Info. Technology - Mexico

ANALYSIS: Jalisco, Latin America's Silicon Valley

ANALYSIS: Jalisco, Latin America's Silicon Valley

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With a population of some 6.6mn and per capita income of around US$9,800, Jalisco is the fourth largest state in Mexico and has become one of the most attractive destinations for IT firms that are looking to penetrate Latin America but stay close enough to the US to oversee operations.

Companies such as Intel (Nasdaq: INTC) or Texas Instruments in the hardware segment, HP (NYSE: HPQ), Tata Consultancy Services (TCS) and IBM (NYSE: IBM) in the services side, have come and set up in Jalisco's capital Guadalajara. Companies are singing the praises of what the location, the government, and education systems have done to help them get set up in the doorway to Latin America. Other cities in Mexico and throughout Latin America should take note.

THE SCENARIO

Mexico has a distinct opportunity to develop as a leading hub for IT and IT enabled services (ITES) in Latin America, according to a report from the World Bank. Mexico is close in proximity and shares the same time zone as the US. In addition, its large labor pool and language give access to the Spanish-speaking population in Latin America and the US.

Recognizing the potential of the IT industry, the Mexican government requested World Bank funding for the IT and ITES sector. In order to consider the funding, the bank carried out a study and found that many states in Mexico could potentially participate in the IT/ITES sector. It also found that the opportunities in Jalisco state are mostly related to advanced IT services.

"Mexico is turning out to be very attractive, not only because of the closeness to the US but also because of the human capital. When companies analyze the different countries, they find Mexico is very well prepared and has an important availability [of human resources]. There might be a country with equally qualified human capital, but probably not with the critical mass this industry requires," Edgard Fierro, general director of IDC Mexico told BNamericas.

Referring specifically to Jalisco, Fierro said the state government started an incentives program several years ago to promote the electronics industry, leading to investments by companies such as IBM, HP and Intel.

"But today there have been investments from several other companies in other areas such as Hildebrando, Softtek, Telefónica, Hispanic Teleservices, and others," he said.

Fierro also highlighted the promotion efforts of local industry associations, which led the state government to invest in three IT hubs, the first of which is a software development center known as Plaza del Ángel in Guadalajara. The hub was opened in September 2006 and already houses 33 local and international IT companies, including Intel and HP.

A second hub is known as Ciudad Guzmán was set up by local IT institute Ijalti together with business development group Centro Regional de Formación Empresarial. The second phase of the project is for another building three times as large as the current 800m2 and with sufficient space for some 500 employees. By the end of 2009, the entire 4ha technology center will be complete and set to house more than 2,000 employees.

There is a third hub under construction in the town of Chapala, outside of Guadalajara. This 600mn-peso (US$54mn) project is designed to house large software and multimedia firms.

GOVERNMENT EFFORTS

"The efforts of the authorities - local and federal - in understanding and providing the necessary support for this industry has played a very important role. Globally, this support needs to materialize in incentives, not only economic, but in initiatives that attract, retain and facilitate the development and consolidation of key players in this industry," Julio Acevedo, HP director at the Guadalajara facilities told BNamericas.

HP Guadalajara began operations in 1982 as a manufacturing facility, passing from supplier management to logistics operations and R&D activities for paper handling accessories and later, for multifunctional printers. Today the company operates three sites -Montemorelos, Toluquilla and Las Fuentes - with increasing high value-added business, including logistics operations, direct and indirect procurement, BPO financial and administrative services and IT support.

According to Acevedo, HP's historical presence in the state was one of the reasons for continued investment in the city. It opened the fourth building of its global business center in Guadalajara in May 2007.

Another important reason for investment was the incentive and support programs provided by the state government, which translate to tax reductions and subsidies for companies that decide to operate in Jalisco.

However, most states in Mexico offer fiscal benefits to companies of any industry for investing in the country. What sets Jalisco apart from the other states is that Jalisco has focused on developing the ICT industry, and the quality of its human resources is also highly relevant, IDC's Fierro said.

UNIVERSITIES PLAYING A KEY ROLE

Jalisco has a large number of universities that, unlike many other countries in Latin America, develop their curricula based on working closely with the local industry.

"There are some 230 universities, and one thing that is a characteristic in the state is that they are all related to international entities, such as Intel or Texas Instruments in the area of semiconductors, and they are also establishing alliances with IBM and others," Fierro added.

Fausto Palma, manager for IBM's (NYSE: IBM) customer solutions center in Guadalajara, believes an attractive element in Guadalajara is the close partnership between the government, the industry itself and the universities.

"In the academic world, there are five prestigious universities, a lot of trained professionals and a professional profile that has developed over the years, where they take an area of specialization and can then form part of the industries that are hot in the state," Palma told BNamericas.

Similar to HP, IBM selected Guadalajara to launch its first Global Archive Solutions. The company has been assembling its tape storage products in the city since 1999, "so there are many years of experience in the hardware product that contains the archiving solutions," he added.

The center is the first specifically designed to help clients across the globe develop and implement long-term plans to manage and archive massive amounts of business information. IBM plans US$10mn in investments for the next 2-3 years, mainly on training and infrastructure.

"In these years we have generated a base of talent that is globally recognized for solving business needs in relation to information storage. So what IBM did was take advantage of that talent and open the center to share that knowledge with clients," he added.

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