FEATURE Placing local companies in the int l outsourcing market

India's rising labor costs, high inflation and a concentration of the world's outsourcing market in only a few cities are some of the factors making companies think twice about the Asian country when considering the location of their offshore services centers.

Brazil is planning to capitalize on this and bring outsourcing contracts home.

Within Latin America, Brazil is not only the largest market for the IT industry, but it is also one of the preferred locations for establishing IT outsourcing services centers. But since the country is not the most competitive in terms of labor costs, the main challenge in winning outsourcing contracts is the country's capability to add value to its offering.

According to Flavio Grynszpan, chairman of the recent Brasil Outsourcing seminar, in the traditional outsourcing market Brazil is trying to compete directly on costs with countries where salaries and related government taxes are much lower than those in Brazil. While bringing costs down is a main issue, Grynszpan called on companies to focus on adding value to become more competitive.

"Brazil has a tradition in the financial market and in the health care sector, and now we have a great opportunity in business processes, which involves human resources, finance and management. Those are the areas in which Brazil can grow a lot," Grynszpan told BNamericas.

THE POTENTIAL OUTSOURCING MARKET

Brazil's national association of software and services export companies Brasscom, which has 29 affiliates accounting for some 65% of the country's IT GDP, has defined some actions to help companies attract investors.

Last year, Brazil exported $800USmn in IT services, while India exported an estimated $32USbn. The Asian country expects to take an 80% slice of the $100USbn pie in estimated global sales by 2010.

"Brazil is not competitive because of its labor taxes and is losing market to its Latin American neighbors such as Argentina, Colombia, Chile and Mexico. Labor in Argentina's IT industry is 50% cheaper than Brazilian. We sent the federal government a proposal and they seem to like it. The government understands there is great potential in this market. We expect them to define the country's industrial policy by the end of March," Brasscom president Antonio Carlos Gil said.

Brasscom's proposal includes measures to sharpen Brazil's image abroad and create an industrial policy for software companies, with tax breaks of up to 80% on software companies' expenses related to training and certification of human resources. And for those companies that export at least 80% of their products and services, the proposal suggests a reduction in their contribution to federal social security system INSS from 27.5% to 2.85%.

THE MAIN CHALLENGES FOR THE INDUSTRY

Brazil's advantages are pretty much well known: similar time zone and geographical closeness to the US (where the principle source of clients is located); the creativity of its people in delivering improved and more customer-oriented solutions; good relationships with clients in understanding and solving their problems; and a robust IT market, which provides a sizeable pool of skilled workers for IT jobs, making the country attractive as a regional shared service hub for global companies.

In this respect, some large companies such as French chemical firm Rhodia have selected Brazil as a regional platform.

"We needed a captive center close to a manufacturing plant so it would have a deeper knowledge of our business. My company has a very significant presence in its [core] business - the chemical industry - and we needed a place which had that too. We knew Brazil had very skilled engineers and a good level of chemical knowledge. Another contributing factor was that the Latin culture is much more familiar to us than those of Russia or China," Rhodia CIO Xavier Rambaud told BNamericas.

However, the main concerns posed by CIOs of national service providers and international contracting firms participating in the seminar included how to deliver a good service in English, given the lack of foreign language training in Brazil; how to quickly identify and train good potential IT professionals; and how to position the country as a strategic destination for captive centers and outsourcing services, even with higher labor costs compared to India, China, Singapore or Malaysia.

National outsourcing companies confirm that price is the main concern but they believe in the country's potential to become a competitive player.

"In all proposals we submit to foreign companies price always comes first, but we have been seeing that we do have competitive prices. Our clients have been giving us this feedback. Of course we could do better, we are not like the Indians or the Chinese, but in a few business niches we have competitive prices," Brazilian IT services firm CPM Braxis' senior manager of managed services, Adolfo Manzutti said.

EDUCATION KEY TO OVERCOME BARRIERS

The question remains how to resolve the language barrier in Brazil. According to GE's Latin America corporate CIO João Lencioni, the easiest alternative is to provide in-house training to the company's outsourced employees. "In India we have created a template and focused on accent reduction. We taught them to speak English with less of an accent and it seems to be working fine. This could also be implemented in Brazil."

Also, GE has formed a smaller group of higher-ranking staff in India to coordinate processes in the country and report to the company. The staff - whose increased responsibilities are reflected in higher salaries - also work night shifts, thereby resolving the time zone problem and other employees' reluctance to work later shifts. The move also helped to overcome the language barrier: even though all employees in India do not speak English fluently, this special team is able to communicate with everyone in their own language in order to clearly define tasks to be undertaken and coordinate deadlines.

Where technical training is concerned, Grynszpan proposed partnerships between IT companies and private universities, given the latter's flexibility over their public counterparts to create specific courses orientated to the needs of a company's staffing demands. Grynszpan's idea is to have companies committed to hiring a fixed numbers of people who graduate from these new courses every year.

For Brazilian IT supplier and systems integrator BRQ's president, Benjamin Quadros, the possibility of partnering with universities is there as long as the courses turn out the required professionals in an extremely short period of time - about one year - to meet market demand. The executive believes short-term technical courses will form the IT mass of employees that companies need while longer university courses would prepare students for management positions.

Consultancy firm Everest's CEO Peter Bendor-Samuel believes the country has to find a way of exploring its natural talents as a way to gain share in the offshore market, which is growing 30% a year. "The importance of access to qualified talent as a driver for BPO has increased significantly in the last three years," the executive said.

In summary, the time for Brazil to make its presence felt in the international outsourcing market is now and this is possible through a better and consistent organization among national players and focused public policies related to incentives for IT service exporters and education. Otherwise, the policies that other countries in Latin America are adopting in an effort to boost their IT service exports will leave Brazil behind.

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FEATURE Placing local companies in the int l outsourcing market