Latin American companies likely exported software and related IT services worth $1.2 billion USD in 2013, based on earlier forecasts from trade association ALETI. The organization, which represents sectoral IT entities from Latin America, the Caribbean, Spain and Portugal, expected to witness a 70 percent increase compared to 2002 — and there is no reason to believe it didn’t occur.
Interestingly, the proportion of exports doesn’t always reflect the global size of a country’s IT sector. According to a 2010 fact sheet from the Economic Commission for Latin America and the Caribbean (ECLAC) on the software industry, Latin America’s software-exporting nations can be classified into three groups: “those with a large domestic market but limited export bias (Brazil and Mexico); those with a small domestic market but a strong export bias (Costa Rica and Uruguay); and medium-sized countries that combine both strategies (Chile and Colombia).”
Likewise, Latin America’s leading exporting companies come from several different countries, such as Argentina’s Grupo Assa, Chile’s Sonda and Mexico’s Softtek, to name but a few. Still, a large number of these are Brazilian companies, of which IT services provider Stefanini is one of the most important.
Stefanini boasts a presence in 34 countries, and was named Brazil’s fourth most internationalized company by the Dom Cabral Foundation. According to its global CEO, Marco Stefanini, the company expects international operations to account for 60 percent of its earnings in five years, up from 40 percent currently.
It is undoubtedly tempting for ambitious Latin American tech companies to go after foreign clients with higher spending power, either individually or collectively. However, winning these coveted accounts takes time and investment, especially in terms of obtaining certification.
Indeed, requests for proposals (RFPs) issued by large companies often require bidders to prove that they comply with International Financial Reporting Standards (IFRS) and software quality needs as defined in their country of operation. This means that companies targeting multiple markets tend to seek ISO and CMMI certificates, but also country-specific ones; for instance, Stefanini is also level-two compliant with Mexico’s MoProSoft.
Reaching these standards involves investing in staff training and process optimization. As a result, costs can easily ramp up. To give an example, CI&T reportedly spent $1 million USD towards obtaining CMMI level 5 appraisal in 2007.
As for twelve-year-old IT firm TIQAL, it carved a niche for itself precisely by helping other companies comply with national and international standards. Its main product, called Daruma Software, is targeted at general business management across multiple sectors and is complemented by Daruma D-SaluD, which focuses more specifically on the health sector.
With reported annual revenues of $4 million USD, the company is based in Colombia, where it was incubated at Cali’s ParqueSoft. It is also one of the country’s most promising startups, according to Colombian government agency Innpulsa, which listed it as one of the 34 startups that could be earning $730 million USD in combined revenue in five years.
While 80 percent of TIQAL’s business still comes from Colombia, its products are frequently used abroad, as many of its clients are multinational corporations with operations in other Latin American countries and in the US. In addition, it is planning to capitalize on its learnings to increasingly explore foreign markets over the next few years.
According to TIQAL’s marketing lead, Stephany Martinez Borrero, the demand for Daruma Software is particularly high in Spanish-speaking countries, whose highly regulated environments make companies value TIQAL’s offering.
Setting foot abroad
Despite similarities between Latin American markets, IT companies need to adapt their practices if they want to become successful exporters. As Marco Stefanini points out, “each country has its own particularities and challenges.” This cultural adaptation involves often underestimated costs, such as having to share revenues with a foreign partner that brings its local knowledge.
Once a company reaches a certain scale and starts running international operations on its own, it also needs to be prepared to hire foreign workers with an understanding of each country’s business practices and language. In the case of Stefanini, it operates across 31 languages and more than 7,500 of its 18,400 staffers are based outside Brazil.
Since hiring abroad can be challenging, those who can afford to do so often acqui-hire foreign competitors to kickstart their local operations. This is one of the most visible costs of growing a multinational software company, but it should not overshadow other quasi-mandatory expenses that are required at earlier stages. For instance, a newcomer to exporting will need to invest in attending events to get noticed by analysts and potential clients, and may want to work with strategic consultants in advance of its participation in trade shows.
Luckily enough, most Latin American countries have umbrella booths at major tech events — when they are not holding their own showcases. Those actions are often coordinated by national IT trade organizations, working hand in hand with their country’s export promotion agency. It is for instance the case in Colombia, with Fedesoft and ProColombia, as well as in Brazil, with Brasscom and Softex working together with Apex. In addition, Fedesoft also joined forces with its Argentine counterpart CESSI to jointly promote IT and outsourcing companies in their respective countries.
A long-haul effort
According to Marco Stefanini, the way Brazil was perceived as an IT player was undoubtedly the main challenge facing the country’s exporters. “Brazil is often called ‘the hidden treasure’ precisely because other countries underestimate the ability of its IT companies, unlike what happens with India, for instance, which did a great job at marketing,” he explains. In that context, he describes the work that Apex and others have been doing as “fundamental,” although he insists it is a long process that requires continuity.
Promotion aside, Latin American IT companies can also benefit from other actions led at the country or regional level, for instance to boost the workforce’s English proficiency and to sign more trade agreements. All of this takes time, which leads Stephany Martinez Borrero to share this piece of advice with Latin American IT companies that are keen to start exporting: “Don’t believe the process is immediate,” she warns.
This is true of collective efforts, but also of the R&D investments each company needs to make to develop innovative and competitive solutions. Ultimately, the key to becoming a successful exporters is to “offer a differentiated product that manages to truly add value to the customers the company wants,” she concludes.