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A Deep Dive into Brazil’s Secondary Cities: Scoping Out the Next Choice Destinations

A Deep Dive into Brazil’s Secondary Cities: Scoping Out the Next Choice Destinations

Campinas, Recife and Porto Alegre draw more attention from domestic and multinational outsourcers

By Tarun George

With the ongoing violence in Brazil’s showcase city, Rio de Janeiro, IT services buyers are increasingly turning away from the large metropolitan sprawls, to focus on smaller ‘secondary cities’. They’re finding that costs are cheaper, higher quality tech talent is available, and there are less bureaucratic hoops to jump through. Today we shine a spotlight on three of these upcoming Brazilian destinations to find out why outsourcing firms are lining up to invest, and what rewards they’re seeing.

The term ‘secondary cities’ conjures up images of smaller towns slightly removed and on the periphery of what’s going on in a country. But because of Brazil’s size, its secondary cities are as populated and urban as Tier I cities anywhere else in Latin America – and it’s there that we find the sourcing action today.

The three secondary cities are:

1) Campinas

With a population of 1.08 million, Campinas is the smallest of the three cities we’ll be talking about. But it more than makes up for that with the number of R&D initiatives it supports. Firms located here include IBM, Dell, HP, Ci&T, ACS and Softway, all running research or IT services projects. Campinas and the surrounding area specialize in application support, development and customization, especially for mobile applications, as well as engineering services and embedded solutions.

Labor offering – Campinas is quickly becoming an R&D hub because of the strong talent pool it produces. The city has more than 60,000 enrolments in 13 universities and technical institutions, including the University of Campinas (UniCamp) which alone graduates 1900 students each year. UniCamp offers engineering and tech courses specifically geared toward companies’ needs, and is itself a research center producing the highest number of patents in Brazil. Salaries in Campinas are 15% less than in Sao Paulo.

City specific incentives – The Campinas Technology Cluster is one of the most mature and developed in the country. Incentives offered beyond the country level ones include a 60% services tax reduction for firms in the cluster, and generous reductions in real estate taxes. A Science and Technology Park has also been planned as part of the cluster, designed to be an incubator for new R&D projects.

Weakness – “Campinas was one of the first Tier II cities to be noticed after Rio and Sao Paulo”, says Robert Janssen, Managing Partner at Outsource Brazil. “Since it’s just an hour drive away from Sao Paulo, it’s a location sought after by many companies, who are all fighting for talent. Scalability is the issue there”.

2) Recife

While the other two secondary cities are tech oriented, they’re often satisfied with small companies and small investments. Recife stands out because it gears its offerings toward attracting the big players. And it’s been paying off – the power list here includes IBM, Microsoft, Oracle, Dell, Motorola, and Samsung. The state government is very progressive and created the tech park Porto Digital specifically to drive innovation and new talent supply for these companies’ needs. The park hosts 117 companies that can be broken down into 10% call centers, 25% support and maintenance, and 79% software developers.

Labor offering –Recife boasts 30 universities offering IT and tech courses including the Federal University of Pernambuco (UFPE), ranked as having one of the best computer science departments in Latin America. There are about a 1000 ICT graduates every year and enrolment numbers average around 77,000. “The best thing about Recife compared to other cities in Brazil is the low profile of labor unions here”, says Janssen. “Companies find that extremely useful”.

But it’s really the wage rate that makes the city’s case. One executive in Recife told us that he sees about a 30% salary difference from Sao Paulo. “The city is appealing to companies that want to access qualified personnel in a relatively lower cost operation compared to the southeast region of Brazil”, he says. With the continued appreciation of the Brazilian real, that low cost will be a welcome bonus to firms asking for this location.

City specific incentives – Recife goes above the 60% service tax reduction that Campinas offers, to reduce the VAT from 28% to 11% for all call center and outsourcing companies.

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Weakness – “Even though the city has a population of 1.5 million, there is a smaller labor pool than the other cities”, says Sergio Pessoa, Director of Marketing at Brasscom. As in many parts of Brazil, a lack of English proficiency is also a challenge in Recife. While English education is being encouraged, there are no focused initiatives in place to bolster the bilingual workforce.

3) Porto Alegre

When companies look for a quick set up location in Brazil, they go to Porto Alegre. “We chose it as our first Brazil office based on talent accessibility, innovation capabilities, and turnkey conditions for office start-up”, says Gary DeGregorio, VP Offshoring at ThoughtWorks, a global IT consultancy. “Our office was opened in 30 days”. Major companies attracted to those same factors in Porto Alegre include Stefanini, Motorola, GM, HSBC, Citibank, IBM and Dell.

Labor offering – The region has four major universities with over 67,000 students enrolled, and 2000 ICT graduates each year. “There’s tons of talent here around agile and open source software”, says DeGregorio. “The universities here help us recruit, we use social networking to find quality applicants, and there’s been a great uptake”. But the real differentiator is the strong English language skills available in Porto Alegre, especially in the IT sector. This is in part due to the city’s European influences, but also the fact that English is fully implemented in the curriculums of Port Alegre’s 350 high schools.

City specific incentives – The city’s main attraction is its technology park, TECNOPUC, which hosts 25 companies that employ more than 2600 workers. The park is managed in part by the Pontifical University of Rio Grande do Sul (PUCRS), which ensures that companies have a steady stream of graduate labor when they need it.

Weakness – “One issue that we see in Porto Alegre as in many cities in Brazil, is a hesitation to focus outwards. Companies are always after the strong domestic market in Brazil, and only very few turn towards the US for outsourcing contracts”, says Pessoa. DeGregorio also tells us that the labor pool is very homogenous in terms of ethnicity, which firms may or may not like.

Other upcoming destinations

 

One city that we left out of this list is Belo Horizonte. Among the most populated cities in Brazil, it has started attracting attention ever since Google set up a development center there to localize its social media products like Orkut. However we feel that the city still has some way to go in presenting a strong value proposition to US companies as these other secondary cities do.

Another very strong candidate that we left out was of course Curitiba. Read our special report on that upcoming destination here.

About Tarun George

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