Gandhi once said that only the timid seek strength in numbers, but Gandhi never tried providing IT services in Brazil or outsourcing on a global scale. A new Brazilian technology player named Teevo intends to compete domestically and globally by combining the strengths of four companies and offering end-to-end IT services.
Teevo — the name means “technology in evolution” — was created by fusing four established firms with complementary activities: ABYZ TI, LatinTec, MI Informática, and SK Tecnologia. (Operations officially began in July.) The company hopes to distinguish itself by providing everything from custom solutions to infrastructure equipment to consulting, tech support, and outsourcing.
Teevo is the result of a Brazilian initiative to form alliances between small IT companies and help them gain enough weight to compete in both the local and the foreign market.
“With the merger we become one of the biggest companies in RS. We have gained capacity to grow in Brazil and become a global business,” says Teevo president Celso Furlin. He considers the new association of companies a perfect marriage due to the synergy among the four.
None of the companies would be able to address international markets without gaining scale in the domestic market. “In our case we noticed that it was quicker to grow through a merger,” Furlin says, “and we are receptive to talk to other companies that wish to explore opportunities in Brazil and outside the country.”
All four of the now-united firms are based in Rio Grande do Sul (RS as it’s initialed in Portuguese), a southern state with a heavy presence of IT companies and three technology parks: Tecnopuc, Valetec, and Tecnosinos. In 2009, several organizations in RS started a program to transform the region into an international IT center of excellence by 2014. One of the characteristics of the region is specialization in the development of software for business management, industrial automation, electronic commerce, connectivity solutions, and outsourcing.
Teevo is based in Caxias do Sul, the city with the second largest number of IT companies in RS, after the capital Porto Alegre, according to data from the local technology syndicate Seporgs.
The company has started with a client base of about 4,000 names, and brings together a team of 130 professionals. Its income forecast for 2011 is R$50 million (about US$30 million). Furlin estimates the company will be able to double the volume of business and to finish 2012 with income of R$100 million (US$60 million).
Take On the Multinationals
Teevo is the creation of a business-alliance program developed by Softex (Brazilian Association for Promoting the Software Export) — called Programa Softex de Alianças Empresariais (PAEMP-Softex) — and implemented with the support of the Inter-American Development Bank and the Ministry of Science and Technology. The initiative plans to invest about R$2 million (US$1.2 million) to support mergers, acquisitions, or joint ventures. (The money is to pay for consulting on the integration process.)
José Antonio Antonioni, Softex director of Quality and Competitiveness, says that PAEMP-Softex was established to boost the competitiveness of the national IT industry, creating bigger and wealthier companies to act within and outside of Brazilian borders. He believes that this is one of the ways to guarantee the survival of small IT businesses in the country, which have been losing market share to the multinational companies because they have a hard time competing with them when selling services to big clients. His expectation is that the program can assist ten mergers within the next two years.
Studies by Abes, the Brazilian Association of Brazilian Software companies, reveal that 94% of about 70,000 companies that develop applications and provide IT services in Brazil are small companies. The president of the institution, Gérson Schmitt, estimates that most of these business die before five years. For him, strategic alliances will help small businesses complement and expand their offerings, share commercial facilities, and bring scale to the selling of products and services.
Antonioni, from Softex, says the alliance approach has been inspired by cases like Totvs, a major ERP producer in Brazil (48% market share, says Gartner) that is now present in the U.S. and throughout Latin America. The company formed as the result of a merger of Microsiga, Datasul, RM Sistemas, and Logocenter. It is now a publicly traded multinational that earns more than R$1 billion (about US$600 million).
Totvs has bought up more than 20 Brazilian software producers in order to face international competitors like SAP, Oracle, and Microsoft. Instead of developing applications from scratch to serve determined market segments, Totvs buys technologies ready to be implemented and thus shortens the time of delivery to clients.
Antonioni says he also believes that the new program will strengthen local companies to compete with multinationals that are entering Brazil through acquisitions. The favorable situation of the Brazilian economy has attracted the interest of foreign investors that want to operate in the country and try to shorten the process through local acquisitions. Examples are the recent transactions involving Politec and the Spanish company Indra; Cimcorp bought by the American firm Midas Medici; CPM Braxis merged into Capgemini; Alog bought by the investment fund Equinix/Riverwood Capital; Tivit bought by Apax Partners; and Locaweb bought by Silver Lake. And last week, U.S.-based equity firm Alothon completed its acquisition of MTel Group, one of the largest providers of outsourced networking services in Brazil.
Teevo faces big, multinational as well as local competition, but could end up proving Gandhi wrong about strength in numbers. The company has the philosophical support of a traditional saying, which is also the theme of a song by the Brazilian composers João de Barro and Lamartine Babo: “One single swallow does not make summer happen.”
This article originally appeared on Sourcing Brazil