The Brazilian IT companies finally have capital and inceptives to compete against the Indian companies – but is there still time to get worldwide relevance?
The date between Mitsubishi and Politec, a technological service company headquartered in Brasília, lasted over a year. At the end of April the wedding was announced: Politec was chosen to receive a 100 million-dollar-dowry. In exchange, the Japanese conglomerate arm of investment is going to get 25% of the company’s capital. Besides becoming the technological service priority supplier for 500 companies of the Japanese group in 80 countries, Politec will also open a branch in the homeland of its new partner. In order to do so, it has already started the hiring of Japanese descendents with some familiarity with the language and culture. In Japan, just 4% of the companies seek foreign suppliers to handle their technological parks. Backed by a traditional group, Politec will attempt to enter the billionaire and closed Japanese market. Besides the Asian operation, the company plans on having three offices in the USA and on increasing its presence in Latin America; the purchase of a local company must be announced in the coming weeks. With the internationalization, Politec must double its present turnover of R$ 500 million.
With almost a decade of delay, the promise that Brazil will be transformed in a worldwide base of technology service supplying seems to be approaching reality. Brazilian companies received investments that totalize about half billion dollars between June 2007 and May 2008. What have drawn the attention of the investors are the opportunities of exportation. The worldwide outsourcing market manages around 70 billion dollars. Although they have a vigorous internal market of technology, or just for this reason, Brazil has never being able to place itself worldwide as service exporter. Companies and global banks have always resorted to Indian companies for daily technological tasks that might be done at any part of the planet, such as the codification of programs made to order or the maintenance of corporative systems. With low cost, plenty of engineers and a official policy that gave priority to the technological service sector, the Indians nowadays export, in dollars, 100 times more than the Brazilians. But the companies in Brazil are gathering the necessary conditions to enter the race for real.
The fist sign of that is the investors’ interest. CPM Braxis received 96 million dollars from the Gavea Investimentos, Procwork was acquired by the Chilean group Sonda for 118 million dollars and Promon Tecnologia joint-ventured with the British Logicallis, a business of 77 million dollars. The first impact of these investments must be the consolidation of the sector. “Nowadays, the ten greatest companies of IT service in Brazil have, together, a turnover that does not surpass 55% of the market. That is, pulverization is a trademark of this sector in the country”, states Mauro Peres, IDC Consulting President. Having musculature is one of the essential attributes of those who want to attend the companies like GE, one of the biggest customers of the Indian companies. The creation of Virtus, at the beginning of March, was an example of the opportunities of consolidation. The company arising from the joining among seven Brazilian middle and small companies of the software field and infrastructure service, that decided to join forces to have more firepower. The business was financed with Intel Capital resources, arm of investment of the chips giant, which bet in the idea and became one of its partners. Today, Virtus has 10% of its revenue, of 100 million Reais, arising from exportation, but, with the health of investments, the company intends to accomplish a new round of collecting still this year, it wishes to increase the participation of the external revenues to 25% throughout the coming three years.
A studied policy of the Brazilian government is also considered decisive to increase the competitiveness of the national companies- due to a strategic movement that sped in the late 90s that India projected itself internationally. After years of insistence in Brasília, the sector celebrated the exoneration package of 13,1% of the labor charges for the exporters included in the industrial policy lately announced. Sice lat year, the IT market is one of BNDES priorities. BRQ Informática received the biggest subsidy of the segment: 56 million reais. With part of the resources, it acquired two companies that act in the financial sector: the Brazilian Prodacon and the American ThinkInternational, which brought important contracts for BRQ, such as the New York Stock Exchange (Nyse) and the Société Générale Bank. “The decision of givin priority to the software sector is the first step to make Brazil competitive abroad”, states Benjamin Quadros, BRQ founder.
The money from investors and official investment came. But these two pushes might not be enough so that Brazil can guarantee a relevant slice of the exportation market for one reason: the money exchange. Exactly when the national companies gathered way to grow overseas, the Brazilian currency (Real) has achieved record in valorization. “The perfect figure for those who export is 1 dollar equivalent to 2.20 reais”, states Antonio Carlos do Rego Gil, Brasscom President, company that gathers the companies of the IT service sector. Gil estimates that 1.5 billion dollars in contracts have been taken to other countries from Latin America, especially Argentina. Besides the strong currency, Brazilian companies have a more than troubled issue to be faced: the labor liabilities.
Before the recent charge reduction, many companies had come for several years, adopting heterodox measures to reduce its costs with payment roll. Among the creations is the “CLT flex”, in which one part of the salary is registered in the labor evidence booklet (Brazilian document which keeps records of the companies worked for the employee in order to allow him/her retire and/or receive welfare and labor benefits after leaving or being legally fired from a company), in which all the fees are charged, and the remaining fees are paid as help with costs or in perks. Another modality is hiring of employees as legal entity. Now, with the arrival of institutional investors and real perspectives of capital opening, although few consider probable an IPO in this year due t the instability caused by the mortgage crisis in the USA, the labor issue is back to bother. “Buying a company in Brasil is to acquire labor liabilities”, states Fernando Parra, DTS President, a service supplier company specialized in the financial sector. The company acquired in the last five years around 15 small companies in Brazil and says that gave up some other ones because the partners didn’t want to be responsible for the eventual future lawsuits by employees hired illegally. An executive of a great fund of international investment told Exame Magazine that many of the foreigners are scared when getting to know this side of the Brazilian market. “In many contracts, there is already forecast of reimbursement of the investors if the labor risk happens, states the executive.
Despite being late and the obstacles to be overcome, the moves in the IT service segment are in time of placing Brazil into the offshore international route. The external interest in the local companies shows that and appoint that it is possible to make the country leave, soon, the condition of being only a “farm to the world” for its commodities, according to what the IPEA President, Marcio Pochman, says: to get closer to the strategic position of “world office”, position that nowadays belongs to India.