Reference no: EM133165747

As the world becomes increasingly dependent on information technology (IT) products and services, the global IT outsourcing industry has expanded rapidly. Driven by global competitive pressures to reduce costs and focus on core competencies,  corporations of all sizes have chosen to outsource and offshore many of their  IT  services.  Worldwide,  India has established a  strong leadership position in the IT offshoring market, accounting for the largest share among countries. However, challenges have begun to emerge for India's IT sector, including increasing labor costs, inadequate physical infrastructure, and a daunting government bureaucracy, among other factors. 

Although many people would associate the country with soccer or samba, Brazil has emerged as a global competitor in a range of sophisticated technology sectors. Now, Brazil has launched an active campaign to build a strong international competitive position in the  IT  offshoring business,  viewing it as a source of skilled jobs and a basis for improving overall economic development. 

Brazil's IT outsourcing sector is small relative to India's, but strong growth is projected based on the country's strengths along several dimensions. As the ninth-largest economy in the world, Brazil has a sophisticated telecommunications and network services infrastructure,  one that has been rated higher than India or China on such key measures as network availability. Brazil has a tradition of strong engineering schools, capable of producing high-quality technical graduates. With over 2 million people employed in the overall information technology and computers sector, including over 400,000 people employed in IT services, the size of Brazil's domestic market for IT services is comparable to that of world-leading  India,  although a much smaller level of  IT services is exported.  Brazil has one of the world's most automated and sophisticated banking sectors and a dynamic domestic marketplace for IT software and supports services. Brazilian wage rates average less than 20 percent of comparable hourly positions in the  United  States.  Employee turnover is less than 13 percent,  versus up to 40 percent for some Indian IT companies. Total operating costs, which include labor, infrastructure costs, corporate taxes, and incentives, are lower than competitors from most competing low-wage and moderate-to-high-wage nations. Brazil also boasts only a single time zone difference to the East Coast of the United States and four-time zones for the U.S. West Coast and parts of Europe. This minimal time zone difference provides  Brazil with an advantage compared to competitors in China or India in terms of ease of real-time access and coordination with clients and the offshore project support teams.  Brazilian business practices, culture, and values are more Westernized than is common for nations such as India and China, which can facilitate shared understanding and effectiveness of working relationships with companies in the  United States and western Europe. "When outsourcing, it is important to be able to have trust in your supplier, which often requires learning about and building a strong relationship with them. This becomes much trickier when your outsourcing partner has different cultural sensibilities and is on the other side of the world,"  says  Antonio  Gil,  chair of the Brazilian  Association of  Software and  Services  Export  Companies.  Encouraged by strengths such as these,  companies such as Accenture, Hewlett-Packard, Electronic Data Systems, Whirlpool, Gap Inc., and IBM have been expanding their offshoring activities in Brazil. Even competitors from India, such as Tata Consultancy Services, Infosys, and Wipro, have begun to aggressively expand into  Brazil.  Overall,  the  IT  sector is expected to grow from 8.8 percent of Brazil's gross domestic product in  2013  to  10.7  percent by  2022,  including nearly  $4 billion in exports and 3 million people employed. 

Despite the country's many strengths, Brazil also has some limitations. For example, underinvestment in electrical generation could make the country prone to the brownout and blackout problems that have plagued other emerging markets, including India. The Portuguese-speaking Brazilian population has also been characterized as being weak in terms of English language skills,  and there is a  shortage of international experience among Brazilian technical and managerial ranks, which could be problematic for multinationals hoping to set up operations there. Only about 13 percent of the population of  207 million people have a  university degree,  and  Brazil also suffers from a somewhat cumbersome regulatory climate, including inflexible labor laws, as well as a currency that has been prone to fluctuations over the past several decades. Even with wage inflation in India and China, Brazil's labor costs remain about  30  percent higher.  Brazil also has problems in terms of crime and social inequality, especially in big urban centers such as Rio de Janeiro and São Paulo.

1. Use the theories of international trade and investment in this module to help explain Brazil's intentions and actions regarding the international information technology sector.
2. What recommendations would you give to the Brazilian government and its outsourcing industry to improve their prospects for success in building a strong international competitive position in the information technology outsourcing business?