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Information Technology

Opportune business

Companies create centers in Brazil to develop software and applications for the global market

buenoSkilled labor, flexibility to work as part of a team and compatibility with the time zone in the United States, the world’s biggest market, are some of the characteristics that have attracted competency centers to Brazil. These are multinational companies’ regional units responsible for the development of software and other applications that are distributed to the entire corporation. “The big companies are sending huge numbers of projects to developing countries, which creates enormous opportunities for countries such as Brazil, that have skilled technological and engineering manpower,” says Cesar Gon, president of Ci&T Software. This company is located in the city of Campinas, in the state of São Paulo, and specializes in the consultancy and development of applications; it has a global service-providing structure that includes six units in Brazil, one subsidiary in the USA and an office in London, England.

In April, Ci&T was named by US business magazine Fortune as one of the ten rising stars, the companies that lead the global outsourcing market, an activity in the field of Information Technology (IT) that produces software solutions for other companies. The research study “The Global Outsourcing 100” was conducted in partnership with the International Association of Outsourcing Professionals (IAOP).

The outlook for Brazil in the international software market is to sell US$ 5 billion worth of products and services to the overseas market in 2010. This will generate 100 thousand new jobs in a global market estimated to be worth US$ 100 billion, according to the Brazilian Association of Export Services and Software Companies (Brasscom), based in the city of Rio de Janeiro. This is a significant increase in comparison to the US$ 800 million of Brazilian software exports. “India is expected to account for US$ 60 billion of the total amount in 2010 and the other US$ 40 billion will be divided among countries such as China, Russia, Malaysia, Mexico and Brazil,” says Ricardo Saur, a director of Brasscom. “In the worst case scenario, we will account for 5%,” he adds.

On-going training
In the opinion of Geraldo Gomes, senior manager of the Dell Software Development Center in the city of Porto Alegre, state of Rio Grande do Sul, to achieve this goal it will first be necessary to tackle some barriers, such as  English language proficiency for analysts and technicians, in addition to the on-going training to keep up with technological changes.

A research study conducted by Ci&T Software on the info tech competency centers in Brazil uncovered another more serious problem, which makes it difficult to “sell” national IT to the parent companies of the multinationals: namely, deadlines are rarely complied with. This factor was repeatedly mentioned by the parent companies as a negative factor. The survey was conducted with top executives of the information technology business, representing 46 North American and European companies with major business interests in Brazil. Of these, 20 have IT competency centers in the United States, nine in Brazil, and seven centers each in France, England, Germany and India.

bueno“We have to search for our space, because today the Indians are no longer able to meet the needs of the global market,” says Gomes. India has led this market since the mid-nineties, when companies began to downsize their IT departments and to outsource the development, maintenance and support of applications to specialized enterprises. Initially, this outsourcing was limited to the country where the companies were based. As time went by, outsourcing moved beyond country borders, leveraged by the activities in India, and became known as offshoring. “The main reasons why this occurred were the technical skills and the labor costs, which are much lower than those in the developed countries,” says Gon, from Ci&T.

The consensus among the experts consulted on this matter was that India will continue leading the market. But there are actions, albeit still modest ones, that include the participation of the government, of the entities representing software producers and exporters and companies, pushing Brazil towards a higher info tech level. “There is a demand in the United States that has not been met yet and our culture and our time zone in comparison to that of India and the rest of Asia are to our advantage,” says Gomes. The Information Technology Law is mentioned by the executive as one of the factors that has attracted big companies to set up software development centers in Brazil. According to this law, the company is entitled to tax benefits if it produces a product locally, but it has to invest roughly 2.5% of its gross revenues in R&D in this country. He points out, however, that this kind of venture is not sustainable unless skilled labor is easily available. “When the companies find out that the country has highly skilled labor, and this is one of our strong points, they invest more than originally planned,” he adds.

Dell’s center started out with software development pilot projects in partnership with the Catholic University (PUC) in the city of Porto Alegre, state of Rio Grande do Sul. “We were the first company to set up facilities in the university’s science and technology complex in 2002,” says the executive. Nowadays, TecnoPUC has 31 companies and organizations. In addition to Dell, the main companies at the center include HP, Sonae and Microsoft. The center in Brazil produces software for Dell’s global uses. “It is a huge software exporter, and brings complex problems for the university to solve,” says Gomes. The applications developed at Dell’s center include support tools for the financial industry and tools for sales processes, such as the on-line store in Latin America, developed and maintained in Porto Alegre, and  call centers, as well as support for the tools required in product engineering. The center in Brazil was the first one Dell established outside the US. Other centers were later set up in India, in Bangalore and Hyderabad; in Saint Petersburg, Russia, and more recently in Malaysia. “Our focus is on global systems, such as software for human resources, that involves 80 thousand users,” says Gomes.

Strategic market
The giant US computer manufacturer came to Brazil in 1999, and set up facilities in the city of Eldorado do Sul, state of Rio Grande do Sul. On May 14 this year, the company opened another plant in Hortolândia, in the state of São Paulo. This plant will concentrate the company’s assembly lines, which will enable it to reduce its logistic costs. Dell generates 1,200 direct jobs and 600 indirect ones in Brazil, a market that is considered strategic for the company, along with India and China. “Approximately 95% of Brazil’s IT market is local,” says Gomes. The international market grows by 6% a year, whereas the Brazilian market grows by some 18% to 20%. “The reason is that the Brazilian economy is very active, and it is still growing in terms of information technology,” says José Antonio Antonioni, general coordinator of the Associação para Promoção da Excelência do Software Brasileiro (Softex), a software promotion entity based in the city of Campinas.

“Brazil is a US$ 12 billion market, which is very attractive for multinational companies,” Antonioni points out. Therefore many such companies have set up development centers in the country to meet the local and foreign markets. Portugal’s Sonae group, one of the biggest distribution and supermarket groups in Europe, created the Atlantico Sistemas de Informação information system. Sonae also set up facilities at TecnoPUC in Porto Alegre to develop software for the group’s operations in Europe.

buenoThe multinationals’ strategy in setting up the centers at their local branches is to pursue improved IT services. However, as IT management is not their core business, part of the service is outsourced to local suppliers. Johnson & Johnson, which chose Brazil, from among the Latin American countries, to develop high quality and competitive products for the US and Canadian markets, is one of the companies that resorts to partners such as Ci&T Software. Inaugurated in January 2005, the Brazilian center in the city of São José dos Campos, in the state of São Paulo, referred to as the captive center, has 128 employees – 44 contracted ones and 84 service providers for the development and maintenance of applications used by the branch offices and by the head office.

At present, the center manages 35 applications, up from eight applications in 2005. Of the 46 initial Internet portals, the center now manages 180. “Of the volume we produce locally, 2% goes to Latin America and 98% goes to Johnson in the United States and Canada,” says Argemiro Leite, the chief information officer, who is responsible for the J&J captive center. In addition to the IT services unit in Brazil, the company is working on the implementation of other units. The next one will be in Asia, possibly in India. “In my opinion, the Brazilian center is the strongest of them all,” says Leite.

Industrial Base
Moving ahead of the multinationals in their effort to install centers in their branch offices, Motorola, a company that manufactures hardware and software for communications and provides mobility solutions and products for broad band purposes, integrated systems and wireless networks, with sales of US$ 42,9 billion in 2006, began its Technological Development Program in Brazil in 1997. A year before, in 1996, the company decided to set up its industrial base in South America. To this end, it built an industrial and technological complex in the municipality of Jaguariúna, state of São Paulo. Motorola manufactures mobile telephone handsets, mobile digital communication equipment and two-way radios. Nowadays, the company employs approximately 900 engineers in the field of research and development at Motorola itself and at partnering institutions. Motorola is the biggest exporter of info tech products in the country, totaling more than US$ 5 billion ever since it began operations in 1997. Brazil is one of the four countries, along with Russia, India and China, that the company is focusing on.

“In addition to exports by multinationals, various Brazilian companies are taking steps to export software,” says Antonioni, from Softex. Following  the steps of  big companies are the small consulting and application development companies that have grown in this market in the last few years, as is the case of Ci&T Software. The company’s income last year totaled R$ 8.8 million, on revenues of R$ 40 million. These proceeds came from the development of technological solutions exported to ten clients in the United States. Created by three young computer science engineers from the State University of Campinas (Unicamp), the company has grown approximately 40% a year since it was founded 12 years ago. The first contract, worth R$ 50 thousand, was signed in 1995 with IBM, for the management of telecommunications networks. Nowadays, the company employs 500 professionals.

The incredible detail in this case is that Ci&T only started exporting its products three years ago, when it achieved level 3 certification on a scale of one to five, in the CMMI/capability maturity model integration, the most highly respected software quality standard in the world. In April this year, the company was granted level 5 certification for the entire company, the result of a US$ 1 million investment in a four-year personnel training and process adaptation project. Certification is one of the ways mentioned by Cesar Gon, president and a partner of the company, for companies wanting to take part in international bidding processes for the sale of info tech solutions. “It is necessary to have business units abroad, close to the market that is going to buy this kind of product, especially in the United States, Europe and Japan, the three biggest international markets,” says Gon.

Selling to the foreign market has been the company’s objective since its inception. “No matter how non-sensible that seemed at the time, that was our ambition, and we worked really hard to achieve our goal,” says Gon. The real opportunity came when IT services began to be outsourced in the late nineties. The export strategy came in the wake of a loan from Banco Nacional de Desenvolvimento Econômico e Social Participações (BNDESPar), the country’s social development bank. Nowadays, the three original partners own 85% of the shares of the privately held company, while the state-owned bank holds the remaining 15%. “A company that exports IT is very different to a company that manufactures equipment,” says Gon. “Our competitive edge in terms of exports comes from our professionals, who have a sound academic background.”

Professionals aware of innovation in the IT industry will be needed for the country to grow at the pace the industry experts wish. To achieve the goal of exporting US$ 5 billion in 2010, they estimate that approximately 100 thousand new jobs will be created.