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UNCLAS SECTION 01 OF 03 BUENOS AIRES 000748 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
SOUTHCOM FOR POLAD AND J5 FOR JUAN RENTA 
USDOC FOR 4322/MAC/OLAC/BASTIAN/PEACHER 
 
E.O. 12958: N/A 
TAGS: ECON EIND AR
SUBJECT: BRIDGING ARGENTINA'S DIGITAL DIVIDE 
 
 
¶1. (U) Sensitive but unclassified.  Not for Internet 
distribution. 
 
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Summary 
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¶2.  (U) Argentina's IT industry is the third largest in 
Latin America.  Argentina's IT industry enjoys many 
advantages and is growing quickly.  IT companies expect 
continued rapid growth and are investing heavily in 
Argentina.  There has been a boom in the number of small 
U.S. hardware and software companies in Argentina in the 
past two years.  The growth in Argentina's IT industry has 
left many Argentines behind.  The GOA has instituted a 
number of projects with mixed results to combat this digital 
divide.  Private companies are also sponsoring programs to 
bridge the digital divide, and strong competition in both 
the hardware and software sectors is driving prices down. 
The private sector will likely prove more able than the GOA 
to bridge Argentina's digital divide.  End summary. 
 
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Overview 
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¶3.  (SBU) Argentina's IT industry is the third largest in 
Latin America.  Total IT production amounted to USD 1.3 
billion in 2005, of which USD 250 million were exports.  The 
IT industry is responsible for one percent of Argentine GDP, 
and employs over 48,000 Argentines, or 1.44 percent of the 
total labor force.  The largest IT consumers within 
Argentina are the financial, government, telecom, oil, and 
manufacturing industries.  IBM, which is the largest IT 
company in Argentina in terms of both sales and employment, 
has 3,500 Argentine employees.  IBM and EDS provide services 
to many Latin American clients from Argentina.  Intel will 
soon begin its first production in South America with a 
software development facility in Cordoba.  Microsoft 
maintains a presence in Argentina only for public relations 
and marketing purposes.  Smaller domestic and foreign firms 
produce software, hardware, and services for mostly local 
clients. 
 
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Rapid Growth 
------------ 
 
¶4.  (U) Argentina's IT industry enjoys many advantages. 
Argentine workers are comparatively well educated.  Since 
the 2002 devaluation of the peso, Argentine skilled labor 
has been competitively priced.  The relatively large 
domestic market allows firms to gain experience in the local 
market before exporting, while the predominance of the 
Spanish language gives Argentine companies access to 
important export markets. 
 
¶5.  (U) Argentina's IT sector is growing quickly.  IT grew 
29.3 percent in 2005, roughly triple the rate of the 
Argentine economy as a whole, and generated 20,000 new jobs. 
Domestic and export sales contributed equally to this growth 
as exports increased 30 percent in 2005.  Revenues from 
hardware grew 37.6 percent, while revenues from software 
grew 22 percent and revenues from services grew 20 percent 
in 2005. 
 
¶6.  (SBU) IT companies expect continued rapid growth and are 
investing heavily in Argentina.  IBM added 750 employees in 
2005 and expects to add 500 employees per year over the next 
four years.  IBM would like to double this number of new 
employees, but it is limited by the number of qualified 
graduates, its ability to develop new managers to supervise 
these new employees, and available office space.  IBM is 
currently looking for a local company to build and lease a 
 
BUENOS AIR 00000748  002 OF 003 
 
 
large new office building to house its new employees.  Intel 
recently began work on a multimillion-dollar facility in 
Cordoba for 450 employees. 
 
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Explosive Growth of Small U.S. Companies 
---------------------------------------- 
 
¶7.  (U) There has been a boom in the number of small U.S. 
hardware and software companies in the Buenos Aires 
neighborhoods of Palermo, Palermo Chico and Palermo 
Hollywood during the past two years, according to industry 
sources.  Most of the firms are subsidiaries of U.S. 
companies that are based in Silicon Valley, California, 
Austin, Texas, and Raleigh, North Carolina.  They generally 
employ 50 to 100 people and maintain a relatively low 
profile.  This expansion is also being felt in the 
provinces.  For example, a government official in the 
province of Salta recently told the Economic Counselor about 
a former Argentine employee of a U.S. software company who 
now operates a company in Salta providing software for U.S. 
companies.  This is one of several such companies in that 
province.  U.S. firms move operations or outsource to 
Argentina to take advantage of Argentina's relatively high 
educational levels and low labor costs. 
 
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Digital Divide 
-------------- 
 
¶8.  (U) The rapid growth in Argentina's IT industry has left 
many Argentines behind.  The population of Internet users 
grew 40 percent in 2005, but computer use in Argentina is 
still limited to the middle and upper classes.  Only ten 
million Argentines, or roughly a fourth of the population, 
have regular access to the Internet.  The vast majority of 
these computer users are concentrated in the nation's 
largest cities, according to a survey by Microsoft. 
Approximately 20 percent of the population does not have an 
equal opportunity to access the Internet because broadband 
has not reached their poorer neighborhoods. 
 
¶9.  (U) The GOA has instituted a number of projects with 
mixed results to combat this digital divide.  Argentina's 
Ministry of Education together with the Massachusetts 
Institute of Technology launched "One Laptop Per Child" in 
¶2005.  This program intends to distribute between 500,000 
and 1 million low-cost laptops to poor children in 
Argentina.  Another Ministry of Education plan launched in 
2005 intends to distribute 100,000 computers to 12,000 
schools.  The GOA also partly revived a plan to establish 
Community Technological Centers (CTCs) after abandoning it 
during the recession of 1999-2002.  There are now 1,350 CTCs 
in Argentina.  A lack of funding and training hampers these 
programs, according to the director of the Argentine 
Telework Association and the director of projects for the 
educ.ar program.  An estimated 71 percent of Argentine 
educators have never used the Internet, and only 3 percent 
of Argentine Internet users regularly access the Internet 
from an educational institution. By contrast, 60 percent of 
Internet users go online in cybercafs, 41 percent go online 
at home, and 14 percent go online at work, with many having 
more than one mode of Internet access. 
 
 
¶10.  (U) Private companies are also sponsoring programs to 
bridge the digital divide.  The "My PC Program," jointly 
funded by 40 mostly Argentine firms, is designed to bridge 
the digital divide by providing low-cost PCs to the nation's 
poor.  Seven of the eight largest supporters are U.S. firms, 
including Intel, Microsoft, and HP.  The eighth firm is 
South Korean.  The program sold more than 20,000 PCs for 
approximately USD 800 per unit in April 2005.  Other 
programs, such as Intel's "Quality in Teaching" program and 
 
BUENOS AIR 00000748  003 OF 003 
 
 
Microsoft's "Alliance for Education Program" are also 
bringing Internet access to the nation's poor. 
 
¶11.  (U) Strong competition in both the hardware and 
software sectors is driving prices down.  The hardware 
market in Argentina is extremely competitive and offers low 
profit margins.  The number of PC manufacturers with sales 
and service networks in Argentina has increased from four to 
17 in recent years.  The software market is also 
competitive.  Linux is popular in Argentina due to its low 
cost, and 42 percent of Argentine firms use Linux on at 
least some of their computers.  Microsoft released a Spanish- 
language Windows XP "starter edition" to compete with Linux, 
further reducing the cost of a new Internet-ready PC.  The 
impact of this competition is clear.  Sales of PCs for home 
use increased 93 percent to reach over one million units in 
¶2005. 
 
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Comment 
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¶12. (U) The results of GOA programs to bridge the digital 
divide have so far been disappointing.  The private sector 
will likely prove more successful in this area.  End 
Comment. 
 
¶13. (U) To see more Buenos Aires reporting, visit our 
classified website at: 
http://www.state.sgov.gov/p/wha/buenosaires