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The Barriers that Hold Brazil Back from Global Offshoring Supremacy

The Barriers that Hold Brazil Back from Global Offshoring Supremacy

Trade Official Addresses IT Workforce Shortage, Dropouts, High Taxes and Other Barriers on the Road to a $20 Billion IT Offshore Industry

By Edileuza Soares

In ten years Brazil has  a very legitimate shot at becoming one of top leaders in offshore outsourcing globally. It’s a tall order, and to achieve that goal the country will need to overcome several challenges – one of which is to train 300,000 IT specialists in the next ten years to reduce the cost of labor.

 

By 2020 Brazil hopes to be one of the world’s top four in offshore IT, turning over US$20 billion, alongside the U.S, India and China. The country’s objective is to increase its income six-fold from software exports and tech services that amounted to US$ 3 billion in 2009. That means an increase in the IT contribution to national GDP from 3.5% today to 5.3%. Besides the booming economy however, there’s another factor that will undoubtedly help growth. Brazil will play host to the 2014 World Cup and the 2016 Olympics which in themselves require new investments in IT infrastructure.

Brazil Rising Above China

The president of the Brazilian Association of Information and Communication Technology (Brasscom), Antonio Gil, believes that the country has everything necessary to be the second or third largest global provider of IT services after India. He excludes the United States from that calculation and predicts an offshore services race in 2020 resulting in Brazil overtaking China.

To achieve this objective, six national software associations met for the first time earlier this year in Brazil and planned a single agenda for the IT sector. Brasscom also requested a study entitled Brazil 2020 from consulting firm McKinsey to identify opportunities in IT sourcing over the next ten years, and in overcoming obstacles that the country faces in excelling overseas.

It is the firm belief of many companies in Brazil that new President Elect Dilma Rousseff, who takes office in January 2011 from outgoing Luiz Inácio Lula da Silva, will further help the sector distinguish itself in the international market. They argue that IT is a strategic component in Brazil´s economic growth, which according to The Economist´s Intelligence Unit should go up from eighth rank (current GDP is US$ 1.5 billion) to fifth rank  in the next ten years.

A Matter of Skill

Rafael Moreira, Project Manager of The Secretary of Innovation for the Ministry of Development, Industry and Overseas Commerce (MDIC) commented on Brazil’s challenges as it tries to become the new IT destination of choice. Below are extracts of Nearshore Americas’ exclusive interview with him:

What are Brazil’s chances of becoming the second largest provider of IT services?

Moreira: Today there isn’t a second place in the world in the field of IT outsourcing. China is competing for this position with exports between US$ 6 and 7 billion. But what China delivers is a relatively unskilled labor force, and India likewise. Brazil may well overcome its competitors as it has created a skilled user workforce in the programs Cobol, Java, as well as in the integration of other technologies, besides being a specialist in software development. I believe Brazil has every chance of being one of the leading contenders to reach the US$ 20 billion mark if it succeeds in overcoming all obstacles.

We need to produce professionals on a large scale and quickly with a curriculum that meets company needs – Rafael Moreira

Companies demand a reduction in tributary taxes to reduce the cost of doing business. What specific contributions has the government made?

Moreira: The Productive Development Policy (PDP) launched in 2008 to encourage Brazilian exports established certain measures. One was the change in excise tributes so as to provide impetus to IT companies abroad. Law 1774/2008 conceded a 20% reduction in taxes over labor costs of companies from the sector. The National Bank for Development and Social Economics (BNDES) also increased its line of credit to encourage the development of software, that rose from R$ 1 billion to R$ 5 billion.

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Taxes in Brazil are still very high. Companies earlier recommended an exchange of 36% of employment tax for a 20% share of corporate profits to the government. That will drop the cost of payroll, leading to lower labor costs.  Is that feasible?

Moreira: It’s a plausible proposal until a tributary reform is implemented. Today an IT company with 100 workers each earning R$ 2,500 per month pays the same taxes as a firm employing 100 dressmakers earning R$800 a month. However, the IT firm requires qualified resources and invests heavily in training. I believe that a percentage of revenue would be fair to balance the average payroll expense.

How can Brazil succeed in qualifying 300,000 IT professionals before 2020 when research indicates that there is already a deficit of 71,000 workers?

Moreira: We have a serious problem with the high rate of student dropouts from IT graduate courses – as great as 82%. Of the 150,000 students who enroll annually in universities only 25,000 actually graduate. Furthermore, there is an imbalance between supply and demand. The professional graduate does not meet company demands because he enters the work market unprepared. He lacks basic knowledge in math and physics. Many firms are helping prepare the labor pool and the government is developing several programs. One of them is a partnership with Brasscom to train 4500 professionals per year.

How will you put this project into practice?

Moreira: We are encouraging entities such as Senai SESI, a private Brazilian institute that provides industrial training for workers, to offer IT on their technical courses. We wish to create interest in our youth from 14 years of age in the IT market, with free training. Brasscom is offering technology to enable professors to pass on that knowledge. We aim to qualify 2000 professors by 2011.

Why the investment in high school and not at the university level?

Moreira: We need to produce professionals on a large scale and quickly with a curriculum that meets company needs. Today firms are in great need of programmers costing less. As they are unable to find them they hire specialized graduates, which in turn drives up labor costs. An average programmer earns between R$ 1,000 and R$1,800 while a graduate earns between R$2,500 and R$4,000. Training capacity is a large bottleneck of Brazil. There are companies that are stopping exports because they are unable to find skilled labor.

What’s your strategy to drive up Brazil’s offshore service value?

Moreira: The best model to compete with the likes of India is with the development of aggregated value software, as with automated banking, e-government and in the agriculture sector. We need to invest in research and development to have innovation.

About Kirk Laughlin

Kirk Laughlin is an award-winning editor and subject expert in information technology and offshore BPO/ contact center strategies.
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