June 27, 2008 - Folha de S. Paulo

The new industrial and technological government policy, announced in May, contains significant provisions for Information Technology (IT) companies. The reduction of the payroll Social Security tax from 20% to 10%, in direct proportion to exports, makes Brazilian companies more competitive in the international IT services outsourcing market. In 2008 this will be a US$ 70 billion market in which India stands out with US$ 50 billion in exports.

Brazil has high proficiency in IT, but also very high labor taxes. In average, labor costs represent 70% of a software company?s expenses; the weight of these tax obligations makes our companies less competitive. The government incentive reduces these ?Brazil costs?, but it has been criticized by some in the media and even by some people in the IT sector.

There are two veins of criticism. The first condemns industry policies; the other is opposed to the focus placed on exports. Both are wrong.

Perhaps the first group of critics would be correct in their defense of horizontal policies if the world was completely and irrevocably flat. But it is not. At this exact moment, there is a fiscal global war for IT contracts. According to specialized research by the World Bank, these contracts could reach the figure of US$ 300 billion worldwide.

The critics of the government?s choices might be right about not providing subsidies for competition among entrepreneurs. But they cannot ignore the benefit to India?s economy and its people generated by their government?s ?choice? to create an army of 1.6 million programmers who make a living selling IT to the world. And now China, Russia, Mexico, Argentina, the Philippines and other countries offer incentives and have IT programs. Why should Brazil be left out?

There is no reason for Brazil to remain on the sidelines. We have been investing in the industry for 45 years and we have qualified programmers and a tradition in electronic financial systems and government services. Furthermore, our time zone is ideal for doing business with the US and Europe. Besides, the world wants a viable alternative to the high concentration of IT businesses in India.

The other vein of criticism claims that the focus on exports caters to large companies. It states that without a powerful domestic market and a wide base of small companies we cannot export. BRASSCOM doesn?t perceive an opposition between the domestic and external market. It is true that we need to have a robust domestic market and small flourishing companies. But the global IT game has to do with delivery capabilities and scale. India?s domestic market is smaller than Brazil?s, but it is the leader in exports. This was achieved with IT companies that today are worth billions in the New York Stock Exchange.

Given this progressively more competitive market, if Brazil does not compete globally its domestic market and companies will become targets. If one refrains from choosing ?winners? one might have to select a ?loser? in this important industry. With the incentive for exports, the government gave the IT industry a chance to participate in the global market right now. Our companies are now better prepared to face the challenge and increase exports from US$ 800 million to US$ 5 billion by 2011, creating 100,000 new jobs. Brazil has the desire and the means to become one of the three best choices for IT services in the world.

Antonio Gil is the president of the Brazilian Association of Information Technology and Communication Companies (BRASSCOM). He has an engineering degree from ITA and worked for IBM, ATT Networks Systems and COM. He is currently a member of CONEX.