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On the eighth floor of a nondescript office building in the Santiago neighborhood of Providencia you wouldn’t know anything interesting was happening in office 82, except for a small Apple logo stuck to the door.

But behind that door a dozen caffeine-fueled programmers in their twenties are hard at work on their notebooks, creating iPhone applications to be sold on Apple’s App Store to customers around the world.

For Fernando Soto, the 25-year old founder and CEO of Suika, this is a far cry from the company’s modest beginnings. In June 2009, he and partner Juan Pablo Illanes, who met in Diego Portales University’s information technology program, began working out of Soto’s bedroom.

“It was tough, we pulled a lot of all-nighters at the beginning, but then we got financing,” recalls Soto.

At first, no Chilean bank would let Suika open an account, demanding minimum sales that were higher than the start-up could achieve.

Financing from the Chilean Economic Development Agency, CORFO, was not an option at that stage either. “Corfo has a lot of resources available, but the application process is long and tedious,” said Soto.

But Soto’s brother Gonzalo and a fourth partner, Cristián Sbaibaro, came to the rescue, helping raise US$30,000 from family and friends to get the company off the ground.

They moved into their new digs in September 2009 and now have 13 fulltime employees, an agreement to develop mobile applications exclusively for Apple, and a list of clients that includes some of Chile’s biggest companies.

But all this almost didn’t happen. After switching from Diego Portales to Adolfo Ibañez University, Soto won a scholarship to Stanford University while Illanes planned to go to Japan with his girlfriend, but the two friends put their travel plans on hold.

“All the good minds were going abroad and no one was starting anything here,” said Soto.

Another reason to stay in Chile was the opportunity provided by a surplus of qualified IT graduates and low labor costs.

“Labor is the same quality as in Spain but much cheaper than in the U.S. or Canada,” noted Soto.

In the last 12 months Suika, which means watermelon in Japanese, has produced 30 applications for Apple’s App Store – more than twice the number developed by its two competitors in Chile. Some of these are available free while others cost US$1 per download of which Apple keeps about 30 cents.

One application allows the user to read articles from the newspaper La Tercera on their iPhone or iPad even when they’re offline. Another, called “Casa 3D,” which allows the user to explore virtual buildings using a touch pad to navigate, has important potential for architects and real estate developers, said Soto.

Suika’s apps, like one called “I Love Asado” that allows users to organize a barbeque and calculate the cost per guest, have been downloaded thousands of times, but there’s a hitch - Chileans are not used to paying for software, said Soto.

“All our applications have been pirated which reduces our earnings significantly, but there is nothing we can do about it.”

Fortunately, an important part of Suika’s business comes from customized applications developed for Chilean companies like Entel, Movistar, Canal 13 and even the Armed Forces.

More Chilean companies are investing in iPhone apps as a way to communicate with their clients or internally, said Soto.

There are only around 120,000 iPhones in Chile, which is a fraction of the nearly one million Blackberries, but over 95% of iPhone customers use Internet applications regularly compared to only 3% of Blackberry users.

In addition, Apple addicts tend to be tech savvy high-income earners who are a more attractive market for advertisers. This is good news for Suika which earns extra income from advertising included with its apps.

Suika’s sales are estimated to reach about US$200,000 in 2010, which should allow the company to make a profit but is less than expected due to the impact of February’s earthquake.

“Buildings fell down and warehouses were destroyed so companies had to restock their inventories and many projects were cancelled,” recalls Soto.

Still, things are looking up. “It’s been hard but the market is recovering,” he said.

One big expense has been training. Suika has to teach its employees Apple’s Objective C programming language because this is not taught in Chilean universities.

That doesn’t mean Chilean graduates are under qualified. Degree programs are longer than in the U.S. so graduates have usually studied for six or seven years versus four for their American counterparts, but they lack specialized training, noted Soto.

“After six years studying there’s no money or desire left to stay in school.”

And then there is the brain drain. Many of Soto’s classmates went to the United States for postgraduate studies and have not returned. “Stanford University and MIT are both very advanced in iPhone applications,” said Soto.

But IT grads will likely find more work in Chile than in the United States where the market is saturated with skilled programmers, said Soto.

“Graduates will earn more money in Chile because here they’re special,” said Soto.

Another challenge for start-ups like Suika is finding investors. Large Chilean companies invest relatively little in innovation compared to the U.S. or even Argentina, notes Soto.

South America also tends to be slow in adapting to new technology, but with Chile’s high rate of mobile phone penetration – over 90% - and its relatively small population it is often selected as the first country in the region to test new products.

“Chile is a small but very representative market,” said Soto. “If something works here, it is replicated in other countries.”

For example, Suika is the Chile distributor for a point-of-sale device called Linea-pro, developed by southern California-based Infinite Peripherals. The handheld gadget allows store employees to quickly scan barcodes, read credit card magnetic stripes and accept customer signatures.

“Each salesperson becomes a cashier, it’s great for department stores or restaurants,” said Soto.

In the future, Soto also hopes to develop apps for the agriculture sector that monitor weather conditions and allow farmers to remotely control irrigation systems according to rainfall or temperature.

But Suika is taking its time to develop apps that are failsafe. “Sometimes it’s better to be the best than to be the first,” concluded Soto.

Julian Dowling is Editor of bUSiness CHILE