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Uruguay: Nueva economía, nueva apuesta
TelePress Latinoamérica / March 2001

By Larry Luxner

MONTEVIDEO -- Roni Lieberman was 21 years old when, armed with a few thousand dollars and an engineering degree from one of Uruguay's most important universities, he started his own software business.

Today, that company, Memory Computec, employs 40 programmers and subcontracts another 60 to develop inventory, payroll and online accounting software. Operating out of a brightly painted, three-story office in downtown Montevideo, the company counts more than 12,000 small businesses -- from florists to fast-food outlets -- among its clients.

Lieberman's main product is Memory Magus, a homegrown version of QuickBooks. With a retail price of only $390, Magus is so popular that the company has begun exporting it to Argentina, Chile and Paraguay. Last year, exports of Magus exceeded local sales for the first time.

"Uruguay's software industry has grown tremendously in the last three or four years," says Lieberman, who's also president of the 170-member Uruguayan Software Chamber. "Today, we're exporting software all over the world, but mainly to other Latin American countries because of similar language, customs and business practices."

Like the gauchos on horseback who pioneered Uruguay's beef and wool industries 100 years ago, Lieberman represents Uruguay's new breed of pioneers: young, ambitious entrepreneurs who hope to put their small country on the map as Latin America's leading supplier of computer software.

Despite its size -- with only 3.2 million inhabitants, it's the least-populated nation in Spanish-speaking South America -- Uruguay is well on its way to achieving software superiority. In 1989, the country shipped only $100,000 worth of computer programs abroad, all of it in the form of floppy diskettes. By 1999, that number had risen to $74 million, with most of that software not actually "exported" in the traditional sense but e-mailed to clients or downloaded from the Internet by clients who paid for the technology.

In 2001, the value of software (both the kind sent over the Internet and software written on CD-ROMs and shipped in boxes) is likely to exceed $100 million. That's still a far cry from Israel, which exports $1.5 billion worth of software per year -- or Ireland, which exports $5 billion -- but it's a respectable sum for a Third World country whose economy has always been dominated by exports of beef, wool, rice and other agricultural commodities.

"Within five years, software will be the main export of Uruguay," predicts Nicolas Jodal, vice-president of Artech, a leading high-tech firm based in the gleaming new Montevideo Free Zone. "We are already exporting more software than Argentina in absolute numbers, and more than any country in Latin America relative to its size, including Costa Rica."

Uruguay's software industry currently employs between 3,000 and 5,000 people, and generates annual sales of $245 million, according to government statistics.

Jodal, 40, says there are several good reasons for this, starting with a 100% digital telephone network, a 98% literacy rate -- the highest in South America -- and a relatively equitable distribution of income, without the extremes of wealth and poverty so common in other Latin countries. Wages for qualified computer programmers are also 25% lower than in Argentina and 65% lower than in the United States, making such companies far more competitive.

"We are a small country, so in order to survive, we needed to look outside," said Jodal. "We have been successful because we have a pretty good educational system here, with a very strong emphasis on computer science."

Artech was co-founded in 1988 by Jodal and current president Breodan Gonda when the two men worked as software consultants at state-run Banco de Previsión Social. When Gonda took a better job in Brazil, Jodal followed him. Eventually, they decided to establish Artech.

"We decided there were opportunities to create a software tool to let consultants develop their own software and allow them to do their work more efficiently," said Jodal.

Today, Artech is Uruguay's leading software exporter, with 90 employees and sales exceeding $10 million a year. Local sales account for less than 10% of Artech's revenues; main export markets are Brazil and Mexico, followed by Argentina, Spain and other countries. The company's sole product is Genexus, which was developed in 1989 and sells for $5,000 a copy.

"The first time we exported Genexus, we went through customs," Jodal recalled. "We were exporting four CD-ROMs, so it was worth $20,000. The inspector asked us the weight of the product. Less than one kilogram, we told him. He said that it couldn't possibly be worth more than cocaine."

These days, Artech doesn't even bother with customs. It uploads its program on the Internet and makes it accessible to customers who have paid up front. Among Artech's 3,000 clients are local companies like fuel distributor Ancap and dairy cooperative Conaprole, as well as multinationals such as Nestle, AIG and U.S. Steel.

"Genexus is for people working in the development of applications," says Jodal, noting that both IBM and Microsoft have endorsed Genexus. "It's a tool that helps developers create software applications, especially Web-based applications."

Besides Artech, several other software companies are located in the Montevideo Free Zone, among them De Larrobla y Asociados, which develops banking software; Solur, which produces solutions for the beverage industry, and Ibersis, a division of Spain's Unión Eléctrica Fenosa. Ibersis provides software and consulting services to utilities, banks, hospitals and cement plants.

Other leading software companies in Uruguay include computer consultant Grupo Quanam and Citicorp, which develops its own software in Montevideo for use in its Latin branch operations.

"From the local point of view, we're not exporting anything. We're licensing the use of software," said Jodal, who together with Gonda owns over 90% of the company. He declined to disclose profits, saying only that "business is good."

Helping the country's competitive edge is the fact that 13% of all Uruguayans have Internet access -- the highest penetration rate in Latin America. In addition, as of last year Uruguay boasted 107 Internet hosts per 10,000 inhabitants, according to the U.S.-based Internet Consortium. The next highest in the region was Argentina, with 53. The Uruguayan Software Chamber has 170 members, while Argentina's has 130 and Chile's only 100.

"The investment climate is very favorable because we don't have social problems," says Lieberman. "Also, many people have studied informatics, and university education in Uruguay is free."

Yet Uruguay's smallness is also a disadvantage, says a report by the Economist Intelligence Unit.

"Despite domestic advantages, the industry's export potential is limited, mainly because of Uruguay's small-country status, lack of sufficient credit and a short track record," according to the EIU. "Large-scale marketing campaigns in countries such as the United States and Japan are prohibitively expensive. New business is typically generated by word-of-mouth and endorsements by multinational companies."

Says Lieberman: "Uruguayan software exports are today concentrated among just 20 companies. What we'd like is for our members to export more. They already have the quality, but they don't have the management skills to export and market their products. In most cases, these companies were founded by young people who knew informatics but didn't have the slightest idea how to run a world-class business."

For local role models, such entrepreneurs can look to Fernando Espuelas, the Uruguayan-born chairman and co-founder of StarMedia Networks, Latin America's largest Internet portal, as well as Roberto Vivo, the Uruguayan-born founder of rival Internet portal El Sitio, and Waldemar Fernandez, owner of Internet service provider Interland.

Another problem is bootlegged software. According to the Business Software Alliance in Washington, 71% of all computer programs in Uruguay have been pirated.

Dr. Gabriel Pais Rivanera, a legislator specializing in economic reform issues, says that in October, the Chamber of Deputies approved a law that establishes sanctions and penalties for illegal reproduction and sale of bootlegged software, and for protection of IPR (intellectual property rights).

The law still needs Senate approval, and Lieberman is lobbying hard for its passage.

"We are trying to bring companies to Uruguay, world-class companies, so we need an IPR law for them to come. This would improve the credibility of Uruguay throughout the world," he said. "Today in Latin America, we're very well-positioned, but if an Uruguayan company wants to export software to the U.S. or Europe, it's a big problem."

Jorge Batlle, Uruguay's new president, is pushing for enactment of a law that would grant tax exemptions to companies -- local and foreign -- that purchase capital goods to be used in producing software and intellectual property. Companies engaged in manufacturing, mining and agriculture already benefit from such incentives under the 1998 Investment Promotion Law.

In addition, the Batlle government wants to create a "polo tecnologico" -- a center to attract high-tech investment -- on the premises of the Technological Laboratory of Uruguay. Incentives will include rent-free land and offices in addition to special financing terms.

The proposal enjoys backing from StarMedia's Espuelas, who may invest up to $10 million in a fund that encourages Internet-oriented programmers.

Meanwhile, Jodal says he's trying to crack potentially lucrative markets for Genexus like Colombia, Peru and Venezuela, while his team of "geeks" at the free zone sit at computer terminals, racing to develop Version 7 of the hugely profitable software program.

"In this industry, to survive you need to ship a new version every year, at least," says Jodal. "Your product could be great one year, but if it's not better next year, you're dead."

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