When not searching for the next killer app, a perennial activity for those in the computer industry is searching for the next killer market--one that can provide double-digit growth rates--something which has become increasingly rare in the economically stagnant '90s.
In addition to multimedia and the Internet, one area where many insiders see boom times ahead is in markets outside the U.S., particularly Latin America. While the U.S. and Western European markets are only expected to grow about 6 percent annually from 1992 to 1997, market-researcher International Data Corporation (IDC) sees Latin America's growth rate averaging around 16 percent annually, with some countries in the region hitting over 20 percent.
Growth rates are not particularly interesting if the initial market size is miniscule, but in the case of Latin America, computer and software sales and related services totaled over $10 billion last year. Acer, a PC-clone maker, has sold a quarter million units this year, more than twice as many as the year before. According to the U.S. Department of Commerce, shipments of PCs to Mexico have tripled over the past three years. Compaq saw sales to Latin America grow by 200 percent last year, according to US/Latin Trade magazine, and has established manufacturing plants in Brazil.
With the biggest population, greatest area, and largest and most varied industrial base in Latin America, Brazil sees itself as the gateway to the South American market. Last year in Brazil, where only 1 in 20 citizens own a computer and just 20 percent of industry is computerized, over 360,000 PCs were sold--a number expected to triple by the year 2000. With the world's fifth largest population, Brazil is clearly an attractive market. Furthermore U.S. companies ranging from Compaq to Reynolds Aluminum are using their Brazilian base to expand into Argentina, Chile, and other neighboring countries. Even advertising firms such as Ogilvy & Mather (agency for Microsoft, IBM, and others) are using Brazil as a Latin American launching pad for products such as Phillips' sound equipment. According to some estimates, the potential market for advertising agencies alone in Latin America is $4 billion per year.
Although other regions of the world will have dynamic growth, IDC expects the Latin American market to outgrow all major regions--including the Asia/Pacific region. IDC projects, for instance, that total Latin American PC sales will grow from $2.4 billion in 1993 to $5.2 billion by 1998. And even in those high-tech areas, such as the integrated-circuit industry, which expect modest growth in the next year or so, South America is viewed as one of the few pockets of prosperity. But skeptical observers who have seen similar optimistic projections fade away--witness the pen-computing market--might rightly wonder if this is another instance of wishful thinking. However, there are a number of factors at work which underscore that South America will be a serious market.
For starters, some South American countries are working towards establishing their own NAFTA-like trading block, the South American Common Market (Mercosur) which forms a market of over 200 million consumers. Top government officials from Argentina, Brazil, Paraguay, and Uruguay met late this summer to begin negotiations leading to an economically-integrated zone where goods and services will circulate at zero tariffs starting next year.
Likewise, most countries have dropped their protectionist trade practices and restrictions on foreign investment, as evident by the Mercosur movement. Only a few years ago, some countries had duties that topped 100 percent; the maximum today is generally about 35 percent, although the average is about 14 percent. Countries have also paved the way for large-scale privatization of companies manufacturing everything from petrochemicals to computers and telecommunications by providing billions of dollars in investment funds. Particularly when it comes to the telecommunications industry, this shift is based on the acknowledgment that communications infrastructures are prerequisites to overall economic welfare of developing countries.
The end result is that U.S. exports to Brazil have grown 46 percent since 1989, making Brazil and its neighbors the fastest- growing area for exports for U.S. manufacturers. Leading the pack is, surprisingly, computer software which in 1993 comprised 43 percent of all U.S. imports to Brazil. Computer equipment and peripherals made up about 30 percent, while information services and telecommunications kicked in at 25 and 24 percent, respectively.
But numbers by themselves don't tell the full story of what's behind the coming high-tech boom in South America. Earlier this year, I had the opportunity to travel to Bolivia and, among other things, do a reality check on these prognostications.
Bolivia is interesting because by almost every measure, it is at the opposite end of the spectrum from Brazil. It is generally recognized as perhaps the poorest country in the southern continent, and second only to Haiti if you include Central America. For every magazine that reports on the ongoing Latin American economic boom in general, and Brazil in particular, Bolivia remains off the radar screen. For example, Latin Finance, a high-priced investment magazine, did a roundup on equity markets and left Bolivia completely off the map. Still, Bolivia can serve as a casus extremum for predictions about Latin America.
Traveling there, you cannot escape that you are in a poor country. Some sectors of La Paz, the capital city (population 1.4 million) have running water only from midnight to 5 o'clock in the morning. The second largest city, Santa Cruz, has two-thirds of its streets unpaved, making for a muddy mess during the rainy season. The salary for a high-school teacher is about $100 per month. Getting a telephone line in Bolivia requires a two-year wait and a $2000 fee.
Given these sobering facts, what about computers? If you turn to a Sunday newspaper in La Paz, where we in the U.S. might find a Travel section, you find one on Computation, with a technical depth that exceeds that of any major newspaper in the U.S., and is rivaled only by specialist magazines such as PC Magazine.
Walking down the main boulevard of the city, you'll find street vendors selling items arranged on a blanket spread out on bare pavement. These vendors are known as "cholas"--women from the Andean Indian native population (Quechua and Aymara tribes)--who sell everything from handicrafts to chewing gum and shampoo. Near the university, these women are selling books on C++, UNIX, and assembly language.
I was able to purchase a translation of Kernighan and Ritchie for $3.00. When the chola saw my purchase, she immediately suggested a book titled Data Structures in C as a valuable accompaniment for someone interested in C. (This book was not a translation, but an original by a Latin American author.) When I visited these street sellers two years earlier, the books were mostly translations of titles on Pascal--including, for example, Jeff Duntemann's classic book on the subject. This year, the books on C and C++ were mostly original works in Spanish.
Walking across the city, it seems that there is a school teaching computer skills on almost every block, each with 30 or 40 students working into the night. The proportion of the schools seems to far exceed the number in this country. (Of course, the regular universities and public schools are generally far too poor to afford computer technology. Tuition at the public university is $25.00 per year.)
One would-be student is Salusto, a young Quechua Indian from a remote village in the western mountain range who came to La Paz to work when he was 13. Now 18, he is taking preparatory courses at the university prior to entering its information-science program. His biggest assets are a tireless devotion to work and a gentle smile. His biggest disadvantage is that Spanish is his second language (as it is with the majority of Bolivians, whose primary language is one of the native Indian languages), making it difficult for him to absorb all of the material in his classes.
Further along a computer career path is Jorge Alvarez Pol, a 20-year old student in system science and operations research. Jorge comes from a middle-class family, got his first computer at 13, and has been working on-and-off since the age of 14 as a programmer, using Pascal and Basic. Jorge is able to attend a private Catholic university and finds the quality of computer courses to be uneven. Many serve only to teach word processing skills and computer literacy. He is currently implementing an enterprise-wide accounting and personnel-management system for an international aid organization.
At the other end of the scale in technical sophistication is Ivan Guzman, a white-haired ex-engineer who resembles a cross between Einstein and Jerry Garcia. He has been working for 15 years on a program for natural-language translation--of not just one, but many languages. His program currently parses source texts written in English, French, Spanish, and German. It then translates these into an intermediate representation, which can then be translated back out into any of the previously mentioned languages. His intermediate representation is based on the syntax and semantics of Aymara, a pre-Inca language that Guzman says has an eminently logical and clean linguistic structure. Guzman's program was initially implemented in PL/1 on a minicomputer but was recently rewritten in C for the PC platform. The quality of the computer translation is imperfect, as it is with any computer program. But it is at least equal to any of the major translation software packages available in the U.S. and Europe, according to several comparative studies that have been done.
Guzman says that one of the key moments in the algorithm development came as a result of one of Bolivia's many attempted coups and revolutions. The country has averaged one change of government per year for the last 150 years (but of late appears to be one of the most democratic and stable in the region). Guzman was working late, past the curfew hour and the soldiers in the street would not let him leave his office. So he headed back to his desk and worked all night, and, he says, discovered some of the key principles behind his approach.
Although Guzman has discussed licensing his system with one of the major on-line services in the U.S. (for on-the-fly viewing of electronic messages in multiple languages), he has now put this work on the back burner and is concentrating on building an intelligent knowledgebase for Bolivia's judiciary system. His house is a museum of Andean artifacts and objets d'art from Bolivia's most prominent painters (Guzman's father was a painter whose face is now on the 10-peso currency). Next to these artifacts in Guzman's home office are his two desktop machines, each with 32 Mbytes of RAM, a gigabyte of disk storage, CD-ROMs, and a scanner.
Still, business in South America is not for the faint of heart. Bullish stock markets can nosedive overnight, as they did in Brazil earlier this month, when a new corruption scandal broke, or as happened in Mexico earlier this year when the leading presidential candidate was assassinated (by a local drug cartel, according to recent testimony in Washington). A "miracle" economy can have a sudden seizure--witness the 20000 (!) percent inflation rate several countries in the region experienced during the '80s. And even in healthy economies, all business comes to a standstill during Christmas, Carnival, and the World Cup. Software developers in particular are vulnerable because of lax enforcement of intellectual property laws. According to the U.S. Trademark Association, Brazil ranks right up there beside Taiwan and South Korea in violations, while the Software Publishers Association estimates that 98 percent of all software used in Peru is pirated. A computer store in Bolivia is brazenly named "Microsoft Computers," and I was told that most PCs bought from local vendors come installed with all kinds of applications, games, and utilities, mostly unlicensed.
Although U.S. software companies are in a unique position to take advantage of a nearby 21st-century market, vignettes such as these show that it won't necessarily be a cakewalk for U.S. software developers to capture these markets.
The place to begin for any software company interested in gaining a toehold in the emerging South American market is with the U.S. Department of Commerce which provides a variety of services. For starters, the DoC provides international trade counselors available by phone (call 1-800-USA-TRADE) who will answer preliminary questions and point you in the right direction. This direction may involve talking with a DoC country (say, Brazil) or industry (computers, for instance) group.
The DoC also provides the National Trade Databank available on CD-ROM, which includes market information on most countries and industries. The two-disc set is updated monthly, sells for $35.00, and is available by calling 202-482-1986.
In a similar vein, the U.S. Chamber of Commerce provides a software package called "NAFTA Impact" that's directed more at Mexico than Latin America as a whole. (If the rumors are true that Chile may soon become the fourth NAFTA member nation, the package will obviously have broader applicability.) NAFTA Impact includes databases for various products and services as well as compliance information for international business and customs procedures. The $69.95 package is available through the U.S. Chamber of Commerce at 202-463-5460.
More specific information is sometimes hard to find and not often up to date. For example, the most recent DoC report on computers and South America, entitled "The Guide to Computer Hardware and Software Markets in Latin America," was published in 1990. The report evaluated the market in relation to size, distribution infrastructure, political stability, and legal environment of Central and South American countries. The 1990 report turned out to be surprisingly accurate, predicting a 10 to 20 percent growth in the coming years--a number which jibes well with IDC's more recent 16 percent growth number. The report also rightly predicted that the fastest growing markets would be Brazil, Mexico, Venezuela, and Argentina. In the same breadth, it pointed to the issue of software copyright protection as being the major negative factor. The $120.00 report (order number PB90-163197/NBP) is available from the National Technical Information Service at 703-487-4600.