Brazzil

Brazil ranks third in country attractiveness for offshore IT outsourcing, only behind India and Canada. Some of Brazil's universities have outstanding computer science programs. But Brazil's weaknesses are distinct. Its generally poor knowledge of the English language poses a problem for projects that demand fluency.
by: Chris R. Adams

Globalization, free-trade agreements, international technology adoption and fallen currencies against the dollar have pushed offshore outsourcing into the mainstream. US companies in the manufacturing sector have benefited over the past few decades by leveraging low labor costs offshore and now other sectors such as technology, finance, and healthcare are following suite.

A recent Gartner Group outsourcing poll shows that 8 out of 10 CIO's will have given at least part of the technology services they provide to their businesses to an offshore partner by 2015. US enterprises are looking to overseas partners to outsource application development and maintenance (ADM) and business processes (BPO) such as accounting, human resources, help desk, order processing and other common business functions.

According to the research group IDC, ADM contracts going offshore will rise significantly from US$ 5.5 billion in 2000 to an estimated US$ 17.6 billion in 2005. Although ADM is the bulk of offshore work being done today, analysts predict stronger value and growth in BPO as companies experienced in outsourcing payroll, HR and other common business processes will find further value by going offshore.

Indian providers who perform a majority of offshore BPO services today will generate revenues of more than US$ 3.4 billion in 2003 and Gartner Group claims there is significant upside for growth. Both ADM and BPO combined Forrester Research predicts that more than US$ 136 billion in services will be rendered overseas by 2015.

India is by far the leader in offshore outsourcing due to its early market entrance, native English-speaking population, early adaptation to quality standards, strong educational programs, low labor rates, and government incentives for the industry. But with commonly sited cultural conflicts, inconvenient time differences, lengthy travel and high geo-political risk, there is demonstrated interest in alternative providers as well.

Does Brazil have a chance in this market? A.T. Kearney determined that Brazil ranks third in country attractiveness for offshore IT outsourcing only behind India and Canada. Computerworld magazine recently stated that "Brazil is a sleeping giant with a tradition of high-quality software" and gives it good marks for political stability, IT skills availability, network infrastructure and relatively low labor rates out-ranking developing nations such as Vietnam and Mexico.

Some of Brazil's universities have outstanding computer science programs and a growing number of qualified software developers that in comparison to other developing nations score quite well in capability and experience due to strong national market demand and multi-national corporate exposure. Brazil is also relatively close to the US making travel easier and work periods more synchronous as the time differences never span more than 6 hours between any US and Brazilian location.

But Brazil's weaknesses are distinct. Its generally poor knowledge of the English language poses a problem for projects that demand fluency and labor rates, although low in comparison to US rates, are higher than other developing nations.

Brazil is also challenged by generally poor adoption of industry standard processes such as SEI Capability Maturity Model (CMM) when compared to the majority of leading offshore outsourcing providers in India. But Brazilian firms are noted for developing high quality software nonetheless.

Overcoming its inexperience in selling software and services to US markets may be its biggest challenge. Brazil is known for its well-developed national software and services market worth over US$ 7.7 billion (2001), which is roughly equivalent to that of India, but its lack of exports ($US 100 million compared to India's $US 6 billion) demonstrates its weakness in penetrating US markets.

Yet the reasoning for such comparatively poor performance appears to be a result of poor government policy more so than industry incompetence. A recent report by Francisco Veloso, et. al. comparing the software industry in Brazil, China and India shows that the Indian government began strategizing for software exports in 1972 and since then has established software technology parks for export; created zones where companies are given generous tax advantages for developing exports; significantly reduced technology import duties so high-tech companies can fund R&D; and have reduced various other taxes typically applied to national firms.

Conversely, during the early 70's and 80's the Brazilian government exercised protectionist policies that in effect restricted its technology industry from competing on a global scale and still to date have yet to recognize the industry with substantial policies that enable Brazilian providers to compete against India or other leading offshore providers.

Despite these challenges and the high cost of setting up business operations in the US, some Brazilian software development companies like AmazonTech who has been in the US since the mid-90s are in good position to break into this market. AmazonTech leverages its own offshore development practice for its products and services business established after its flagship project SIVAM, known as one of the most challenging systems integration efforts in history. SIVAM also served as AmazonTech's 5-year submersion course on collaborating with an American corporation and it leverages that experience to build its offshore outsourcing business.

Brazilian offshore providers have their unique set of challenges like all providers worldwide. It is important for providers to focus on their core strengths and build partnerships that extend capabilities when an opportunity demands it. Being flexible in this rapidly growing industry will benefit the provider as well as these closing pieces of advice:

Require English knowledge of staff—A provider must have English fluency throughout the organization as most customers will demand it;

Focus on niche market strengths—Strong Brazilian labor laws will make it hard to compete against developing nations with weak labor laws as those nations can always underbid on commodity services pricing. Brazilian firms should market their niche capabilities that require experience, industry knowledge at a reduced cost compared to US labor;

Embrace industry processes—Companies should take their current processes and enhance them to comply with industry standard processes;

Build US relationships—It's difficult to compete in a nation you know little about. Presence at industry events and conferences; building networks with outsourcing consultants, advisors, lawyers and major outsourcing providers; being direct in approach and marketing in sync with North American business practices;

Promote Government Support—Without explicit industry support through policy reform, Brazil will struggle to gain momentum in this industry. Providers should demand legislation that will promote industry growth.

Chris Adams is the US Business Manager of AmazonTech Outsourcing Services. He can be contacted at outsourcing@amazontech.com

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