How Latin America Is Setting an Example for Tech Hubs Around the Globe
Go back two decades and the words “technology” and “Latin America” were almost never found in the same sentence. Inadequate infrastructure and political unrest prevented large multinational IT firms from investing in the region. However, as the tech talent migrated to San Francisco, government initiatives, investments by private entities, and educational reforms, it heralded a change in LATAM countries.
Today, Latin American countries have the fourth-largest internet consumption in the world, according to Statista. While the IT world placed its focus on major players such as China and India, countries such as Costa Rica and Peru got involved in the tech race and now produce some of the brightest IT minds on the planet.
Much of the growth comes from native startups that attract investors from all across Europe, China, and the United States. According to the International Data Corporation, LATAM is expected to experience a projected growth rate of 5.3% heading into the 2020s with the world average being at 3.3%.
According to research published by CBInsights, more than $5.7 billion has been invested in tech startups since 2012 by American and Chinese investors. In this blog, we’ll focus our attention primarily on Costa Rica and Peru, two LATAM countries that have already managed to cement their reputation as bona fide tech hubs.
From tourism to coffee to tech and innovation, Costa Rica is one country that isn’t afraid to explore new economic grounds by reinventing itself over and over again. Over the past few years, the Costa Rican governments’ focus on tech and education has paid significant dividends. The country has built solid bedrock of IT and welcomes foreign investors. In fact, it has already started plans that aim to make the entire population bilingual.
An abundance of talent has prompted 29 of the Fortune 100 businesses to set up regional offices and includes name such as Intel, Amazon, Hewlett and Packard, IBM, Procter and Gamble, Dole, and many more. The reasons behind the meteoric rise of Costa Rica as a tech hub are many. For one, the country’s relentless pursuit of creating a highly-educated workforce has resulted in an impressive 97.5% literacy rate, as stated by knoema. This has facilitated growth for a multitude of technological sectors including microchips, life sciences, manufacturing, fintech, and software development.
Costa Rica also ranks as one of the highest English-speaking nation as well as having one of the most developed education systems in the region, according to the Global Innovation Index. For example, the Instituto Tecnológico de Costa Rica (TEC) and the Universidad de Costa Rica (UCR) are both highly regarded as being two of the best educational institutes in North and South America. These universities offer majors in high-precision engineering, mechatronics, and computer science.
Support from the government
Intel was one of the first major companies that entered the region and opened the largest microchip factory back in 1997. It invested $800 million and helped put the country’s name on the map. It later closed its factory and set up an R&D center with a focus on digital technologies.
In the two-decades that followed, the country has allotted 0.47% of its GDP to science and tech development and has increased investments in the field of innovation and technology. But that’s not all, the government also decided to inject capital into the public sector as well. In 2018, the government created and implemented a new plan as part of its Digital Transformation Strategy 2018-2022. This includes facilitating the use and reliance on technology for public institutions in order to increase the quality of life and boost economic development.
Unique in more ways than one
Costa Rica has a unique tradition of peace. The 120-year old democracy has experienced economic and political stability ever since it decided to abolish its army in 1948. This created an influx of funds which were invested in where it mattered the most—the people. Between the year 2000 to 2016, 7,028 new businesses were registered. During the same period, they exported “high-tech” goods generating around $900 million.
It’s astounding how a country that occupies 51,000 square kilometers of land and has a population of 5 million houses 546 IT businesses, performs 12,281 commercial activities, and creates over 300,000 jobs in a single year.
Renowned “Tech Parks”
One of the primary contributors to the rising number of development activities, professionals, and companies within the tech sector is the technology parks. These parks act as hubs that provide numerous incentives including tax benefits for tech companies to set up operations. Big names such as IBM, HP, VMware, McKinsey, Amazon, Tek Experts, P&G, Experian, and Concentrix are located in one or more of these industrial parks. Examples include UltraPark I and II, Global Park, and American Free Zone to name a few.
Another important driver of tech growth comes from healthcare. Costa Rica is home to eight world-renowned medical device organizations due to the continuous growth of talent in science and technology. Companies such as Pfizer, GSK, Hologic and Phillips have opened up IT, BPS, and manufacturing operations and have played a key role in making medical devices the number one export for the country.
The number of life science organizations has skyrocketed since 2009 and companies like Boston Scientific have invested more than $130 million to manufacture medical devices.
Latin American countries gearing towards or preparing for digital revolutions are witnessing a boom in the number of financial technology startups. Costa Rica tops the rankings as the country with the most fintech potential in Central America.
According to the NewTech Mag, Costa Rica has experienced a 400% growth in the number of fintech startups since the past two years. The presence of foreign fintech companies in Tech parks has played a key role in training and creating qualified resources.
Since 1987, the country has placed extra emphasis in technology and made it an integral part of its curriculum. The young millennial workforce of today has a decent exposure to technology as well as an abundance of jobs from both local and international agencies. The economic transformation has created an interest in technology and innovation that’s evident by the growth of software engineers in recent times.
A large number of bilingual and qualified graduates have also turned Costa Rica into an ideal hub for outsourcing activities. U.S-based IT companies in particular stand to benefit the most from nearshore software development companies in Costa Rica.
Unlike their Asian and European counterparts, IT companies in Costa Rica can operate in similar time zones. Also, since almost everyone is fluent in English, there’s no risk of miscommunication or misunderstanding. Delays are non-existent and remote teams can coordinate with the management in real-time allowing for increased productivity and efficiency.
Years of peace and business stability ensures that IT projects are completed before deadlines and there’s ample time to implement quality assurance measures. It’s also one of the safest cities on the planet and makes business traveling much easier.
San José Tech City
According to The Costa Rica Star, the municipality of San Jose has plans to create a technological city that will house multinationals and university campuses by 2020. The idea involves transforming the city’s old and abandoned buildings into retail spaces, housing units, and modern office complexes.
Set in an area that covers roughly 19,629 square meters, this ambitious project costs around $100 million worth of investments. Several large tech companies have already made plans to begin operations in the city once it reaches completion. Microsoft and Cisco are one of the first ones expected to begin operations with the Mayor stating that priority will be given to startups as well as R&D companies.
Tech city is part of a larger, more ambitious developmental project known as ZEDE that will cover around 39 neighborhoods with the aim of attracting greater foreign direct investment.
What makes Costa Rica great
Costa Rica is a melting pot of collaboration and symbolizes innovation, quality, and productivity. It consistently ranks high in quality of scientific research and produces one of the highest numbers of engineers in the entire region. Successful collaborations between the academia, multinational companies, and the government have upgraded the business climate and led to improved economic conditions.
Partnerships with renowned international universities have helped enhance the pool talent. For example, collaboration between Instituto Tecnológico de Costa Rica and the University of Minnesota led to the first-ever master’s degree program for medical devices engineering in Latin America. In recent times, Texas Tech University settled in Costa Rica as its first international satellite campus.
Costa Rica offers more than just tourist destinations and beautiful locations; it brings together the perfect conditions needed by both small and large IT businesses to thrive.
Now, let’s move on to another tech hub that is setting an example for other Latam countries to follow.
The Global Entrepreneurship Monitor lists Peru as one of the fastest growing Latam ecosystems and no statistic makes that more obvious than the fact that one in every four working citizen was involved with an early stage company. A country famous for the iconic Machu Picchu may well be the last place you would imagine to be an emerging technology hub.
While it’s true that the government just invested 0.08% of its GDP on innovation, the country is experiencing economic change set to make it a key player in the region. Large private and public stakeholders such as mentors, global ecosystem enablers, and investors have already started development and empowerment programs within the country.
For example, Facebook, Telefónica, CAF, and IDB Invest have already partnered up to create Internet para Todos, which provides online connectivity to 600,000 Peruvians living in rural and impoverished areas.
A government program by the Programa Nacional de Innovación para la Competitividad y Productividad or the National Innovation Program for Competitiveness and Productivity, Startup Peru was created to fund as well as initiate competition between innovative and dynamic startups. The program has already received $10 million that have been injected into 400 innovative ventures in 18 regions across the country.
Startup Peru isn’t the only way startups can access mentorship and funding in the country. Other options include local accelerators such as UET Ventures that’s part of UET’s entrepreneurial department as well as Endeavor Peru, NESst, and more.
In 2017, Telefonica launched Wayra Peru, a corporate accelerator that grants up to $50,000 in funding.
The Ministry of Innovation created Innovated Peru back in 2014. It gives access to valuable resources, helps startups connect with government-backed organizations, and also secures much-needed funding. The Ministry of Production also launched a program known as Reto Bio that promotes projects that focus on the country’s abundant natural resources.
According to the World Bank, Peru has a low inflation rate that averages at 2.9% and a growth rate of 5.9%. This is of particular importance since the GDP of neighboring countries such as Brazil has stalled at around 1%. It helps to attract IT businesses seeking greener pastures as well as friendly business policies that are conducive to growth.
The annual venture capital conference helps to bring together Peruvian leaders at the forefront of innovation. The event sheds limelight on promising startups that have the opportunity to connect with both local and international investors. In 2018, more than 300 startups, 250 corporations and investors, and 900 attendees participated.
Emphasis on Education
The University of Engineering and Technology is found in the district of Barranco just outside of the capital city of Lima. The campus is said to have cost $100 million to build, has an advanced infrastructure, and is said to be the most modern in all of Latin America. The university aims to create its own silicon valley as has already entered into partnerships with American colleges like MIT and Harvard.
Aside from UTEC, other universities have also found considerable success in attracting local talent and establishing themselves as innovation centers. Examples include San Martin de Porres and Universidad del Pacifico with the former already developing key partnerships and hosting annual corporate events and hackathons. Such educational institutes are primarily responsible for creating a steady flow of tech talent.
Peru’s tech revolution is definitely slower than its neighbors, but the above-mentioned factors still point towards a bright future.
What Does it All Mean?
LATAM countries like Costa Rica and Peru are undergoing a digital transformation. A strong economic base coupled with high mobile and internet penetration, only bode well for the future of tech development. Consider the following statistics published by Polymath:
- An internet penetration rate of 57%, much higher than South Asia
- The smartphone penetration rate is at 55% and set to exceed 70% by 2020
- Latin American people are online for longer hours when compared to other regions.
All these factors and more make LATAM countries the leading tech hubs around the globe. But what does that mean for you or your business? Well, for IT businesses looking to outsource projects, it’s hard to beat Costa Rican and Peruvian software developers both in terms of quality and affordability.
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