The current context of increased global competition for software exports and greater technological and macroeconomic uncertainty for investments makes it urgent to rethink Argentina’s international insertion in the global software value chain. This requires understanding not only the evolution of the sector at the domestic level but also concerning other countries in the world that compete in the same segment. We present an analysis of the evolution of the main economic variables (employment, sales, exports) of the software sector in Argentina.
Illustration: Micaela Nanni.
A sector difficult to measure
Any diagnosis seeks to start from an accurate measurement. However, there are two major challenges in quantifying and dimensioning the size of software-related activities. On the one hand, the difficulties in registering trade in services (given that its product is intangible). On the other hand, the existence of practices aimed at reducing the total tax burden (which generate incentives for companies to locate their operations in different locations).
The statistics that measure the software sector have the challenge of taking an incomplete picture. This is true in all countries, even in the Global North; but the challenge is greater in Argentina. Restrictions in the foreign exchange market (which tend to generate a significant gap between the official price and the “market” price) as well as potential restrictions and regulations to operate with the rest of the world generate a structure of incentives on companies and workers to move their operations and eventual profits to other countries.
Three phenomena impact the ability to quantify and correctly dimension the size of the sector in Argentina: the shift towards a cost centre of global companies; the relocation of the business structure and the holding behaviour of many domestic companies to sell to other countries; and the increase in the number of freelancers and contractors, who offer their services directly abroad.
How has the software sector evolved in Argentina?
The local software sector has shown an important dynamism during the last 20 years. Between 2003 and 2022, more than 3,700 companies were created. At the same time, employment, sales and exports in the sector continued to grow. The evolution of these variables, analyzed in detail below, allows us to identify three periods in the sector’s growth rate: a first period of strong growth during the first decade of the 21st century; the beginning of a period of deceleration as of 2012; and, finally, a period of slight recovery as of 2020.
Employment in the software sector
Unlike sales and exports, which suffered greater volatility, employment in the software sector showed steady and even growth -except for the period of stagnation between 2011 and 2015-. Between 2003 and 2023, the number of registered jobs increased 5.5 times: from 26,000 in 2003 to 140,000 in 2023, surpassing the levels of sectors such as automotive and activities such as oil and mining.
This figure rises to 160,000 if unregistered employment is taken into account. The sector’s informality rate has consistently been below the average for the economy and the private sector as a whole. However, in recent years it has increased slightly, reaching 14% in the 2020-2023 period.
Sales in the software sector
As for the sector’s sales, they almost reached 1,200,000 million pesos in 2022, representing 0.65% of the total sales made in Argentina. Between 2003 and 2011, the sector showed a rapid upward evolution, with growth rates of 16% per year, followed by a brief stagnation until 2016, when it resumed the growth path that peaked in 2021. Although there was a brief dip in 2022, the sector remains at historically high levels, both in terms of total volume sold and its share of the total economy.
Exports in the software sector
To estimate the growth of local software exports (and correct potential under-declarations), the exports declared by the country were considered and the World Trade Organization data on world imports from Argentina were added. Taking into account this correction, national exports increased 16 times in the last 20 years: from USD 150 million in 2003 to just over USD 2.4 billion in 2023. This rapid and remarkable improvement increased the sector’s share in the country’s total export basket and gave the sector a profile slightly oriented towards the external market.
How did the global software sector evolve?
Argentina decouples from global growth pace
After starting its slowdown process in 2012, the software sector in Argentina had a hard time keeping up with the growth of the global market. The gap between local and global export growth rates shows a turning point in 2017. Between 2011 and 2017, the global growth rate was 2 percentage points higher than Argentina’s (7.3% and 5.4%, respectively). For 2017-2022 this distance grew to almost 10 percentage points (13.9% and 4.4%, respectively).
What is the reason for this decoupling?
While in Argentina the dynamism of the sector was decreasing, the global SSI market not only tripled in size but also became more competitive. This decline in Argentina’s position in the global ranking is explained by a combination of phenomena related to the situation of the sector in Argentina and the performance of the rest of the countries competing in the global market.
If we look at the global market, in the last decade, countries exporting more than USD 10 billion per year (Group 1) not only managed to concentrate a larger share of the global market but also grew in size. While in 2011, this group was composed of eight countries that accounted for 68.4% of exports; in 2021, the number of players doubled and this segment now accounts for 82.9% of the global market.
The number of software exporting countries competing in an intermediate volume segment (Group 2) also increased. During the last decade, twelve countries joined this group. This group, which includes Argentina, is not only more competitive but also faces the challenge of losing its share. While in 2011 it represented 30.1% of global software exports, in 2021 its weight was 16.7%.
Argentina competes in this intermediate segment, currently made up of 48 countries. The market share that Argentina can compete for has become smaller, which represents a challenge for Argentina’s international insertion in this sector. This reflects not only the dynamism of the international software market but also the capacity of other countries to dispute its place.
