The Brazilian Institute of Geography and Statistics (IBGE) recently applied a new methodology to calculate the country’s GDP revealing that the Brazilian economy is US$102 billion bigger than formerly thought. According to the consulting firm Austin Rating, the 11% increase found through the new calculation positions Brazil back among the 10th largest economies in the world, ahead of India, Australia, The Netherlands and South Korea. In 2005 alone, the Brazilian GDP reached US$882 billion. Does this mean that Brazil will manage to reach a detached position among the world leading exporters of IT services and products? How can language industry companies and professionals benefit from this trend? What can we do to help fulfill Brazilian’s long-awaited dream to become the “country of the future?” These are a few questions that I will address in this article.
Last March, two important conferences on the above theme took place in São Paulo and Rio de Janeiro. While “Brazil Outsourcing” was an initiative launched by Flavio Grynszpan, Coordinator of the Brazilian Chapter of the International Association of Outsourcing Professionals (IAOP), the “Rio International Software and Services Outsourcing Conference” was organized by BRASSCOM, the Brazilian Association of Software & Service Export Companies. In both events, the list of speakers included Brazilian and foreign executives, scholars and government representatives who discussed the ways and means to place Brazil in a more central position when it comes to IT outsourcing.
In 2006, Brazilian software market transactions totaled US$9.09 billion in IT systems and related services, representing a 22.6% increase over last year’s figures. Of the total amount, US$3.26 billion refer to software sales, which account for 1.3% of the worldwide transactions and 43% of those in Latin America. However, the Network Readiness Index (NRI) prepared by the World Economic Forum ranks Brazil in the 53rd position. The report published in March 2007 analyzes the impact of communication and information technologies on corporate competitiveness and the social and economic development process in 122 countries. While the number of Internet users per 100 inhabitants is higher in Brazil than in the other three BRIC countries, India ranked 40th in the list, and smaller Latin American countries, such as Chile and Mexico also ranked better in the 31st and 55th positions, respectively.
A Nearshoring Alternative
Having attended both conferences, it is clear to me that Brazil wants to position itself as a viable offshoring alternative to other, well-established regions in Asia and Europe. According to a paper published by Research and Markets, “Nearshore outsourcing will grow 16.7% annually through 2008. This compares favorably with Brazil and Argentina as one of the fastest foreign outsourcing growth rates in Latin America. By comparison, the Brazilian offshore agent population will grow 18.0% annually.” Add to that the establishment of captive centers in major or smaller Brazilian cities, such as that of IBM in Rio de Janeiro and Dell in Hortolândia. Brazil has the largest bankable population to use Internet banking, as well as 10% of the installed ATM base worldwide, and the Mercantile and Futures Exchange (BM&F) is the fifth largest in the world. Perhaps because of this, according to the Research Director of IDC, Mauro Peres, “Brazil can be the financial offshore IT services provider of choice.”
The country relies on some unique features to enhance its attractiveness for companies willing to outsource some of their activities, especially in the IT area. Time zone is perhaps the most striking: One can fly overnight from Chicago, Vancouver, New York, London or Paris and arrive in Brazil ready for a meeting without suffering from major jetlag. Conference calls can be setup in normal working hours as there is little time difference between South America and the U.S., or Europe. The same applies to problem resolution, as any issue can be solved within the same business day.
Other distinctive factors have a geopolitical nature. The country is immune to natural disasters due to its location, where earthquakes, volcanoes, tsunamis and the like are inexistent. Despite its extensive border line, which neighbors almost every country in South America, the Brazilian foreign policy of peaceful frontiers dates back centuries and the vast territory has not been affected by any conflict or incident that has characterized the world after 9/11 (or before for that matter). Other, less unique yet crucial advantages include the protection of intellectual property—which can be an issue in certain Asian countries—, a large telecommunications infrastructure, the second largest number of airports, the largest IT professional base in Latin America (892,000 people) and a Western mindset, which facilitates business transactions and negotiations. (For more insights on the Eastern versus Western mindset, please refer to a previous article written for the June 2005 edition of MultiLingual, which can also be found at https://www.ccaps.net/newsletter/10-05/art_2en.htm.)
Outsourcing: delegation of non-core operations from internal production to an external entity specializing in the management of that operation.
Offshoring: relocation of business processes from one country to another. This includes any business process, such as production, manufacturing or services. Unlike outsourcing, offshoring does not necessarily involve a transformation of internal organizational control.
Nearshoring: relocation of business processes to places that are generally less expensive and yet geographically closer. Mexico and Canada are major nearshoring destinations for US businesses, and in Western Europe, these include Ireland, Eastern Europe and the Maghreb.
Captive Center: a company-owned offshore operation. The activities are performed offshore, but they are not outsourced to another company.
Bodyshopping: practice of using offshore resources and personnel to do small, disaggregated tasks within a business environment, without any broader intention to offshore an entire business function.
BRIC: A group of countries, named after a 2003 thesis by the Goldman Sachs investment bank, which includes Brazil, Russia, India and China. According to the paper, by 2050 the four countries will encompass over 40% of the world’s population and, due to their recent embracing of global capitalism, will hold an approximate combined sum of 15 trillion dollars.
Over the years, Brazilian software developers have hardly thought about exporting their IT services and products. Together with other aspects that include a lack of government support and previous years of economic and political instability, the internal market has always been a discouraging factor for those who ventured into the so-called “new economy.” Why would one bother going abroad when their product could be sold internally to the world’s fifth largest population and a massive domestic market eager for products and services? On the other hand, some of these companies have realized that globalization would force them to leave this comfort zone and that whoever wants to play a significant role in today’s economy must find their own place beyond the shelter of the country’s borders.
The Brazilian government has created a number of incentive programs for companies of all sizes willing to export. The internationalization topic is high on the agenda of CEOs at most large corporations and success stories start to appear in the form of airplanes (Embraer), cosmetics (Natura), jewelry (H. Stern) and shoes (Havaianas). The demand for Brazilian commodities (soybeans, oil, steel and ethanol, to name a few) has increased exponentially due to a number of factors ranging from global warming to the instability in the Middle East. Nevertheless, the IT sector has not yet managed to achieve a reputable position in the international arena. Despite its excellence in some market niches, such as deep water exploration, R&D, banking and e-voting systems, it could take years before the country even thinks of catching up with other giants like India and China. The overvaluation of the local currency, high labor costs, heavy taxation and the language barrier all add to the difficulty of marketing the Brazilian IT industry overseas. Yet things are starting to change.
Software on the Export Agenda
The export initiative of Brazilian IT companies is gaining momentum as they position themselves as an alternative to other well-established players, mainly Indian corporations. The advantages offered are numerous and quite specific to the country. They include cultural diversity, personal characteristics and human resources costs, among others.
History has turned Brazil into with what some tend to call “the real melting pot.” It started when the Portuguese mingled with the indigenous population and the slaves during the early stages of the nation’s foundation. Throughout the centuries, immigration increased and was further promoted by the authorities. During the first decades of the 20th century, settlements of European, Middle Eastern and Eastern Asian (mainly Japanese) immigrants grew exponentially. The combination of mixed cultures and races and a welcoming attitude by the local population fostered a cultural diversity and tolerance rarely seen in other regions that experienced such an inflow of foreign individuals. This situation helped to form the flexible character of Brazilian professionals who, and perhaps because of this historical trait, also tend to show more willingness toward team building.
Jacques Depocas, Head of the HSBC Global Technology Center, is a French Canadian living in Curitiba, a city in the southern part of Brazil. He says that Brazilians are seen, by him and the whole corporation, as resourceful, curious, proactive, solution-oriented and adaptable to changing conditions. These characteristics are also endorsed by Marcelo Amarumma, Director of Global Delivery for IBM Latin America. According to Amarumma, the interpersonal abilities of Brazilian professionals have triggered an unprecedented trend in which IBM project managers are being “exported” to the US headquarters because of such qualities.
Brazil is considered a low-cost region—sometimes even lower than India—but the general perception is that Brazilians are not as qualified. Indeed, when compared to India, human resources costs at the highest levels of the corporate hierarchy are lower in Brazil. It is only when you go down the organization chart towards less skilled labor that India offers less expensive labor. Changing this perception may take a lot more effort and time than currently devoted to the topic, yet these companies have realized that if they are to grow abroad and attract foreign investments and enterprises, hard work lies ahead. Paulo Merson, from the Software Engineering Institute at Carnegie Mellon University, believes that making intensive and continuous investments, breaking the language barrier and publishing case studies and white papers in selected international publications are some possible solutions.
Some say that the private sector must act with, without and despite the government. Yet the government is playing its part as well. According to Luiz Fernando Furlan, the Brazilian Minister of Development, Industry and Foreign Trade, a tax reduction program for PC manufacturers soon to be implemented will triple the production capacity. The greatest challenges faced by the IT sector (high taxes, unprepared professionals and labor laws that have not been updated for over 50 years) are also being tackled and are the top priorities of the newly elected government.
How can we help?
Professional localization still does not appear on the list of top priorities for most IT companies in Brazil when they attempt to implement their exporting strategy. When considered early in the process, in-house localization is perceived to be more cost-effective. The general thinking and attitude is that since there are engineers who can speak and write in English or Spanish in the office, why take the trouble to hire an external localization provider to do the job? The results are generally unsatisfactory as—and we all know—engineers are not language experts. In fact, the vast majority are not native speakers of the target language, and the results range from utter disasters to reasonably successful localization efforts. Yet when there is so much capital investment and human effort involved, playing this Russian roulette should never be an option. There are other, rather common cases in which the concepts of internationalization and consequent localization are not even considered during the process due to sheer ignorance. Such concerns only appear when there is an opportunity to sell in a foreign market, but the consequences can be catastrophic. Simply because there will be no time left to correct the problems, or the money invested to fix what should have been thought of earlier will not compensate the profits generated when selling the software in the first place.
It is now up to localization companies and professionals to help these clients better achieve their internationalization goals. The Brazilian market has often been disregarded by language vendors (both inside and outside the country) because other companies abroad are often better educated and easier to convince of the benefits of a good localization strategy. These international companies also know the value of achieving higher ROI in their internationalization efforts, a fact that has allowed them to get an edge on the competition. Furthermore, only recently have Brazilian corporations started to seriously contemplate foreign markets as a viable alternative for their sales efforts. They have realized that no matter how good the domestic market can be, in times of globalization, one must consider stepping further of one’s borders and venturing into foreign lands.
At Ccaps, we have helped a number of Brazilian IT companies to reach their internationalization goals. This allowed us to share the resulting success stories with our partners and prospects, which increased our chances of obtaining even more qualified leads. However, many other opportunities are still out there and while there is no strong local industry association to support this enterprise, we will have to do our best to help Brazil eventually fulfill its aspirations to become an actual country of the future.
Thinking back to the conference, I realize now that when Jair Avritchir from Dell USA said that one of the barriers to software development in Brazil was the fact that there are few local partners with reasonable scale and international presence, I should have raised my hand and asked, “How can we help?”