IT-BPO in Brazil
Introduction to Brazil
Brazil is Latin America’s largest market, the world’s fifth-most populous country and the world's tenth-largest economy in GDP terms. Above average GDP growth will allow real incomes to continue to rise, albeit at a more moderate pace that that seen in recent years. Income support programmes for the poorest families have contributed to a significant reduction in poverty rates and income inequality in recent years, but Brazil will remain one of the world’s most un-equal societies during the forecast period.
With ample availability of natural resources, Brazil is widely known for its comparative advantages in agriculture and the primary goods processing sectors. However, over the past couple of decades, it has been the services sector which has induced the country’s growth and led the share of the nation’s GDP. Approximately 65% of Brazil outputs are under the responsibility of the services sector, against 30% for the industry, and the remaining 5% for agriculture. The services sector ranges from unskilled and low value-added personal services to high-earning professional and financial services. Nevertheless, primary goods remain an important part of Brazil's economy, as the country is the world’s third-largest agricultural exporter.
IT-BPO Sector Profile
The Brazilian IT-BPO market is among the strongest and most mature in the world. Over the last few decades it has been evolving in size, coverage and complexity, in line with the other economic sectors. Brazilian companies operate in the country, along with multinational firms.
Today, Brazil has the 8th largest internal market of IT-BPO in the world. In 2008, according to BRASSCOM, the Brazilian IT-BPO industry circulated US$ 59.1 billion in the economy, of which US$4 billion of BPO services alone and US$ 2.2 billion in IT-BPO services exports. The largest share of the IT-BPO revenues are attributed to Custom Application Development (73%), followed by Infrastructure Services (16%), Business Process Outsourcing (7%), and IT Consulting Services (4%).
According to IDC (International Data Corporation), the national market for offshore services is still in rapid expansion, forecast to grow at an average rate of 11.7% per annum until 2012, significantly above A.T. Kearney’s project 8.7% growth in the same period.
Competitive Advantages of Brazil in the IT-BPO sector
• Strong domestic market
• Exceptional Infrastructure
• Stable Political and Economic Environment
• Time zone and cultural compatibilities
• Exceptional Infrastructure
• Stable Political and Economic Environment
• Time zone and cultural compatibilities
Regions
Most of the IT-BPO sector is concentrated in the South/Southeast region of the country, while expansion areas are located in the Center-West and Northeast regions, where infrastructure and education development is providing enterprises with excellent business opportunities.
Market Characteristics
Brazil poses no restrictions on foreign investments in the IT-BPO sector. The rules and procedures for establishing a business in Brazil are basically the same for domestic and foreign investors.
Revenue comes mainly from IT services, and most (73%) is related to development, which is a higher proportion than in other countries. According to the IDC, the biggest growth is in the integration and consulting areas, as in the rest of the world, but development will continue to dominate for a long time.
In the BPO segment, demand is concentrated in call centers, which account for 40% of business activity. These usually involve multinational company branches working for the head offices (captive centers). Operations focusing on the market outside Brazil are mainly help-desks, B2B, and B2C call centers.
Despite the many challenges Brazil currently faces, the country is still very competitive when compared to other top global IT-BPO destinations. According to its latest Global Services Location Index, A.T. Kearney ranks Brazil’s business environment better than its main competitors: China; India; and other emerging markets.
Workforce
Analysis from Gartner identifies Brazilian labor force as flexible, creative and with diversified skills, providing attractive resources to the offshore sector. Brazil shows appropriate availability of human resources at reasonable costs, inducing leading global BPO and offshore companies to invest in the country, and choosing Brazil as their hub in Latin America.
The abundance and the quality of Brazilian labor force, as well as the increasing efforts introduce a large number of new and skilled professionals into the market, sets Brazil apart. Professional education enrollment, including technical schools (4 years), short-term technical courses, and professional training courses add up to nearly 6 million people per annum. According to the latest research by the Ministry of Education, over 1.5 million people entered undergraduate and technical education, in 2,281 institutions, in 2007.
In addition, when assessing Brazil’s availability of labor and skills, A.T. Kearney places the country as 9th overall in the 2009 Global Services Location Index. Further analysis of A.T. Kearney’s research reveals that Brazil ranks 1st in Latin America, 6th overall in size and availability of labor, while ranking better than India and China in language capabilities.
The challenge of meeting the labor needs of the IT-BPO market, which has been growing at an annual average rate of 6.5% over the last four years, is shared by public and private institutions throughout the country. A Ministry of Education survey carried out in 2007 revealed that there are 1,714 courses, from technical to university courses, directly linked to information technology in Brazil. There is an ongoing plan to double the current number of vacancies offered by the federal technical and technological area to 500,000 places by 2010. A qualification in information technology will be a priority in this initiative.
Foreign language qualification is a must among IT-BPO professionals, especially when targeting offshore BPO services. In this sense, Brazil provides abundant supply of foreign language speakers, especially English, as its training is mandatory in the primary and secondary public and private school curricula.
Incentives
In general terms, direct and financial incentive is widely available. Tax and Financial incentives in Brazil varies according to the sector, the location and the size of the investment project.
The process and time frame to receive approval varies according to the program, location and agency were the incentive is requested, as well as the agility of the applicant to provide the necessary documentation. There are no standard processes or time frame.
Direct Incentives
Spending on staff training and development, and research and development can be deducted against income tax up to 200%. There is also a 50% deduction on excise tax (IPI) when purchasing equipment for research and development, and this tax is exempt when software development materials are imported. Another benefit is the tax deductibility on technology transfers, licenses and royalties.
Exporting companies may reduce as much as 50% of the social security (INSS) contributions depending on the amount of exports. They are also exempt from contributing to a network of employer entities known as the "S System". When products are purchased to be exported, social charges (PIS/Cofins taxes) are not applicable.
For example, the São Paulo municipal project "Nova Luz" is revitalizing the region and promoting the creation of a complex of IT-BPO companies. The project offers several fiscal incentives, such as a 50% reduction on Property Tax (IPTU) and a 60% reduction in Service Tax (ISS).
Companies established in technological parks, in any region, do not pay property taxes and receive discounts on service taxes.
Financial Incentives
IT-BPO enterprises in the country can rely on various public credit lines at subsidized rates. The Brazilian Development Bank (BNDES) is the main source of public funding, while Finep, the government agency that finances innovation and technological research and is linked to the Ministry of Science and Technology, offers a special credit line for technology projects. State government financial incentives programs are also widely available, normally financed through state, regional and national public banks.
The government also stimulates the establishment of consortiums and joint ventures in the sector, as well as investments through funds and venture capital into small and mid-sized companies, and business incubators.
Case Studies
The International Association of Outsourcing Professionals (IAOP) conducts an annual assessment of the capabilities of outsourcing global service providers, ranking the best companies by evaluating their size and growth, customer references, organizational competencies and management capabilities.
When looking at their 2010 rankings, Brazil hosts 8 of the top 10 companies in the 2010 list and 25 of the 50 best ranked outsourcing companies. This clearly reflects Brazil’s capacity to host top level companies, providing the appropriate advantages that premier service providers seek when choosing their locations.
The IAOP 2010 Global Outsourcing Ranking
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Rank
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Top 50 companies with operations in Brazil
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1
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2
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3
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4
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5
| |
7
| |
9
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10
| |
11
| |
12
| |
13
| |
14
| |
15
| |
16
| |
17
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18
| |
19
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22
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27
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30
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31
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34
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40
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41
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48
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