Selling smarts: Brazil's information technology business should have gone global years ago. It's catching up

Latin Trade, Oct, 2004 by Paulo Prada

Brazil's information technology industry faces a quandary: Its world-class skills aren't known in most of the world. Despite boasting state-of-the-art systems and software providers, the country has not been able to export, its know-bow or products to many markets beyond its vast borders.

Instead, it's playing catch-up as the bulk of the world's information technology outsourcing goes to rivals in India and other developing nations. "Brazil is a hidden gem in the world of information technology," says Rodrigo Leite, business director for Eccelera Gestao de Participacoes Societarias, a Sao Paulo venture-capital company that invests in technology companies throughout Latin America. "There are companies here with a lot of potential but, historically, they have not been able to export."

Brazilian companies by necessity have developed some of the most advanced software in the world in recent decades. An unstable economy and runaway inflation meant Brazilian banks needed sophisticated software merely to keep up with the value of their assets. Local developers arose to supply them and in the process have garnered enough skills to create complex systems ranging from security and encryption applications to telecommunications and e-government platforms. The country, for instance, boasts one of the most widely used online income-tax programs on the planet.

But what has traditionally been a plus for Brazil's info-tech sector--the size and potential of its home market--has also hindered its ability to expand on a global scale. Sales growth fueled by domestic demand has kept Brazilian technology groups from learning how to sell their wares in the United States, Europe, and elsewhere.

The Brazilian tech sector last year generated revenues of nearly US$8 billion, according to the Society for the Promotion of Excellence in Brazilian Software, a Sao Paulo industry group. But only about $100 million of that came from exports.

"It's peanuts given the size of the market," says Antonio Carlos Gil, chief executive of CPM, a software and systems developer in Sao Paulo and president of the Brazilian Association of Software and Service Exporting Companies, a recently formed industry group that is working on ways to better promote the sector abroad.

"Companies didn't learn to export in Brazil because of the size of demand here," says Gil. "You didn't look for growth abroad because you had it in your own backyard."

But domestic growth can only go so far. As they began to look toward other markets in recent years, Brazilian companies realized they had lost valuable time.

So far efforts to export Brazilian software have been piecemeal forays into other markets by individual companies, largely without success. Small software developers, when trying to sell their products in the United States and western Europe, found they were no match for the distribution and marketing might of established tech multinationals.

As they sought to establish a presence abroad, many companies missed a major trend fueling the tech industries in other developing countries: outsourcing. While Brazilians were busy trying to sell software packages in unfamiliar markets, developers in India were building one of the world's fastest-growing technology sectors by staying home and suiting the needs of clients half a world away.

A recent study by the Massachusetts Institute of Technology and four other universities compared the information technology industries of China, India. and Brazil. "Brazil has an internal market that is at least half a decade ahead of India," the report's authors wrote. "But in terms of its export sector, it is now where India was probably about a decade ago."

It's not too late to gain lost ground. The missed opportunity, in fact, has served as something of a wakeup call to the country's tech sector. Over the past year, for example, various industry groups have come together to begin promoting Brazil as an alternative to India and other countries that have thus far attracted the most outsourcing business. With many of the same attributes as those competitors--specialized labor at a price much cheaper than that available in the United States or Europe-Brazilian software companies are rushing to get on the outsourcing band wagon.

"The industry wants to show that Brazilian know-how can also be applied on demand for companies looking for good and affordable solutions," says Claudio Seixas, executive director of partnerships at WebSoftware, a Rio de Janeiro developer of Internet software programs. Like the effort headed by CPM, WebSoftware recently joined seven other Rio companies to form an industry group seeking to drum up business outside of Brazil.

Essential skill. There will be more obstacles to overcome. Unlike developers in India, Brazilian programmers aren't generally fluent in English, an essential skill for companies that want: to service the global business community. And while more affordable than programmers in the world's most developed countries, Brazilian salaries will have a tough time competing with emerging tech sectors in Asia and eastern Europe.