At the turn of a new decade, Brazil has emerged as an economic powerhouse on the world stage, facilitated in no small part by its core investments in information technology (IT). Brazil ranks among the world’s top ten economies, being the largest one in Latin America, with a gross domestic product of $1.5 trillion. Examine any of the emerging BRIC (Brazil, Russia, India, and China) nations and you will see how deeply connected IT is in driving job growth, production, competition, and per capita gross domestic product (GDP).
IT and Business Process Outsourcing (IT-BPO) have generated $1.23 trillion globally, with outsourcing processes (both domestically and internationally) accounting for $819 billion and growing, particularly from the high demand in overseas business outsourcing from more established nations. Businesses looking to instill cost-efficiency in their operations are more likely to take root in a country that has a fully matured infrastructure they can just plug into and go. The rewards for the host countries are considerable.
Over the years, Brazil’s private and public industries have come together to transform the nation into a safe harbor for IT-BPO investments. Brazil is currently the eighth largest domestic IT-BPO market in the world generating $59.1 billion. If the communications sector is included, the total ICT (Information and Communications Technologies) market exceeded $139.1 billion in 2008, representing 7 percent of the country’s GDP. Over 1.7 million IT professional are employed in the nation, supported by an advanced telecommunication and financial network that is unprecedented for a developing country. With these assets in place, Brazil has successfully attracted such top-tier multinationals as IBM, Accenture, HP/EDS, Intel, Microsoft, Cisco, HSBC, BT, Motorola, Dell, Siemens, Unisys, Exxon Mobil, and Johnson & Johnson.

Building a home for IT-BPO
Success for Brazil did not come overnight or without effort. To attract the attention of foreign investors, the country first had to invest in itself over a period of four decades, strengthening its economic, educational and industrial capital on a level beyond what popular BPO locations like India and China can provide.

Here are several key segments that make Brazil a prize location for IT-BPO settlement:

Sophisticated Financial Systems. The difficult years of hyper-inflation in the 1980’s led to the creation of one the most sophisticated, efficient, and reliable financial systems in the world. The Brazilian Payment System (SPB) handles inter-banking funds transfer in real-time. The Authorized Direct Debit System (DDA) allows all payments to be received electronically, increasing speed and security and saving paper and postage. In 2008, there were 514 million credit, debit, and private label cards in the market. Thanks to these financial instruments, Brazil was one of the first countries to emerge from the recession and these same financial instruments are now facilitating international investments, making it easier for enterprises to do business within and outside of the country.

Qualified Human Resources. The expertise of Brazil’s IT pool is vast, due in large part to a national investment in the universalization of the education system. The country offers 1,714 technical and graduate courses directly linked to information technology. Qualifications in English are also heavily stressed. Out of the largest developing economies, Brazil has the second-highest number of English speakers (10.2 million) behind only India. In 2008, Brazil’s universities produced upwards of 220,000 graduates ready for the job market.

Expanding Infrastructure. Brazil’s basic infrastructure is currently undergoing wide-ranging expansion through the Program for Accelerated Growth, launched in 2007 by the federal government. Within the scope of the program, the public and private sectors intend to invest around $273 billion in energy, logistics, social, and urban infrastructures. Currently, the country’s communications network is robust enough to support the double-digit annual growth predicted with IT-BPO services. Meanwhile, oil production has made the nation completely self-sufficient. Recent discoveries of reserves in ultra-deep water, in which Brazil is at the technological vanguard in exploration, will place the country amongst the world’s five largest exporters. Brazil has also speeded up the growth and maturity of its technology parks since 2000, and currently has 18 fully operational and 12 in final stages of implementation.

Financial Incentives for Enterprises. Financial incentives have made Brazil an accommodating and profitable location in which to do business. Spending on staff training and R&D can be deducted against income tax at 200 percent on top of the 50 percent reduction already attached to the excise tax when purchasing R&D equipment—or 100 percent when software development materials are imported. For exporting companies, the amount of social security contributions on company payroll may be reduced by up to 50 percent. Companies installed in technology parks do not pay property taxes and receive discounts on service taxes. Special credits lines are also extended to technology projects by the Brazilian Development Bank (BNDES).

Leveraging its Time Zone Proximity. Brazil has a natural geographic advantage that makes it ideal to North American companies in need of near-sourcing options close to home. Risk and costs migration are much lower and time zone differences are negligible. There are 150 direct flights a week to Brazilian cities, requiring considerably less travel time than locations in China or India.

Strong Industry Domain Knowledge. Brazil’s diversified economy, containing over 40 strong economic sectors, has given it a unique level of expertise applicable to several industries. Manufacturing and retail are particularly strong sectors for Brazil, producing near double-digit growth for the country.

The wide diversity of these value propositions would not have been possible without the unprecedented collaboration that took place between all levels of Brazilian society, from government to private industries, to the average citizen on the street. After years of investment Brazil is better poised than China or India to address the full spectrum of IT outsourcing needs. wt

Antonio Gil is President of BRASSCOM, the Brazilian Association of Information Technology & Communication Companies, at www.brasscom.org.br.

Sidebar: Feeding the BRIC Economic Engine, by Lara L. Sowinski
The BRIC economies—Brazil, Russia, India, and China—comprise the most powerful group of emerging economies in the world, and over the next 20 years they could likely overtake the G7 (Group of Seven) major industrial economies.

This year, the BRIC economies will also contribute nearly half of global consumption growth. In particular, China will contribute almost 30 percent of global consumption growth, more than the G3 (Germany, Japan, and the U.S.) and almost double that of the U.S., according to analysts at Goldman Sachs. The firm reports that real retail sales growth in China accelerated to a record high of 17.6 percent year-over-year in June, slightly higher than the 17.4 percent year-over-year achieved in May.

Automobile sales, along with consumer products and food and beverages are pushing China’s retail sales higher, more so than sales of other components such as materials and equipment.

Goldman Sachs’ analysts believe Chinese household consumption will return to double-digit growth in 2010 after a slowdown in 2009. “Although part of this recovery is due to the significant monetary and fiscal policy stimulus over the past year, we also note that the authorities have embarked on social security reform. It seems that China has entered a new, healthier stage of economic development led by domestic demand and consumption,” stated the firm.

In India, automobile sales are also a major component of overall retail sales. Other indicators, such as mobile phone subscriptions, have also held up well during the global recession, while rail traffic in India has shown steady gains.

Brazil’s retail sales growth was lower last year than in 2008, but private consumption is on track to increase through 2010.

Russia is the only BRIC economy that continues to experience struggling retail sales.

Goldman Sachs expects China, India, and Brazil consumption to increase by 10.5 percent, 6 percent, and 4 percent, respectively, in 2010. For companies in the U.S., Japan, and Europe that are selling into BRIC economies, this is very good news. At the same time, it’s estimated that 2 billion people could join the global middle class by 2030, mainly from the BRIC economies, while China and India are also set to dominate infrastructure demand over the next decade. — Lara L. Sowinski