Nearshore Americas

Real’s Depreciation Gives Sudden Burst to Brazil’s IT Exports

The devaluation of the Brazilian real may contribute toward making Brazilian companies more competitive in the global market, but the high costs in Brazil still limit an increase of IT sector exports.

Last year, Brazilian software and IT services’ exports totaled US$807 million, according to the survey published by the IDC and Brazilian Association of Software Companies (Abes). Added to hardware and other services, such as Business Process Operation (BPO), the total exports from the Information and Communication Technologies (ICT) sector reached US$3.447 billion.

In 2014, Abes estimates that Brazilian exports should follow the growth of the Brazilian IT domestic market, which is expected to increase by 12% this year. According to a Brazilian Federation of Information Technology Companies (Assespro) survey, which has about 500 associates, about one quarter of exporting companies forecast a growth above 50% in international operation revenues for this year, while others expect stability on foreign sales income.

For 2015, Abes forecasts a somewhat better scenario, but Abes CEO Jorge Sukarie noted that uncertainties concerning the Brazilian political scenario and Brazilian foreign exchange stability could interfere in any decision to hire services from Brazilian companies.

The recovery of the U.S. economy, one of the main markets for Brazilian software and services sales, nevertheless, could benefit the Brazilian IT sector exports. “The USA is the largest IT market in the world and the recovery of the American economy could boost Brazilian exports. However, high costs in Brazil harm the competitiveness of Brazilian companies,” Sukarie said.

Others important markets for Brazilian exports are Latin America, especially Argentina, Colombia, Mexico and Peru; followed by Europe, mainly Portugal and Spain; and Asia. Brazilian exports are concentrated in the service segment, which accounted for 83.5% of total ICT exports in 2013.

Brazil’s IT Offerings

In the software segment, the operations are concentrated in software on demand, software applications, help desk, software as a service (Saas) and business consulting in the IT area, explains Roberto Mayer, vice president of public relation from Brazilian Federation of Information Technology Companies (Assespro).

“There are great opportunities in the foreign market for companies that use platforms of multinationals, such as SAP and Oracle, to offer solutions focused on sectors in which Brazil has expertise, such as the financial, agribusiness, oil and gas and education”, said Gláucia Critter Chiliatto, international executive manager at Softext.

Sukarie believes that Brazilian companies have a competitive advantage in offering customized solutions and applications for mobile devices, for example, games for tablets and smartphones. “Brazilian companies should be competitive not only on price, but through their experience and innovation,” Sukarie said.

One Brazilian company that has stood out in the international market for its innovative solutions for large multinationals such as Coca-Cola, Johnson & Johnson, McDonald’s, Pfizer, Walmart and others, is CI&T. The company, which was founded in 1995 and has its headquarter in Campinas in the state of São Paulo, offers scalable enterprise applications using several technologies such as mobile, cloud computing, analytics and social media.

CI&T has offices in the USA, Japan, Australia, China and the United Kingdom. “The depreciation of the Brazilian real can help to boost exports, but our internationalization strategy does not depend on currency fluctuation”, said Leonardo Mattiazzi, vice president of Innovation at CI&T.

By using multinational platforms, CI&T invests in providing innovative solution as a competitive differential. The company, for example, helped to develop the Coca-Cola 2014 FIFA World Cup campaign in Brazil. The project was built in Atlanta using the Google Cloud Platform. Coca-Cola invited fans around the world to share their photos to create the Happiness Flag – the world’s largest mosaic flag crafted from thousands of crowd-sourced images, submitted by people in more than 200 countries. The flag was unveiled during the opening ceremony of the 2014 FIFA World Cup.

Last year, international operations accounted for 30% of CI&T’s annual turnover, an increase of 30% compared to 2012. This year, the company expects to reach the same growth rate in exports and it forecasts higher growth for the coming year.

Innovation as a Competitive Differential

Innovation is an important factor for Brazilian companies to achieve success in the foreign market. Aiming to support the internationalization of Brazilian companies, Softex created an innovation strategy program that counted the participation of 45 companies this year. Nine of them were selected to participate in events and fairs abroad, where they could present their innovation strategies.

For 2016, Softex, in partnership with the Brazilian Agency for the Promotion of Exports and Investments (Apex), intends to launch an international module of the internationalization program, Inter-Com, which will be held in Silicon Valley, California. Since 2005, Apex and Softex have had a partnership in a project to spur software and services exports. More than 220 companies have already participated in this program.

One of these firms is Interact Solutions, based in the state of Rio Grande do Sul, in the southern region of Brazil. The company, the developer of the corporate management suite called Strategic Adviser (SA), has operations in nine countries, mostly in Latin America, and it plans to start a business in the United States and Europe. “We are already negotiating with local partners in Spain and Portugal. In Latin America, we have ended our operation in Panama and we are prioritizing exports to Uruguay and Colombia,” said Fernando Estrada, international business manager at Interact.

In 2014, its exports will account for 10% of the company’s revenues, which should total 7 million Brazilian real (almost US$2.69 million). “Exports have increased on average from 20% to 25%. The goal is increase the export participation to 20% of the annual turnover by 2016,” Estrada said. The Interact Solution executive explains that the devaluation of the Brazilian real helps to boost export revenues but, on the other hand, it increases costs with licenses and travels.

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The share of exports in the Brazilian IT market is still small compared to other Latin America countries. According to the Assespro survey published this year, only 17% of IT companies actually export. “Exports account for, on average, less than 10% of companies’ revenues,” Sukaire said.

Prohibitive Costs

The high costs in Brazil are making Brazilian IT exports less competitive when compared to others countries in Latin America. “The cost in Brazil can be 10% to 15% more expensive than in Colombia or Uruguay,” said Estrada, from Interact Solutions.

According to specialists, the large domestic market is one of the main reasons for the small share of exports in the IT market. Brazil is the seventh largest IT market, which handled US$61.6 billion in 2013.

Other factors that affect the competitiveness of Brazilian exports are the high taxes and expensive workforce, not to mention the high levels of bureaucracy when doing business in Brazil. Meanwhile, Glaucia from Softex points to other reasons that also hinder Brazilian exports, such as the lack of resources for investing in internationalization, difficulties with foreign languages and the lack of knowledge about others markets.

Silvia Rosa

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