ half-a-million people, a quarter of whom work for clients overseas.
Domingo Faustino Sarmiento's influence also crossed borders. Here, a statue of him in Boston, Massachusetts — Photo: Ignacio Nicolás Rodríguez
In the decade to 2011, KBS exports grew by an average of 20% a year, though the dollar inflation affecting the country has curbed that growth rate since. The result has been a trade surplus, according to Lorenzo Sigaut Gravina, an economist with the consultants Ecolatina. The car industry, in contrast, is "clearly in deficit," he says.
Argencon believes conditions are in place for renewed growth. "The world still needs talent and young people will continue to study," says company head Carlos Pallotti. "In education, Argentina has a system that is not volatile and allows you to make predictions."
While the exchange rate is a factor, Pallotti believes it is not as important in KBS as in other, lower-value services such as call centers. "The call center can be massive in terms of job numbers, but has a very high rotation level and is more sensitive to the price of the Argentine peso. The slightest increase in price can lead investors to move the call center to another country. With higher value added services, there is a wider tolerance margin because what matters is the quality of the service," he says.
In May, the investment bank JP Morgan announced it was hiring 1,000 young Argentines to provide financial and technology services to its other branches. The consultants Accenture recruited 700 people in a similar fashion in 2014, and is set to do the same this year. HSBC's Argentine subsidiary is competing with other offices to win a contract for services, which would create 900 jobs here.
As Pallotti points out, firms engage in this kind of transnational outsourcing because they really need qualified individuals. And in terms of a relative abundance of professionals, he says, Argentina "is at the same level as Brazil and Mexico," two strong regional players.
Globally, Argentina's competitors as service providers in the same price range are India and Eastern Europe. It is hardly a coincidence that the three production centers operated by U.S. engineering firm Ch2m Hill, which supplies blue prints for clients across the globe, are in Poland, India and Argentina.
ICh2m Hill's Buenos Aires offices specialize in designing energy plants for the Americas. "Since 2002, we have exported more than two million hours of engineering" from the premises, says the firm's local head, Manuel Aguirre, who oversees some 700 engineers.
Aguirre says that quality, more so than price, is the most important factor for services of this kind. But he also acknowledges that high inflation in recent years has forced his office to reconfigure its markets: "In 2002 we exported 80% of what we did; today most of the business is inside the country," he says.
Aguirre says that clients appreciate in particular how decisive and cultured Argentine workers tend to be, and how strong the country's universities are. "With regards to engineering, both the private and the public universities are at a very high level," he says.
The software developer Globant is perhaps the best example of Argentina's KBS export success. Created in 2002, it already acts like a multinational: 90% of Globant's revenue comes from the U.S., it is traded on Wall Street and is already involved in the purchase of firms as far abroad as India.
Mundo Loco, a 400-person computer animation company best known for its work on the film Metegol (The Unbeatables), is another KBS success story. So far Metegol has raked in some $30 million, according to Mundo Loco's create director, Gastón Corali. "That was just the start" he says. "We've already signed contracts for three animation series worldwide and another feature film."