Why Indian IT Companies Have Set Their Sights on Brazil

Indian IT companies have their eyes on Brazil -- and it is not just exports to North America that have attracted interest. The domestic market, in both software and IT services, has also caught their attention. Here's why Indian companies are looking to Brazil for growth.

Indian IT

Among the largest exporters of software and IT services, Indian companies have increased their investments in Brazil, aiming to benefit from the growth potential of the domestic market and expansion of their operations in Latin America. The largest Indian IT companies, such as Tech Mahindra, Tata Consultancy Services (TCS), Wipro, and HCL have recently started operations in Brazil to both serve the local market and provide services for global clients.

This is the case for Infosys, the second largest Indian IT company, which opened a development center in Brazil in Nova Lima, in the state of Minas Gerais, in 2009. “Initially the aim was to provide services for some multinational customers based in Brazil,” said Claudio Elsas, Infosys’ CEO in Brazil.

In 2012, Infosys acquired Lodestone, which specialized in the SAP system. Currently the company offers several lines of IT services in Brazil, including management consulting focused on SAP and Oracle’s enterprise resource planning (ERP) systems, development of IT solutions and business process outsourcing (BPO).

The company has about 1,000 employees in Brazil in addition to maintaining local operations in Mexico, Argentina, and Costa Rica. “The advantage of being a global company is that we can bring the latest IT solutions to the local market faster,” said Elsas.

TCS is the largest IT Indian company, and Brazil accounted for 20% of its turnover in Latin America in 2013. The company’s goal is to raise its revenues in the region to US$1 billion by 2016, reaching 4% of global turnover.

In Brazil, TCS has a development center in Tambore in the state of São Paulo, and it has focused on services related to mobile Internet, cloud computing, big data, and high-performance computing. The local presence is essential for growing in Brazil. “Besides the language barrier, there is the high cost of importing services in Brazil,” said Elsas.

The main factor that has attracted these multinationals to Brazil is the size of the nation’s IT market. As the seventh largest in the world, it reached US$60 billion in 2014, an increase of 6.7% over the prior year, and with an investment growth of 4.04% last year, it was above the global average. “The main factor that has attracted multinationals to Brazil is the growth potential of the domestic IT market,” said Jorge Sukarie, CEO of the Brazilian Association of Software Companies (ABES). “The country is among the 10 fastest-growing IT markets and may overtake France over the next five years.”

France placed fifth in the investment ranking in 2014, and the Brazilian domestic market is already larger than that of India (eighth), whose investments in the IT sector totaled US$40 billion in 2014. Brazil also dominates its region, representing 46% of the IT market in Latin America. Considering just software and services, growth was 9.7% in 2014, totaling US$25.2 billion — double the Indian market and its $12 billion.

Another advantage of the Brazilian market is that it is located in the same time zone as North America, which makes working on projects involving a global team easier.

However, since most parts of the Indian IT market are focused on export, the international market in Brazil accounts for only 1.93% of the IT sector.

Foreign companies have a large market share in the software segment in Brazil. In 2014, the programs developed abroad accounted for 75.5% of this sector. On the other hand, domestic developments represent 85.9% of the service market.

In order to grow in the Brazilian IT service market, Tech Mahindra has chosen to make some strategic acquisitions. The company, which is part of the one of largest global IT services providers, the Mahindra Group, acquired a 51% stake in the Brazilian SAP consulting company, IT Complex, in 2013 and it is considering new acquisitions or joint ventures with local partners in order to increase its service portfolio in Brazil, especially in cloud computing and BPO.

In February, the company signed an agreement with IBM to develop a cloud application platform. Tech Mahindra also signed a partnership with Equinix at the beginning of the year to use its data center platforms, aiming to expand its business in Brazil and in the Latin American region in the outsourcing and cloud computer segments, providing services such as network operational center (NOC), host operational center (HOC), and security operational center (SOC), as well as support to critical applications and infrastructure services.

Having maintained local operations in Brazil for around five years, Tech Mahindra offers IT services in consulting, enterprise business solutions, BPO and IT infrastructure. Besides this, the group has two companies, Comviva and Canvas, that offer mobile solutions.

In an interview with Nearshore Americas in February, Alberto Tosatti, CEO of Tech Mahindra at that time, said that the company showed a 30% increase in turnover in 2014, and the forecast for this year is to grow 25% in dollar terms in Brazil.

The Brazilian subsidiary accounts for 2% of total revenue and the goal for Latin America is to achieve 10% of revenues by 2018, with Brazil representing half of that.

Some Indian companies also use the infrastructure in Brazil to export IT services to other countries or work on global projects. Currently about 20% of Tech Mahindra revenues in Brazil come from services to countries such as the United States, Canada, and Europe.

The Indian giant of IT services and outsourcing, Wipro, also has a global delivery center in Curitiba, in the state of Parana, which is integrated with the company’s mega centers in India and provides a wide range of IT services for both local and global customers, such as development and maintenance applications (Oracle and SAP), IT infrastructure management, big data and analytics, cloud computing, and outsourcing.

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The company began its operations in Brazil in 2007 with the acquisition of the retail consulting firm, Enable, from the Portuguese group, Sonae.

Despite the devaluation of the Brazilian real, the high cost of doing business in Brazil makes the Brazilian exports less competitive in comparison with other emerging markets like India.

Sukarie explained that the bureaucracy, the tax burden, and the high labor costs are among the main obstacles to operate in the domestic market. In addition, companies have difficulty in finding qualified workforce and staff fluent in other languages, especially English.

Some companies, like Infosys, have sent Brazilian employees to be trained in India or have brought Indian technicians to train the local staff.

Photo: Sam Valadi

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