Nearshore Americas

São Paulo: What Can Brazil’s IT Mega-Region Deliver to the World?

Last week, the Brazilian Census Bureau, or IBGE, announced that the nation’s unemployment rate had dropped to 6.4 percent, its lowest level since 2002. Among outsourcing experts, economic news like this often sparks debate over geography and the next-best destination for BPO and ITO.  And, as Brazilian markets like Curitiba and Recife come into view, São Paulo typically gets hit with concerns over rising costs and access to affordable IT talent. Yet, with over 18 percent of the country’s GDP and 10 percent of the population, so much of Brazil’s economic success rides on the São Paulo Metro Area.

São Paulo: A region of regions

When talking about São Paulo as an “IT outsourcing destination”, generalizations like these  underscore the area’s geo-economic diversity.  The São Paulo Metropolitan Area (SPMA) is a vast urban megalopolis, home to 18 million people living across 39 distinct municipalities, in an area roughly half the size of New York’s tri-state region, and double the population density.  This includes places like middle-class Guarulhos (1.2 million inhabitants), and Barueri, a wealthy city 15 miles west of SP’s urban core known for its gated communities and flashy financial services sector.

Likewise, Maua and Diadema are two SPMA municipalities that lay inside an industrial area known as the Região do Grande ABC (The  Santo Andre, São Bernardo Do Campo, and São Caetano do Sul Region).  ABC is home to one of the country’s largest industrial parks, jammed with logistics, metallurgy, chemical, and petrochemical companies, including a major Petrobras oil refinery.

Economic snapshot of five municipalities in São Paulo Metropolitan Area (39 total)

Municipality Population GDP per Capita 2008 GDP Growth 2003-2008 (%) Value-added per capita for services 2008 Location relative to urban core
São Paulo 11,253,503 32,493 143 20,403 Central
Barueri 240,749 102,013 200 71,204 24 km west
Mauá 417,064 13,752 28 6,801 28 km southeast
Diadema 386,089 23,618 97 10,790 20 km south
Taboão da Serra 244,528 17,205 84 9,204 19 km southwest
AVERAGE 125,291 17,614 116 8,433

Source:  IBGE

For the western financial service firm looking to build a captive development center in Brazil, or for the multinationals looking for new M&A opportunities, São Paulo’s diversity as a “region of regions” should continue to present attractive investment opportunities for the foreseeable future.  Proper due diligence and collaboration with pro-investment agencies like Apex Brasil should also help investors find what they are looking for in Sao Paulo.

Brazil’s consumer economy will continue to drive São Paulo’s high demand for IT

Even as Brazil moves away from being a lowest-cost offshore provider, this has not stopped the world from investing heavily in this country.  And, with roughly 18 percent of the country’s GDP and 10 percent of the population, São Paulo’s market potential for both domestic and multinational IT outsourcing firms is hard to ignore.

Historically, innovation and demand for IT has come from SP’s strong financial services sector.  Going forward, three additional trends will likely push demand for IT in different directions:  First, demand from retail – Unlike Asia’s export-driven economies, much of Brazil’s economic growth has come from rising income levels and consumer spending.  This trend will allow SP’s large retailers and local stores to utilize retail IT and eCommerce in managing growth and in attracting new clientele.  Second, demand for business management solutions for commercial clients – with a regional GDP of $361 billion, SP’s growing firms will require increasingly sophisticated systems to drive efficiency and to support decision making.

Lastly, demand from the public sector – if Metropolitan São Paulo is to stay competitive, then local governments and agencies will need to incorporate smarter IT solutions to overcome some considerable urban challenges.  As a result, IT applications across energy, transportation, urban planning, waste management, and construction should drive additional demand in the region.

São Paulo’s labor pool is hard to beat

Access to human capital is a deal-breaker for nearshore IT investors.  And, given the country’s rapid growth, Brazil as a whole continues to struggle in keeping up with foreign and domestic demand for trained IT professionals.  According to Softex, a development agency responsible for promoting Brazil’s software exports, the workforce gap for skilled IT talent could reach as high as 200,000 by 2013.

This fact makes São Paulo hard to beat when it comes to skilled workers.  Nearly ten percent of SP’s population has 15 or more years of education, beating every other metro area except for Curitiba.  But, given its enormous labor pool, São Paulo’s educated working class amounts to 1.8 million university-grade employees.  Many of these come out of SPMA’s 18 well-regarded universities, including the University of São Paulo which is among the county’s largest and most prestigious, with an impressive undergraduate and post graduate student body of 88 thousand.

However, access to this workforce doesn’t come cheap, relatively speaking.  SPMA’s average salary is almost 11 percent higher than the national average.  That puts the earnings of an entry level São Paulo IT professional at close to 26,000 Reals ($16,400 USD at today’s rate).  Accordingly, the tradeoff with São Paulo in relation to price is project scalability and access to the huge local market.

São Paulo’s strengths: outside the boundaries

At least two other major metropolitan areas have a unique role in fostering favorable market conditions for the region’s IT industry.  São Paulo’s two neighboring cities, Campinas and São Jose dos Campos, are both centers of excellence in technological and industrial innovation.  Together with SP, these three economic hubs form an almost perfect triangle (100 kilometers on all three sides), connected by some of Brazil’s most advanced and busiest motorways.

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Often referred to as Brazil’s Silicon Valley (other Brazilian cities have laid claim to this title), Campinas boasts a large number of high-tech business incubators and industrial parks (a total of eight).  These include CIATEC I and II, Softex, TechnoPark, InCamp, Polis, TechTown, Industrial Park of Campinas and others.  São Jose dos Campos is also investing heavily in IT, and continues to be a major force in advanced manufacturing.  Brazil’s commercial aircraft manufacturer Embraer is headquartered in São Jose dos Campos,  along with a host of other international companies across the chemical, pharmaceutical, energy, and the telecommunications industries.


With São Paulo’s labor pool, Campinas’ advanced technological capacity, and São Jose’s skilled manufacturing sector, this tri-hub region is what some economic geographers would call an industry super cluster.


A winning combination?

Perhaps the biggest threat to Brazil’s BPO and ITO industries are trends occurring outside of the region.  Fears over Brazilian inflation and a consumer bubble might ward off some future investors.  Likewise, as Brazil’s economy decentralizes to states like Bahia and Pernambuco, this will put additional strain on São Paulo’ s education and training institutions as skilled IT professionals migrate northward for better opportunities.  Inevitably, this will motivate investors to look at other regions in Brazil – as it should.  But, with São Paulo’s strategic geography and other market advantages, SP should have a secure future as Brazil’s major IT outsourcing and innovation.  Likewise, with proper planning, partnership development between the public and private sector, and targeted support from development organizations like BRASSCOM and Apex Brasil, the region should steadily overcome the challenges of matching supply with demand.

Luke Bujarski

1 comment

  • Sao Paulo is the most expensive city in the Americas, ranked 21st in the world with NYC at 27th in the world according the Mercer's 2010 survey. To the example of a junior developer earning $16.4k per year you would have to add about 50% Brazilian tax to the employer's cost plus a 30 day per year mandatory paid vacation to cover payroll. BTW, not many companies look to outsource junior talent and would be hiring at a higher and more expensive level. Companies like CSC, IBM, and Wipro do not see Brazil as a location for outsourcing IT talent, they are there because they view it as a market for selling services.

    With the Real trading at below R$1.59 to the U.S. Dollar and the growing domestic market in Brazil creating a shortage of IT talent it will not be long before the U.S. is nearshore outsourcing IT talent to them.