Soccer, Samba and Outsourcing
Posted on January 30, 2007
On January 25, 2007, the Wall Street Journal wrote an excellent article on Brazil’s growing importance as a technology outsourcing hotspot. We have reprinted parts of the article below.
Soccer, Samba and Outsourcing?
By ANTONIO REGALADO, www.wsj.com
Outsourcing seems to be working out well for South America’s most populous nation, too. With a spate of information-technology deals, Brazil appears poised to be Latin America’s big winner in the global outsourcing boom. Last year, Gap Inc. moved computer work to Brazil as part of a 10 year, $1.1 billion contract with International Business Machines Corp. Whirlpool Corp. manages corporate data here, and some smaller companies are using Brazil to try outsourcing for the first time.
With time zones and a culture closer to those of the U.S. than Bangalore or Beijing, small operators such as Mr. Lazarski and multinationals including Accenture Ltd. and IBM are betting that Brazil could quickly become Latin America’s major hub for inexpensive corporate support work, and a top-five location world-wide.
Brazilian-owned firms, which are tiny by global standards, are also trying to get business in the U.S. Two years ago, Politec Ltda. launched a “near-shore initiative” to get work from U.S. corporations and says that so far it has several small contracts worth $1 million each but expects 2007 to be a banner year.
Brazil’s chances in the outsourcing market are a spillover of India’s success. While Brazil isn’t as cheap as India, wages here are still substantially lower than in the U.S. Major Indian firms such as Tata Group made doing computer and office work for less abroad into a huge business. Now the $47 billion market is ballooning at more than 20% a year, too fast for India to keep pace, according to the Everest Group LP, a Dallas-based consultancy that advises companies on how to outsource.
Brazil’s major selling point is that its big cities are just one to three hours ahead of New York, depending on the time of year. That compares with 11 or 12 hours for India. Another pitch heard frequently is “shared values,” a reference to cultural mismatches that have sometimes gummed up projects in Asia. ” ‘Yes’ in Brazil typically means ‘yes.’ In India, it may mean ‘no,’ ” says Peter Bendor-Samuel, Everest’s chief executive.
Unlike India, Brazil already has a large domestic market for computers and services, worth about $7.7 billion a year, according to estimates. That means many big technology companies already have a Brazilian presence. Now some are quickly redeploying to capture international jobs. For instance, in 2004 IBM began putting $100 million into its Brazil operations, based principally in its former computer factory outside of São Paulo, Brazil’s commercial capital.
Staffing has grown quickly since them — IBM added 2,000 people last year in Brazil to bring its total to 10,000 — mostly to handle new work from clients such as Whirlpool. The appliance maker had been paying IBM to provide desktop support in Portuguese for its Brazilian division. So when it decided in 2005 to outsource management of some of its U.S. computer operations, that work also landed in Brazil, says Brent Glendening, a Whirlpool vice president for global information systems. Whirlpool didn’t answer questions about U.S. layoffs associated with the deals.
Outsourcing companies say their biggest stumbling block is that the only things many Americans have heard about Brazil are its soccer prowess and its samba music or its violent slums. “The first question is ‘Is it safe?’ The second is ‘When do we go to Rio?’ ” says James Bergamini, a former Lucent Technologies executive who recently started a software firm, Daitan Labs, outside of São Paulo.
To burnish Brazil’s profile, the government and a new trade organization, Brasscom, paid consulting firm A.T. Kearney Inc. to create a road map for Brazil’s industry and launched a series of presentations at conferences and for companies last year in the U.S. Now industry consultants are starting to talk up Brazil and predict 2007 will be the year it gains recognition as an outsourcing destination.
Ironically, Brazil’s technology sector got a big boost from its chaotic past. During the 1980s and 1990s, a ban on importing some business computers spurred domestic manufacturing. And to cope with runaway inflation, big banks had to develop sophisticated computer systems. “The government would call on Friday and say that on Monday the currency will have three less digits,” says Ricardo Saur, executive director of Brasscom.
As a result, the country has more programming talent available than regional rivals. Skilled Mexican workers tend to drain northward to the U.S., and Chile’s citizenry, though well-educated, numbers only 16 million, compared with Brazil’s 190 million. That leaves Brazil as the top choice for staffing big “factories,” industry lingo for the campus-like centers where workers monitor computer systems, write software or handle calls.
Recently, Indian firms have started making moves in Brazil, as well. In June, Wipro Technologies, a division of Bangalore’s Wipro Ltd., paid $50 million for a Portuguese software company, taking on 70 staffers in Brazil. Sudip Banerjee, Wipro Technologies’ president for enterprise solutions, says plans call for the Brazilian foothold to rapidly grow to 200 people.
Brazil isn’t as inexpensive as it once was, however. The value of the real, the Brazilian currency, has climbed steeply against the dollar since 2003 as Brazil’s economy has stabilized. Factor in rising wages and Brazil’s punishing taxes, and some companies think the picture is mixed. “Will it still be a competitive offshore destination? Over time I see that changing,” says Stephen Heidt, vice president of service-delivery operations at Electronic Data Systems Corp., a business-service company with $20 billion in revenue. The Plano, Texas, company has 10,000 people in Brazil but is hedging its bets by expanding two centers it operates in Argentina.
Analysts who are bullish on Brazil think the country can be highly competitive and can capture as much as $10 billion in international outsourcing work by 2010, up from about half a billion today. Others, like Mr. Lazarski, who gets most of his work through ads on Internet search engines, prefers not to grow too fast. He thinks it could be risky, and “now I can take time off when I want,” he says.
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