Just How Serious is Brazil’s IT Labor Shortage?

Whenever Brazil markets itself to US buyers, the argument is that with such a large labor pool, there is greater potential for scalability than in other LatAm countries.

However, the largest Brazilian cities are beginning to see shortages of technically skilled workers for the ITO industry. With both the sourcing industry and the overall economy growing at unprecedented rates, is Brazil becoming a bubble ready to burst?

We asked that question in our recent chat with Cassio Dreyfuss, Vice President at Gartner Research. Based in Sao Paulo, Dreyfuss shares what he’s hearing from both buyers and vendors on the ground, his take on Brazil’s currency appreciation, and why he thinks Brazilian human resources provide the best value for US buyers.

What are the core advantages of Brazil as a sourcing destination? I’m not referring to basics like geographical proximity or time zone advantages, but what factors are really driving Brazil’s outsourcing market forward?

Dreyfuss: The main differentiators in my opinion are the specific characteristics of Brazilian human resources. They have a real empathy with the client, and the ability to put themselves in the client’s shoes to understand the problem from their perspective. That enables providers to create solutions much more aligned with the expectations of the client, leading of course, to higher client satisfaction. Another characteristic is service agility, and the capacity to move ahead with only partial information, which is different from many sourcing locations where employees need detailed instructions in order to get the job done. Brazilians also have an inclination towards innovation and creativity, and that kind of profile appeals to ITO companies. All this is a reflection of Brazilian culture, and how people interact with each other.

Now if you’re talking about the actual technical skill level, there’s not a real difference between Brazilian human resources and those from other LatAm countries that specialize in IT. It’s more the approach to services that is different, the relationship that Brazilians build with clients, and how they tackle problems. I’ve seen Brazilian service providers being successful in the US mid-market with clients that have no experience with outsourcing. They play almost a consultant role, going so far as to help the client set up effective management of processes. Essentially the providers help the client manage them.

What are the negatives of the Brazil market? What pain points do buyers face when operating in Brazil?

Dreyfuss: The speed at which the Brazilian services market is growing is higher than the speed at which new human resources are created. So firms are moving out of Sao Paulo and other big Tier 1 cities and into Tier 2 and even Tier 3 cities. They’re setting up partnerships with local universities where they help with training of the students, and in return can be the first to bid for hiring them. But the critical problem is this: the government has not been investing in the development of resources at the speed at which they will be needed from now on.

Human resources are definitely becoming scarce in the Tier 1 cities – I’ve been talking recently to providers that cannot completely fill all their openings. It’s not a terrible problem for now because Brazil still has a large labor pool. But we have seen it coming, and it’s on us to figure out the solution. The other big pain point for buyers in Brazil is the deficient command of the English language.

So what is the solution? Is there a short term fix to create new skilled workers?

Dreyfuss: Well for three or four years now, BRASSCOM has been extremely active in advising the government on the education of new human resources, and also stimulating companies here to take responsibility for training. That’s the short term solution for now – service providers or any hiring companies taking it into their hands to bridge the gap and develop the resources that they want. It has actually not been uncommon. In Brazil many of the IT workers didn’t actually graduate with a purely technical degree. They’re often from business, economics or engineering degrees, and through company training programs they develop themselves into IT workers.

That being said, there absolutely must be a long term commitment from the government, otherwise this is going to become a real scalability issue for buyers.

In your opinion is there an economic bubble building in Brazil right now? Is the economy at risk of overheating?

Dreyfuss: It’s highly unclear right now. The specialists go back and forth on their predictions, but apparently the excessive growth in the Brazil market is subsiding, which means that the long range perspectives are better. I wouldn’t say that the bubble will burst – I do think that there are underlying fundamentals that are strong and continue to support the economy.

That being said, the currency appreciation and increasing wages for human resources are definitely hurting buyers, and the competitiveness of Brazilian service providers has diminished in recent years because of it. If you’re talking about standardized, low-margin services, they are definitely at a disadvantage because of the high prices. The majority of the leaders of the IT industry are now betting on Brazil’s domestic market. Most of the IT providers are focusing on the internal market rather than the US market.

(Editor’s note: We found it interesting that Stefanini IT Solutions is one of the few Brazilian providers doing the exact opposite, as we reported here.)