Information Technology in Peru

Analysis: Impacts on Business

The most important consideration when evaluating business opportunities in Peru in terms of IT is tolerance for risks involved in early adoption. Peru's IT environment is very new, and while that could provide many opportunities to be first in the market, it also entails the risks involved with the IT environment's growing pains and, at least as of December 2000, the political uncertainty in Peru.

Evaluation of Business Options

The decision to move a business into Peru would probably begin with an evaluation of the feasibility of a sales office or reprentative in the country. Because most business in Peru occurs in and around Lima, that would be the most logical location for a sales office. Due to Lima's stature as the national capital and largest urban area, it has attracted the lion's share of IT development. While not at the level of urban centers in developed states, Lima has a relatively high concentration of communications resources, including Internet access and mobile and fixed telephony. The legal environment, which of course applies not only to Lima but the entire country, includes a favorable import regime, which is important to the introduction of foreign-made products into Peru. The growing supply of customized software could be an important asset, depending on the size of the company in question. Peruvian custom software tends to work best for small- to medium-sized businesses, rather than large ones. The expansion of communications technologies into new areas provides an opportunity to be the first to market a good in previously unreachable areas.

Expansion of the sales operation would be a good option, as long as the Peruvian communications infrastructure continues to improve. Since the deregulation of the communications market, the telecommunications network has grown rapidly to both improve access in urban areas and introduce access to rural regions. Assuming continued expansion, a larger sales operation could be lucrative, as more markets can be tapped for Internet sales as well as to provide information and customer support.

The decision to implement regional distribution or manufacturing rely on many of the same concerns, but on a larger scale. It is less likely that Peru would provide a good IT environment for larger operations, as the IT environment is so far behind that of the developed world. It would be necessary to evaluate the costs of having a Peruvian operation as a Latin American regional distributor or manufacturer and using a somewhat less developed IT network against operating in a more developed environment and factoring in transportation costs to Latin America. Similarly, it would be prudent to compare Peru's information technology environment to other Latin American countries. In many respects, Peru falls in the middle of the pack with respect to IT development, meaning that there are likely both better and worse choices for significant investment in a distribution or manufacturing center.

However, as noted above, Peru's IT environment will likely continue to grow and improve for the next several years. Establishing a presence today could provide financial and brand-recognition advantages over competitors who enter a more mature Peruvian IT environment a few years later. This goes back to the question of balancing the first-mover advantages and disadvantages.

IT Resources in Peru

As has been noted in the body of this report, Peru does not have an IT sector, but rather uses IT as a tool to improve its existing sectors. Thus, the availability of IT professionals to install, maintain and upgrade IT investments is unclear. Because so much of the large-scale IT use in Peru is by foreign businesses, they often have well-established suppliers of equipment and support from their home or other markets. Thus, they are able to mitigate the likely absence of qualified local support options. Local businesses have a somewhat more difficult time finding IT professionals due to the lack of a home-grown IT sector and the inability to import help from abroad.

The IT infrastructure in Peru is continuously evolving and improving, such that the moment this project is completed, it will be outdated. As noted above, the highest concentration of usable IT infrastructure is in and around the Lima area due to its role as the economic center of the country. RCP has been building its own backbone as well as a network of "cafés" that are similar to telework centers in the United States, which stretch into more rural areas. The value of such centers is that companies have relatively inexpensive access to current information technology, complete with trained staff to assist them or to train them. While this arrangement may not be as convenient as having access to IT within the walls of a business, it is a workable alternative until Peru reaches a point where the IT infrastructure has been expanded enough to adequately support more direct business use of IT and telecommunications. It is also important to note that the IT infrastructure in Peru is following trends of the worldwide IT environment, such as the explosive growth in digital technologies such as fiber trunk lines described in telecommunications infrastructure. Thus, although Peru's infrastructure still needs substantial work before it will be readily available to most businesses, it is encouraging that Peru has embraced current technology, rather than the traditional developing country model of adopting technology that is a generation or two behind in order to save money and avoid growing pains.

Government Influence

The Peruvian government of the 1990s has played an important role in shaping the IT environment faced by businesses in the year 2000 and beyond. The Fujimori government took a very pro-business and pro-market stance, and that stance is reflected in the legislation that appeared during the last decade: privatization, liberalization, data privacy, digital signatures, and others. The willingness of the government to create a foundation of law to support Peru's transformation into a more IT-friendly environment is key to the continued progress of that transformation. As a consequence, these laws should help Peru become a more inviting IT environment for business, assuming that the processes set in motion continue to progress under post-Fujimori governments.

Success Stories

The one overwhelming success story, as described in various sections of this report, is the Peruvian Scientific Network, or RCP, which grew out of a coalition of nonprofit and academic organizations into one of Peru's dominant Internet service providers, manager of the .pe top-level-domain, developer of its own backbone, and courier of IT to underserved populations.

There have been few other documented instances of business IT success stories in Peru, likely due to the short time frame in which Peru has been improving its IT environment. As noted in software development, a number of multinational software firms have set up operations in Peru, and similarly, as noted in electronic commerce, e-commerce has begun to develop in Peru.

Similar to the general concern for early adoption tolerance is the necessity of understanding that Peru has a fairly new IT environment, and it is difficult to gauge its success or failure with such a small body of data. One academic report that focused on the impact of the RCP network through the mid-1990s came to the same conclusion: it is too early to make a comprehensive evaluation of the impact of the new technologies. Peru's burgeoning IT environment provides ample opportunity for long-term investment and potential gain if the investor is willing to take the long view and tolerate the unavoidable minor, and sometimes major, obstacles on the path of Peru's IT environment.

Last update: December 19, 2000 by Jeffrey S. Bernstein.