Not just a pretty place

The Commonwealth of Puerto Rico istouting its ties to the United States and itstax benefits to induce information technologyproviders and systems integrators toestablish businesses on the island. At thesame time, home-grown IT firms are lookingnorthward, hoping to gain a biggershare of the federal marketplace.Long thought of primarily as a touristdestination and rum producer, PuertoRico's main economic engine is manufacturing,which accounts for almost 45 percentof the commonwealth's gross domesticproduct, according to the Puerto RicoIndustrial Development Co. (Pridco), a 65-year-old business consulting service basedin San Juan.A recent IDC survey found that PuertoRico's IT sector added $587 million and36,900 jobs to the local economy in 2005.IDC added that the IT sector is expected togrow at an average annual rate of 2.8 percentthrough 2009, when employment inthe sector will top 40,000 workers.With those numbers in mind, BorisJaskille, executive director of Pridco, led adelegation of Puerto Rican IT companies tothe FOSE government trade show lastmonth in Washington.Pridco had two goals for the show. "One isto help identify new markets for entrepreneurs,"he said. "But it's also to help get themessage across among federal procurementofficers that Puerto Rico has competitiveadvantages that need to be looked at."Those advantages include Puerto Rico'scommonwealth status, which means its residentsare U.S. citizens, and a highly educated,bilingual workforce, he said. "In the post9/11 era, and the homeland security anddefense atmosphere that we're living inright now, the talent itself is not [sufficient].It's actual U.S.-based talent" that is of paramountimportance, he said.Puerto Rico has had a 20-year relationshipwith the Defense Logistics Agency'sProcurement Technical AssistanceProgram, which contributed $97 million infederal contracts and the creation of 523new jobs on the island in fiscal2005, Jaskille said. Overall, federalagencies have grantedPuerto Rican IT companiesmore than $362 million incontracts as a result of thealliance between Pridcoand DLA."We have our owninternal revenue code,"Jaskille said. "It has veryparticular advantages."For one, workers pay nofederal income taxbecause the commonwealthis outside U.S. taxjurisdiction. And companiesdoing business inPuerto Rico pay no U.S.corporate taxes unlesstheir earnings arereturned to the UnitedStates, he added."Not only do we have the same regulatoryframework, if you will, that you would findin the states in terms of the monetary systemand the financial, legal and bankingand insurance systems, but we also haveintellectual-property protection by meansof U.S. patent laws," Jaskille said.Rock Solid Technologies is a 10-year-oldIT services company that came to the FOSEshow as part of the Pridco delegation. TheSan Juan-based company has been partneringwith Hansen Government Solutions, aRancho Cordova, Calif., supplier of applicationsoftware to federal and state agencies.The company is now making its firstattempt to get into the federal market on itsown, said Rick Brown, president of RockSolid."We do a lot of business with the governmentof Puerto Rico, and we are lookingto export services into the [U.S.]public sector," he said. The servicesinclude applicationsdevelopment, implementationof Microsoft productssuch as customer relationshipmanagement and other support services.Rock Solid would like to growby adding some IT outsourcingservices, such as those performednow in India andPakistan, whose low wage scaleshave been a major attraction forU.S. firms."We're looking for outsourcingopportunities which by lawmust be brought back to theU.S. and performed byAmerican companies because ofsecurity reasons," Brown said.Rock Solid is targeting agenciessuch as the Defense,Homeland Security and Justicedepartments. And to sweetenthe pot, "we're looking to expandto the west coast of Puerto Rico,where the [labor] costs are substantiallylower" than in SanJuan, he said.Pridco is steering Brownthrough the maze of federalcontract vehicles and regulations."That's what we're tryingto understand," he said. "Is therean opportunity to do [outsourcing]?How would we do that?How do we get started?"Companies interested inPuerto Rico often do not knowwhere to begin. "We help themwith their business plans andidentifying facilities wherethey are going to establish thebusiness," said MarcosPolanco, director of the informationand communicationtechnologies business unit atPridco.Rock Solid was joined atFOSE by Avant Technologies ofCaguas and Genesoft Labs ofSan Juan, both security and ITservices providers; and AtlasbitsInc., a minority-owned softwaredevelopment and managementoutsourcing company inMayaguez.Lockheed Martin Corp. setup a $300,000 research partnershipwith the University ofPuerto Rico at Mayaguez in2006 to recruit graduates forthe company and to work ontwo projects. One involvesusing algorithms to extract newforms of data from radar andthe other seeks to learn moreabout chemical explosivesdetection through simulations,said Ivette Falto-Heck, a systemsengineer technical assistantand on-site engineeringdomain director at LockheedMartin Information Systemsand Global Services."We have two LockheedMartin principal investigatorsworking with their counterpartsat the university on those twoprojects," she said. They workremotely from Phoenix, sheadded.The partnership is open-ended,but the research projectscome up for renewal and fundingannually. "The $300,000runs through this December,"Falto-Heck said.Hewlett-Packard Co., whichhas had a presence in PuertoRico for many years, hasresearch agreements with theUniversity of Puerto Rico in digitalpublishing. Polanco likenedthe arrangement to a governmentwideacquisition contract. "They can very easily go out andconduct research without havingto write new [terms] everytime," he said.Other U.S.-based contractorsare expanding their business inPuerto Rico.For example, Polanco saidHoneywell Aerospace has set upa business process outsourcingfacility for its defense and spacebusinesses, and Pratt andWhitney is enlarging its jetengine plant from 18 employeesin 2003 to a target of 500 thisyear.