Brazil's IT market becomes global centre

08
SEP
2010

Author: Jonathan Webb - Categories: Outsourcing, Global Sourcing

Capgemini's purchase of Brazil's largest IT services company, CPM Braxis, highlights the increased prominence of the country in international trade and signals Latin America's rising global importance.

The move follows Apax’s purchase of São Paulo-headquartered Tivit, Latin America's largest provider of IT and BPO services. The London-based private equity firm bought the Brazilian firm in a deal worth in excess of US$1 billion. Tivit provides outsourcing services to 300 of the country's top 500 companies.

Indeed, these activities confirm the accurate predictions of a PIU blog in December 2009, which forecast that "the next decade is likely to see a rush of companies looking to do business in the country." If anything, this flood of interest has come rather earlier than expected.

The Latin American markets boast a huge nearshoring potential, with US firms looking to procure easily accessible remote services within the same time zone. Mexico, for instance, is a frequent calling point for call centres servicing US-based clients. Brazil's technology market is advanced. Its IT industry is worth US$11 billion, whereas India's is valued at US$13 billion. Despite this relative maturity, its labour rates offer savings of up to 30-50%.

However, compared to other emerging economies, regional growth has been rather slow. McKinsey finds that with global sales worth US$2.3 billion, the Spanish-speaking Americas constitute only 6% of international outsourcing deals. The continent's potential has always promised much, but it has never leveraged its advantages on a significant level.

Part of the increased activity may stem from rising concerns over more established outsourcing markets in Asia. China is only beginning to manage burgeoning issues in its huge workforce, and India's rising costs are undermining its competitiveness. Indeed, IT outsourcing giant Wipro is considering entering the South American market as part of its 'string of pearl' strategy, in which it plans to make a number of acquisitions in a broad spread of markets.

A PIU Country Risk report showed that foreign direct investment in Brazil remained low through the early 2000s, but is now seeing rapid expansions. FDI stood at US$19 billion, rising to US$35 billion in 2007 and to over US$40 billion in 2008. These investments may be delivering dividends, not simply in terms of equity yields, but in terms of procurement savings for other organisations.

More heated international competition for IT service solutions provides client with a greater opportunity to consider different providers to meet their needs. The increased CSR risk represented by a discontented Chinese workforce may prove too hot to handle for many clients. Open, democratic Brazil, as well as many of its Latin American neighbours, may provide a cheaper, more reliable and closer outsourcing partner than its competitors in the Far East.