Posted: May 25th, 2022
Information Technology in Peru
The current environment in Peru is not conducive for huge IT investments
The IT revolution has encouraged people to look for opportunities in different countries, particularly the third world countries which have been successful in providing the basic amenities at a cost lesser when compared to developed nations. This study is an effort to rank Peru as a possible IT destination for businesses that are planning to expand into other countries
As the world is witnessing an unprecedented growth in technology and science, business managers are trying to find new avenues to apply their knowledge and experiences, which would eventually help their business. Among other things, the choice of a new destination is determined by a variety of factors. These may include technology preparedness and literacy of the local population, stability and policies of the government that is favorable to the industries and the infrastructure of that country. The most important factor that encourages business managers to look for new avenues to do business is the spiraling cost both in terms of infrastructure and manpower. In the IT sector it is accepted worldwide that in developed countries like USA, Germany and Britain, the cost involved in maintaining an IT team is far more that maintaining a similar team in a less developed country. This has been one of the prime reasons, which has encouraged companies to outsource a major chunk of their projects to third world workforce. This tendency has been most pronounced in the IT sector. The problem of setting up a new business is much more difficult for IT companies because unlike other industries, an IT venture cannot be started from scratch because it needs many supporting facilities and a computer literate population which the company can at least hope to deploy after adequate training. (Bracker, 1994) Since training in computers requires an above average education level as a prerequisite, the task is all the more difficult for IT managers to find a suitable place for setting up their industry.
IT History in Peru
The Republic of Peru is on the pacific coast of South America. Democracy was established in the country in 1980 and a new constitution was promulgated in 1993.
As far as the extent of information technology is concerned, it is still in its infancy in Peru with a lot more facilities yet to be implemented in the country although the government is making all out efforts to improve the IT infrastructure in the country. The real thrust to IT happened after 1990 when the government allowed private participation in its IT ventures. As a start, private telecommunication companies spruced up the telecommunication sector, which was poorly maintained in the urban areas and virtually nonexistent in the rural areas. The government has also reciprocated with enacting laws and regulations that have helped core IT requirements like data security laws, e-commerce safety and digital signature policies. Even though the hardware business is poor and does not show any encouraging trends, the software market is dynamic and has penetrated many business domains. (Abetti, 1986)
The telecommunication infrastructure is more developed in the capital although there is a decent presence of telecom facilities in the rural areas of Peru. In the year 2000, the teledensity of Peru was 6.3 and is rapidly increasing particularly in the rural areas. There is also an unprecedented growth of mobile phone users over the years (58,000%). Public telephone availability has increased by 562%. International companies take care of the installation and maintenance of the telephone lines. Peru has also seen an increase in the number of digital trunk lines, which in 2000 were more than 53,276. The service providers are increasingly opting for digital lines instead of analog trunk lines whose percentage has dropped to very low levels in the country. It is seen that analog lines are mostly restricted to the rural areas. There are 58 Internet service providers in Peru. [Bernstein, 2000]
In 1996 the government allowed private companies to establish, operate and develop satellite systems. Peru also has a satellite system in place called Sim n Bolivar Andean Satellite System. In addition it is expected that in 2003 another satellite sponsored by a consortium led by Alcatel would be in orbit
Telecom Companies in Peru
There are many private companies that operate in Peru like Reuters, IBM, Telef nica, Global One, DHL, Skytel, AT&T, Nextel etc. The operations of these companies have been made possible by the privatization and deregulation of the telecom sector. (Krugman, 1996) In 1994 the state owned telecommunication network was bought by a Spanish company and renamed as Telefonica, which is the leading service provider in the country. The government agency called Supervising Agency for Telecommunications Private Sector Investment (OSIPTEL) ensures that there is free competition in services as part of privatization. The local government also has its share in the competition in addition to Peruvian Scientific Network, which has a sizeable chunk of customers to its credit
Government initiatives in telecom reforms
The government of Peru has devised many reforms to help private entrepreneurs in the telecom sector. Although the government had imposed a five-year protection period for the Telefonica, in which the government had an interest, the telecom sector has been thrown open to the private sector. The OSIPTEL, which is a regulatory authority, involves itself in the pricing aspects of services only when the services are meant for the poorer section of the society. In 2000, Peru had 30 authorized long-distance carriers and five fixed-line operators. The government policies have made it easy for private companies to operate in Peru. The Internet communication in particular is fully liberalized while the government has some control over the other divisions in the telecom sector. The government also does not control the technology that is used by the ISP. In addition as part of the Andean community, Peru has taken measures to deregulate all telecommunication sectors by 2002 with the exception of radio and TV. [Bernstein, 2000]
As far as excise and import restrictions are concerned, Peru does not have discriminatory taxes against imported goods nor are there any additional taxes against foreign ventures.
The IT policies of the government are based on the need to improve the existing industrial atmosphere using IT rather than develop a separate IT sector. The Ministry of Industry, Tourism, Integration and International Commercial Negotiations, or the MITINCI dictates IT policies in this country. MITINCI along with other like-minded organizations in Peru, concentrate their efforts to provide technology enhancements to the productive sectors as well as the non-profit institutions in Peru. The programs of these institutions would revolve around developing infrastructure, education, technology transfer and research and development. [Bernstein, 2000]
The government has also initiated joint ventures between private and public institutions in various sectors. These bodies would work hand in hand to develop quality telecom, software and hardware solutions to customers.
The reach of the Internet in Peru
The Internet became accessible to the public only by about 1990 in Peru. By 2000 the total estimated Internet users were around 520,000, and it is estimated that 1.8% of the total population of Peru has access to the Internet or uses the Internet. The initiation and growth of Internet services in Peru was because of the effort of the Peruvian Scientific Network, which started off as a consortium of students and academicians. The cost of the Internet has also come down to 13.75$ per week which is lesser than many of the Latin American countries. There are 58 ISPs in Peru and the Peruvian Scientific Network, which has 56% of the Internet market share, is the main player in this segment. In 2000 the cost of Internet access was1$ / hour. [Bernstein, 2000]
E-commerce in Peru is just making its presence felt. It is estimated that the Peruvian online commerce is valued at $5 million and is expected to be $164 millions in 2005, which is not very impressive. Whereas in 1999 online shoppers in Peru was less than 100,000, it would be close to 600,000 in 2005 out of an estimated 2.4 million Internet users. Among other reasons, the traditional aversion to credit cards might be a reason that hinders the development of e-commerce as an alternative form of shopping.
An independent survey by McConnell International in 2000 reports that Peru needs improvement in its e-leadership, information security and e-business climate, while Peru’s connectivity and human capital are rated as needing substantial improvement this suggests the large potential Peru holds in the IT sector. In layman’s terms the e-business climate is just about ok in Peru but Peru’s human capital and connectivity needs drastic improvements to be able to be at par with other nations. (Long, 1979)
The government has definitely chipped in with its efforts to facilitate better e-commerce facilities in the country. Commendable among them are measures like automation of government processes, extension of the IT into rural areas, enacting laws that makes digital signatures valid and its consideration within the purview of the law and by making computer crimes illegal. In response many private organizations have set up their portals and e-commerce sites in Peru. Independent estimates point to the fact that e-commerce would find more takers in future. [Bernstein, 2000]
Hardware and Software production
IT Hardware manufacturing is very little in Peru. While the local IT hardware requirement was estimated at $660.3 million, Peru’s contribution was on $7.2 million. Most of the equipment is imported from Spain. After the government has done away with monopolies in the IT sector, imports from other countries are expected to rise.
In the software sector there were 150 companies in 1998, who produces small applications which fit into domains like banking, accounting and customized applications for small businesses. Foreign companies like IBM, Microsoft, SAP, Oracle and Novell also operate here either independently or in collaboration with smaller local companies. The total market for software services in Peru were estimated at $142.9 million in 1999, of which $77.4 million was produced locally, and $65.9 million imported. Software exports accounted for $0.4 million. Software is being exported to countries like Venezuela and Uruguay.
Software consumers come in various shapes and sizes. Majority of the corporate users with big infrastructures has computer intensive operations like finance, banking, and telecommunications. There has particularly been a high demand for ERP software and expected growth for ERP solutions would be in the areas of mining, food and chemicals. Small-scale businesses also use software though to a lesser extent. There is a potential for networking solutions in Peru. Government agencies account for 20% of software requirements and the government has been fairly consistent in its efforts in providing the basic infrastructure to companies. As promised, regulations and monopolies have been done away with even through they were implemented in the face of stiff opposition. [Bernstein, 2000]
IT Labour and facilities
As of 2000, People between 15 and 64 years of age make up 61% of Peru’s population and Peru’s labor force is growing at the rate of 2.6% per year. 72% of the people live in urban areas and 41% of the people are below the poverty line. Among those above 15 years of age, there is an illiteracy rate of 10% and only 19.5% have education up to post secondary level. Although the statistics shows an increase in literacy this could mean insufficient manpower specific to IT requirements. To top it, traditional approach to IT has not been encouraging. Poverty, neglect and lack of education could prompt people to look for other alternatives than IT.
There are no technology parks or exclusive IT research and development facilities in Peru. Most of the industrial environment is Peru is concentrated along the coastal regions and in the capital. [Bernstein, 2000]
Scope for IT Financing
The main possibility of finance comes from Peru’s Telecommunication Development Fund which funds projects that would extend IT to the rural areas of Peru. Peru also receives funds from international agencies for developing IT related infrastructure. The fund is used to install and maintain telephone and communication facilities in the country. The U.S. export-import Bank provides Peruvian importers with loans. The World Bank and Inter-American Development Bank also provide finance options for setting up telecommunication and IT projects. [Bernstein, 2000]
Legal issues concerning the IT sector
The government has enacted laws and regulations that would protect intellectual property rights and is expected to combat software piracy. The Constitution recognizes intellectual, artistic, scientific and technical innovations and creations as the property of their creator. The author will have the right to create property rights over his/her creations. Software piracy is a big issue particularly among home users and small businesses. 75% of small businesses are still using illegal software in Peru where the total percentage of illegal software use is put at 66%. The biggest culprit is the education sector where 85% of the software is pirated.
Peru has numerous legal provisions against software piracy and has enacted laws against data and information piracy. It has been observed that the incidences of software piracy have come down drastically due to the measures taken by the government. [Bernstein, 2000]
Business climate with regard to IT
As far as IT in Peru is concerned, there is a fair proportion of risk in it. An honest estimate of risk would require an understanding of the strength and weaknesses of the country with regard to IT. (Young, 1996)
Strong political will, which was evident till the year 2000, goes in favor of Peru. In addition a reasonably skilled workforce, import laws and policies that are conducive to setting up a business, privatization and deregulation of government facilities, favorable e-commerce laws, increasing software applications etc. were favorable trends that supported IT in Peru. On the other hand, lack of an IT policy and a specific IT department, lack of good supporting infrastructure like roads and communication facilities, low education levels, absence of hardware companies and people unwilling to use IT in their daily lives are some reasons that are not in favor of Peru as an IT destination. Local businesses are finding it difficult to recruit IT workforce and cannot afford to import manpower.
At present due to its infrastructure deficiency specific to IT, Peru is not suited for large IT ventures although it may be suited for a sales or marketing office.
The business environment in Peru is not currently conducive to large investments due to the fact that IT labor and basic infrastructure is still lacking in quality. Although the country has big plans for the future and have incorporated advanced technological know-how into its basic services, it will be some time before IT will be able to become a viable business proposition in this country. At present the country is suited for small-scale investments and regional offices.
Bernstein. S. Jeffrey, 2000, Information Technology in Peru, http://www.jsbernstein.com/initeb/peru.htm Accessed on October 22, 2002
P.A., and R.W. Stuart. “Entrepreneurship and Technology Transfer: Key Factors in the Innovation Process.” The Art and Science of Entrepreneurship. Ed. Donald L. Sexton and Raymond W. Smilor. Cambridge: Ballinger Publishing Company, 1986. 181-211.
Bracker, J.S., G.H. Van Clouse, and R.A. Thacker. “Teleconferencing business forums: an approach to linking entrepreneurs and potential investors.” Entrepreneurship and Regional Development. 6 (1994): 259-274.
Brealey, Richard A., and Stewart C. Myers. Principles of Corporate Finance. 4th ed. New York: McGraw-Hill, 1991.
Krugman, Paul. “A Country Is Not a Company.” Harvard Business Review. 74.1 (1996): 40-51).
Long, Norman. “Multiple Enterprises in the Central Highlands of Peru.” Entrepreneurs in Cultural Context. Ed. Sidney M. Greenfield, Arnold Strickon, and Robert T. Aubey. Albuquerque: University of New Mexico Press, 1979. 123-158.
Young, Derek A., “Microentrepreneurs and the Next Stage in Microenterprise Finance: A Focus on Latin America.” Professional Report: University of Texas at Austin, (1996).
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