Nearshore Americas

Social, Mobile, Analytics and Cloud Dominate Brazil IT Despite Slowdown

After having seen double-digit growth rates in recent years, the Brazilian Information and Communication Technology (ICT) sector should register moderate progress in 2015 due to the slowdown of the Brazilian economy.

Consultancy firm IDC predicts 5% growth for the Brazilian ICT market this year, which should attain US$165.6 billion. This rate is lower than the average expected for Latin America this year, 5.7% for the IT industry and 6% for the telecom sector. “The IT sector continues to grow above the GDP and, despite the slowdown of the Brazilian economy, there is opportunity for companies to improve their efficiency through the use of technology,” said Pietro Delai, research manager at IDC Brazil.

Globally, the IT sector should grow at around 3% to 4% this year, totaling US$ 3.8 trillion. This year’s forecast places Brazil as the sixth largest ICT market in the world.

In 2014, events such as the Fifa World Cup and the presidential election affected Brazil’s economic growth, resulting in a reduction of investments in the IT market. The consolidated figure for 2014 has not yet been revealed, but the Brazilian Association of Software Companies (ABES) estimates that this sector grew at around 7% to 8% last year.

After showing a 7% increase in its turnover in Brazil last year, Stefanini – a global provider of technology-based business solutions – is one of the companies forecasting lower revenue growth this year. The group revenue totaled 2.35 billion Brazilian real last year. “2014 was a difficult year and we expect an even greater challenge this year. On the face of this, we have to break paradigms and work more proactively,” said CEO Marco Stefanini.

SMAC in the Middle of IT

According to Stefanini, the projects area should be the segment most impacted by the slowdown of Brazilian economy. The company intends to double its revenue by 2016 and has focused on trends related to social tools, mobility, big data and cloud computing, a segment often referred to as SMAC (Social, Mobile, Analytics and Cloud).

Overall, hardware was the segment most impacted by the slowdown of the Brazilian economy in 2014, while software sector remained robust. “The hardware sector grew at around 6% last year, while software showed a 10% increase, with services showing progress between 6% and 7%,” said Jorge Sukaire, ABES CEO. The telecom segment accounts for almost 80% of the total investments in Brazilian ICT sector and it should reach US$ 104 billion in revenue this year, a 6% increase over the previous year.

Cloud computing and mobile services should concentrate investments this year. IDC points out SMAC (Social, Mobile, Analytics and Cloud) as a trend for 2015.

Mobile service offerings and professional services for corporate networks will lead the demand. According to IDC, 2015 will be the year in which 4G is expected to reach critical mass in the country, reaching 11 million users, which will boost revenue growth of mobile data in 16.2%, compensating for the decrease of 1.7% on fixed voice services. Sales of computers, tablet devices and smartphones should represent about 45% of all IT investments in Brazil during this year, totaling US$ 27.5 billion.

The expansion of connectivity and the popularity of smartphones should increase investments in the Internet of Things as well. For 2015, IDC forecasts that 130 million devices will be connected, accounting for half of all the connected devices in Latin America. The main projects should be restricted to large companies – 19% of companies said they had plans in IoT for the next 12 months – aiming to improve the quality of products and further increase productivity. “Brazil is not an early adopter market and investments in this area are still slow compared to other countries such as China,” said Delai.

The use of mobility should also grow in the corporate area. Companies, which seek operational efficiency and cost reduction, should focus on the mobilization of processes through the use of corporate devices to work.  “Companies are still in a slow process when you look at the use of mobility to gain productivity and accelerate processes,” Delai said.

Mobility is one of Capgemini’s focus areas in expanding its operation in Brazil this year. In order to grow in a scenario of weak economic growth, Capgemini intends to focus on innovation and competitiveness, expanding their offerings related to client experience, mobility, insights, and date and cloud services. “We intend to combine the experience that we have in consulting area with our services portfolio to take on strategic and innovative projects,” said Paul Marcelo Lessa Moreira, CEO of Capgemini Brazil.

The company’s goal is to grow between three and five percent this year. In 2014, Capgemini invested in the construction of service centers and expanded its operations in some Brazilian cities such as Salvador, Campinas, Curitiba and Porto Alegre, as well as opening a global center of infrastructure services in Araraquara, a city in the countryside of the estate of São Paulo.

The advancement of mobility will boost demand for “endpoint security” in 2015, a market that should reach about US$ 117million in Brazil this year. “Companies are concerned about data security,” said Delai.

Infrastructure and cloud services will also remain in the spotlight in 2015. Most companies that adopt cloud-based services will do so in hybrid environments, i.e., in private and public networks.  Delai expects that the growth of IT infrastructure as a service will boost the demand for public cloud, which should show a 50% increase in revenue this year.

In the same way, Big Data analytics and Business Intelligence have also returned as a trend among large and medium enterprises in 2015, with investment in the sector estimated at US$788 million. “In Brazil, companies usually seek big data solutions to stop losing money, but the use of this tool to identify business opportunities is still incipient,” explained Delai.

To the Third Platform

Another trend identified by IDC is the investment in the third platform – that involves technologies such as IoT, 3D printing, Cognitive Systems, Robotics, Neural Interfaces and Next Generation Security – which will be the basis for accelerating innovation inside companies, and will require development from the developers, due to the changes in architecture of applications, which no longer have a focus on predicting a certain processing capacity and which starts to prioritize elasticity. According to IDC, there are few skilled workers for this transition, which could increase the cost of hiring these professionals.

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The lack of professionals continues to be a problem in the IT sector in Brazil. “The training of new professionals hasn’t grown in the same pace of the sector and the labor cost in Brazil remains above the Latin America average,” said Delai.

Despite the devaluation of the Brazilian real making IT exports more competitive, the huge tax burden and high labor costs harm competitiveness. “The outsourcing contracts in the IT sector are long-term. Nobody closes a contract because the exchange rate is more advantageous,” explained Delai. “The devaluation of the real is favorable to exports, but, on the other hand, increases the cost of importing products in the hardware and software segments,” Sukaire said.

Another problem that Brazilian companies will have to deal with is the change in the tax legislation. The government raised the payroll tax for IT services companies this year to 4.5% of 2% of revenue. “This measure should increase cost for IT companies. Changes in tax laws increase regulatory risk and worsen the business environment,” said Sukaire.

Silvia Rosa

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