Just a few days ago, Google (GOOG) announced that it has chosen a site outside Santiago, Chile, to open its first data center in Latin America. The Internet giant has invested $150 million to build the project in which computer servers that can store vast amounts of data will be housed. Moreover, the center will employ only 20 people when it is fully functional. Google has made a calculated but smart move in establishing its data center in the wealthiest nation of Latin America. Google and its products are incredibly popular in all of South America, with YouTube being the most used. Google also said that Chile is one of the most efficient and environmentally friendly nations in Latin America, a declaration that will only help Chile to attract more investment in the future.
Google has mentioned earlier that it plans to open data centers in Hong Kong and Taiwan as well. At the moment, the company has six data centers in the U.S. and one each in Finland and Belgium. The data center in Quilicura will ensure uninterrupted and efficient Google services to Latin American users. Chile has long been identified as a prospective investment destination by most technological companies. The country boasts of varied landscapes that offer safe and secure locations to house high-risk data servers. The relative stability and prosperity of Chile also ensures that risks are avoided and uninterrupted services of Internet related products are ensured.
Chile has competed with Brazil and Argentina for a long time in almost all respects. All the three countries are Catholic, and have had histories of military and dictatorial rule. While Chile and Argentina are Spanish-speaking, Brazil is a Portuguese-speaking nation. Google chose Chile instead of Brazil because Spanish-speaking employees would be in a better position to handle a data center that serves the rest of Latin America, where Spanish is the dominant language spoken (except Brazil). Also, choosing Chile over Argentina suggests that Google does not want to risk economic upheavals and the fickle-mindedness of other governments. Argentina has often demonstrated wavering opinions with regard to foreign investment, and it is already embroiled in the Falkland Island controversy. To me, choosing Chile as Google's preferred location in Latin America represents a commitment to providing reliable and uninterrupted web services to users across Central and South America.
Apple (AAPL), on the other hand, recently chose Brazil as an alternative destination to assemble and manufacture iPhones and iPads. Foxconn's record in China has been questioned to the point of embarrassing Apple about the way it treats its employees. However, VP of Metalworkers Union of Jundiai, Brazil, Luis Carlos de Oliveira insists that employees at Foxconn's unit in Brazil are not only treated well, but given ample wages. This, of course, has mitigated some of the negative image that Apple has suffered in recent months regarding the way its Chinese employees are treated. Google, on the other hand, is known for treating its employees with all the respect and dignity they deserve.
It is interesting that Google chose Chile over Brazil, whereas Apple did just the opposite. This is mostly because Brazil has good infrastructure but lacks Spanish- and English-speaking professionals. Apple did not require its employees in Brazil to speak either language, as it is a hardware unit. Google, on the other hand, required its employees in Chile to speak either Spanish or English, so that adequate services can be rendered to not only Latin America but the rest of the world as well.
When compared with Apple and Google, Microsoft (MSFT) has a more robust profile in Latin America. Its website lists several programs ranging from purely commercial- and business-oriented to social and non-profit programs. I think this gives Microsoft an edge in Latin America that Google and Apple yet have to find. By engaging with Latin American countries intensively, Microsoft has made sure that Latin American countries remain some of its most loyal customers.
If Amazon (AMZN) was to set up a software development center in Chile, the country would receive a tremendous boost in terms of foreign investment. Many analysts have pointed out that such a scenario is likely, especially when competitors like Google have announced their preference for Chile. Moreover, Amazon does not have a lot of competition in terms of similar services being provided in South America. What I would really not want to happen is Baidu (BIDU) competing directly with Google in Latin America as well by developing a Spanish version of its products and services. Being accustomed to censorship by China, it should not find it difficult to establish a pro-government search engine in countries like Venezuela, Bolivia and Ecuador, where dictatorial rule can be found.
At around $689, Google is one of the most valuable companies in the world today. The only significant competitors to Google are Microsoft, Apple, and Amazon. With a market cap of $229.17 billion and an enterprise value of $197.33 billion, it is a gargantuan company that will reap a lot of benefits to its investors. The company currently has a profit margin of 25.74% and an operating margin of 30.76%. With return on assets of 11% and a return on equity of 19.04%, Google is certainly one of the best companies to invest in. While Apple has no debt at all, Google has a total debt of $8.12 billion. But, with an operating cash flow of $15.82 billion, Google is certainly not in a weak position. All that it has to do is nurture its offshore development centers, like the one in Chile, so that local markets and consumers begin to relate to Google more personally and intimately. On that note, I believe the move to open the data center near Santiago was not only an infrastructural move, but also a tactical move.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.