Dr. Dobb's Journal December 2003
Nearly 10 years ago, Dr. Dobb's Developer Update (a highly acclaimed, but alas, now defunct newsletter) examined the question of whether Latin America was a boom market waiting to happen. Based in part on (then) DDJ Senior Technical Editor Ray Valdés's travels and observations through Latin America, the article focused on Latin America in general and Brazil in particular.
As the country with the world's fifth largest population, greatest area, and largest and most varied industrial base in Latin America, Brazil sees itself as the gateway to South American markets. Back in 1994, the Brazilian economy was relatively hot, with U.S. imports to Brazil growing 46 percent from 1989. Of that, software made up 43 percent of all U.S. imports into Brazil, while computer equipment and peripherals were 30 percent, information services 25 percent, and telecommunications 24 percent—making Latin America the fastest growing area in the world for exports for U.S. manufacturers.
At the time, market-research firm IDC predicted that the Latin American market would outgrow all other major regions, including Asia. For instance, according to IDC, total PC sales in Latin America would grow from $2.4 billion in 1993, to $5.2 billion by 1998.
But that was in 1994, and as we all know, a lot has changed over the past decade—and that's just one thing that makes a recent study, jointly conducted by industry groups and universities (including the Massachusetts Institute of Technology and Carnegie-Mellon University), so interesting. As the study's title indicates, "Slicing the Knowledge-based Economy in Brazil, China, and India: A Tale of Three Software Industries" examines the software market in Brazil, China, and India. Here, I focus on Brazil, if for no other reason than South America was where Ray Valdes was traipsing around, not to mention that we hear a lot less about Brazil than we do about India and China.
A decade ago, it appeared that Brazil, on the coat tails of the North American Free Trade Agreement (NAFTA), was making moves towards hardware manufacturing. Compaq and others, for instance, were building manufacturing plants based on 200 percent sales growth in 1993 alone. However, with low margins, increased competition, and the general state of the global economy, Brazil has more recently turned to software as the centerpiece of its high-tech future. Interestingly, the size of the three countries' software industries is comparable. Brazil's $7.7 billion software market rivals China's $7.9 billion market, and is close to India's $8.2 billion. But money doesn't tell the whole story. Brazil's exports generate about a scant 1.5 percent ($100 million) of its market, compared to India, which exports over 70 percent ($4 billion), and China's 5.5 percent ($400 million). India is primarily concentrating on low-level porting, coding, and debugging, while China focuses on systems integration, embedded systems, and product development—including rewriting software (legally and otherwise) for Chinese markets.
Facing competition from software firms such as Accenture, Computer Associates, Dell, HP, IBM, Microsoft, NEC, Oracle, and SAP, among others with a presence in Brazil, local companies have gravitated to vertical markets, primarily in the realm of telecommunications, banking, and finance. Reportedly, Brazil has the world's largest electronic voting system and almost all its tax returns are filed electronically. To support local financial and government software needs, 5700 software companies have sprung up in Brazil, compared to India's 2800. With this shift to software, software's share as a percentage of the Brazilian GNP has more than tripled, going from 0.27 percent to 0.71 percent, from 1991 to 2001.
To a large extent, however, the international field Brazil wants to play on is that of outsourcing. According to Information Technology and Communications Industry (ITC) reports, the software market worldwide is expected to grow from $90 billion in 1997 to $900 billion in 2008. As a point of reference, this figure hovered around $300 billion in 2001. The current market for outsourcing is estimated around $100-$150 billion and, according to the Gartner Group, has been growing about 25 percent per year. For its part, Forrester Research is guessing that, by 2015, more than 3 million U.S. jobs and $136 billion in paychecks will move to India, Russia, China, and elsewhere. Brazil hopes that "elsewhere" includes "Brazil."
Of course, the Brazilian software industry is about a lot more than just outsourcing. It also includes packaged software, vertical market, and embedded systems development. And what the Brazilian software industry is discovering is that it is competing not just with large multinational software corporations in the U.S. and Europe, but primarily with other developing countries such as India and China. The danger in this, of course, is that quality can take a backseat to cost—and when one goes south, so can the other.
Jonathan Erickson
editor-in-chief
jerickson@ddj.com