Uruguaya Massala: software jobs of the future are going to end up somewhere.

Once better known as a magnet for rich Argentine beachgoers and tax evaders, Uruguay is quickly gaining a reputation as South America’s Bombay. Software exports, which were non-existent a decade ago, now total $90 million a year, with talk of reaching a half billion dollars in the near future. Some 40 companies export more software from here than any other country in Latin America, six times as much as Brazil and almost three times that of Chile or Argentina. «It’s the closest work environment to home I’ve found in Latin America,» says Indian native Balasubramanyam Chivukula. COO of Tata’s global development center in Uruguay.

Tata’s investment should boost the Made in Uruguay image even further. The new global development center outside Montevideo is just one of a handful of software factories the company runs outside of India. It’s also only the second such center in Latin America to have achieved CMM level-five certification, the highest industry standard in the world. Its team of Uruguayan and Indian engineers is responsible for Spanish-speaking Latin America, Spain, Brazil and the U.S. Spanish speaking market. «The spillover effect on the rest of Uruguay’s software industry could be huge,» says Alexandra De Royere, a senior researcher at Harvard Business School’s Latin American research center in Buenos Aires.

To be sure, Uruguay is nowhere close to duplicating the success of India, which exported software worth $8 billion last year. But the potential for growth is real. According to Forrester Research, U.S. companies plan to relocate 3.3 million tech industry service jobs overseas during the next 10 years. The majority of those jobs will go to countries with a proven track record and strong English skills, like India and Ireland.

But Uruguay should also benefit. The country boasts the region’s highest literacy rate, at 97.3%, has plenty of middle class university graduates and a fully digital telecommunications network. And, unlike larger neighbors Argentina and Brazil, Uruguay has almost no domestic market to speak of. Its companies must constantly seek business abroad.

There’s plenty of business to he captured within the region, too, where Uruguay has an important head start. Multinationals like ABN AMRO and Merrill Lynch have concentrated their Spanish-language call-center operations in Montevideo’s duly free Zonamerica, one of the most modern business and technology parks anywhere in Latin America. «In Miami I could never afford to get the best talent like I can here,» says Nicolas Jodal, vice president and founder of ARTech, Uruguay’s largest software exporter.

ARTech is a model for Uruguayan software makers. Founded in 1988, sales of its code-generating GeneXus software reached $11 million and 30 markets last year, the bulk of that in the United States. «Living in a volatile region we have to adapt quickly to change, and our software reflects that,» says Jodal, who divides his time between Montevideo and offices in Chicago, Mexico City and Sao Paulo. «Now every company in the world wants that same flexibility, even if it’s not a question of survival like it is for us.»

Until recently, the Uruguayan government was all but blind to the treasure chest in its midst. Unlike Brazil and Ireland, where government incentives have long been deployed to attract high-tech investment, Uruguay’s software industry has grown almost entirely on its own. Private investment in Uruguay has traditionally meant facing high taxes and a cumbersome bureaucracy. Called the Switzerland of South America for its extensive welfare state, Uruguay’s government is still involved in such arcane activities as whiskey bottling and has a virtual monopoly on most public services. Public employees hold a quarter of all jobs in Uruguay.

Meltdown. But the success of ARTech and other firms, and a meltdown of Uruguay’s economy in 2002 linked to neighbor Argentina’s collapse, has forced the government to reevaluate its old ways. Recognizing the industry’s strategic importance for the overall economy, President Jorge Batlle drew up a number of incentives to attract investment, including income tax exemptions and the removal of 23% export duties. Also lifted were payroll taxes and social security contributions for foreign workers, which allow local engineers to benefit from the know how of professionals around the globe. «We were able to get our software center rolling in a month. Nothing in Uruguay ever takes a month,» says Gabriel Rozman, President of Tata’s TCS Iberoamerica.

By far the biggest challenge, though, is finding capital, Uruguay barely shows up on the radar screens of most foreign investors. But that, too, is changing. Trade missions sponsored by the Camara Uruguaya de Tecnologias de la Informacion, an industry Lobby group, have sparked the interest of Irish, Spanish and Israeli investors. Meanwhile, Buenos Aires investment fund Pegasus Venture Capital, together with the Inter-American Development Bank and Uruguay’s Banco Nacional de Desarollo, is creating a $15 million fund to assist companies in the early stages of growth. «In the U.S., growth capital is associated with start-ups, but in Uruguay you have highly creative entrepreneurs who’ve been around for 20 years struggling in anonymity,» says Michael Chu, one of Pegasus’ managing directors.

One of the companies likely to benefit is Interactive Networks. It’s typical of highly motivated Uruguayan companies making world-class software on third-world budgets. Last year, its custom-made instant messaging software was the only Latin America made product chosen by PC Magazine as a finalist in its competition at the U.S. technology trade show Comdex. Despite the product’s success-more than 200,000 users worldwide–lack of capital makes generating business nearly impossible. «We’ve lost major deals just because we couldn’t afford to send someone to New York and spend a week bidding on contracts» says 27-year-old entrepreneur Pablo Solomon, who started Interactive in 1999 after a stint working for software maker Adobe in California’s Silicon Valley. «You can only count on friends and family for so long.»