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(Last updated: 8 Apr 2009)
Video
Fabio Nave from Austrade Sao Paolo talks about opportunities and tips for Australian companies in Brazil.
Trends and opportunities
The market
Brazil is the largest IT market in Latin America, representing more than 45 per cent of the total investments for the sector in the region. According to Business Monitor International (BMI), it is projected to grow at a compound annual growth rate of 11 per cent over the 2008-2013 periods.
The total value of spending on IT products and services should pass US$30 billion in 2011 and US$37 billion by 2013. The country has a mature market, with expenditures well distributed within the segments (hardware, software and services). Brazil’s IT market has a singular regional structure, with most spending accounted by the south east region (60 per cent). The northeast region accounts for only 8.3 per cent of investments. In contrast the south is one of the fastest-growing regions, especially the state of Parana, which is prospering due to government incentives.
The free port of Manaus is the dominant city in the northern region. Small and medium companies represent 42 per cent of the private investment in the sector and the current non-attended demand for hardware and services solutions is stimulating the development of the market. The domestic consumption of PCs, printers, digital cameras and mobile phones represents more than 20 per cent of the Latin American market.
It is also important to mention that in 2007 the financial sector accounted for around 20 per cent of national IT spending, most of it attributed to banks. Brazil has a huge communication market potential, with particular focus on the mobile market, with the three largest mobile operators owned by foreign investors. The country already has 143 million mobile phone subscribers and the market continues to show strong growth. In parallel, several fixed lines and broadband operators are also owned by international telecom companies.
Industry developments
Government spending should increase to US$23 billion by 2013 as IT is one of the Federal Government’s strategic sectors in the Growth Acceleration Plan. According to government targets, the domestic software and services industry should generate 100,000 jobs and an additional US$1 billion in revenues by 2010, and an agreement to train 10,000 IT programmers in 2009 was signed to help achieve these goals.
A tender for 300,000 PC units is expected to be implemented by 2009 as IT for education has emerged as a key priority of Brazil’s government and tends to stimulate consumption since teachers and schools are eligible for preferential financing when they buy a laptop.
The consumer segment will continue to register strong growth due to a greater range of financing options and more flexible terms of payment. Brazil’s financial sector is expected to provide strong growth in spending on IT products and services over the forecast period, growing at 15 per cent a year, faster than the market as a whole.
Mobile phone operators should continue to expand their 3G coverage and invest in new services; concentrating their efforts in major cities. As internet services are restricted by the fixed-line network, there is an increasing tendency towards alternative technologies.
In terms of verticals, public and financial sectors, healthcare, telecoms, utilities and SMEs are seen as the ones with the most growth potential. The financial vertical should be a strong source of opportunity, with banks moving to integrate their IT systems and look to enhance their ability to launch new products and services rapidly, as well as ensuring good recovery plans and security. The industrial and services sectors have also seen high growth.
As a result of government initiatives and spending guidelines, there is a significant drive towards opensource software, motivated by a desire to save money and encourage local developers. Increasingly, Brazil's government ministries and state-run enterprises are abandoning Windows in favour of 'opensource' or 'free' software, like Linux, and the government is studying a draft decree which, if approved, would make the change compulsory for federal departments.
Software and services
According to the Brazilian Software Companies Association (ABES), Brazil occupies 12th position (2007) in the software and services global market, with sales of US$11.2 billion. Out of this total, US$4.19 billion referred to software licensing, which represents close to 43 per cent of the Latin American market.
Software is beginning to gain ground in Brazil, despite high annual software piracy losses. The estimate annual growth rate is around 10 per cent. The market is serviced by about 8,000 companies, most of them classified as micro or small.
Software and services market is specifically concentrated in Brazil, as the industrial and financial sectors represent together almost 50 per cent of it. The fastest growing segments of the market are business continuity, business process management and business intelligence. IT/telecom convergence also shows a growing trend in the short/medium term. In the long term, software as a service will show more flexibility, with less complexity and lower costs. In addition, flexible systems (Dynamic IT), and Green IT tend to be increasingly present in organisation’s business processes.
Hardware
In 2008, computer sales reached at US$8.2 billion and should reach the US$13.5 billion mark by 2013. The market leader remains Brazilian company Positivo Informatica, with a share of around 15 per cent. Unit sales of 315,000 PCs were twice as many as its nearest competitors HP and Dell who also reported sales growth in 2008.
Among other foreign PC vendors planning new investment in Brazil is Dutch group Philips, which planned to start producing notebooks in 2008. With PC penetration still below 25 per cent there is a foundation for growth over the next five years, despite the possible impact of higher interest rates on consumer demand. The current stock of PCs has been estimated at around 30 million and is likely to increase to over 100 million within a decade. Aside from retail demand, the corporate replacement market offers strong potential, while government spending is also set to increase. There is a sizeable grey market, although evidence suggests that this has fallen in recent quarters to below 40 per cent of unit sales.
Telecoms, broadband
The number of broadband subscribers is projected to increase to 22 million over the next five years. As more applications require higher bandwidth operators are increasing the speeds offered to subscribers.
Broadband take-up has been used to encourage fixed-line operators to offer packages such as Dual-, triple- and even quadruple-play services. Alternative technologies will also play an increasingly important role in the Brazilian broadband market.
Broadband over powerline and WiMAX are just two of the options being explored to expand services, particularly in areas with low fixed-line infrastructure. This will provide good growth for broadband services with the 10 per cent penetration point being reached in 2013.
E-commerce
Brazil has around 40 million Internet users, which represents over 20 per cent of the population. The number of Internet users continues to grow steadily, aided by government projects aimed at increasing points of access across the country. The percentage of broadband subscribers, however, represents only five per cent of the total population. The World Economic Forum ranked Brazil 53rd in the world in its most recent survey of ‘degree of preparation to participate in and benefit from information and communications technology’.
Electronic industry
Despite the gravity of the global financial crisis, the Brazilian economy is expected to grow at around 3 per cent in 2009. The forecast for the electronic industry is even more positive, because of increased competitiveness, due to the more favourable exchange rate. Investments in generation, transmission and distribution of electric energy and oil exploration and production should continue, as well as the consumption of electric materials due to the recently announced infrastructure projects. Also, the employment rate tends to be stable in the segment, finishing the current year with 166,000 employees.
Key market indicators:
- PC penetration rate of less than 25 per cent and federal plan to equip all elementary schools with computers indicates plenty of room for expansion.
- Ambitious government plans to spend US$23 billion on science and technology programs as part of its Growth Acceleration Plan (PAC).
- Growing consumer sector driven by growing affordability expanding retail channels.
- As operators, both fixed-line and mobile, seek to keep ahead of each other through investment and new services, lucrative contracts are being won.
- Telecoms regulator is looking at ways of accessing Brazil’s more remote areas with CDMA450 networks.
- At five per cent for 2008, penetration in the broadband market is low, giving plenty of opportunities for growth.
- Main fixed and cable TV operators now rolling out triple-play services and looking ahead to quad-play.
- IPTV launches have been rolled out but remain small part of the market.
- 3G licences were auctioned in December 2007 and have requirements to deploy mobile services to regions with no current mobile infrastructure.
- Operators keen to use alternative technologies for rolling out broadband in order to overcome issues with distance.
Opportunities
The banking sector promises lucrative opportunities for IT, telecom services and security providers.
Given their huge infrastructure and wide portfolio in terms of branches, ATMs, back-office systems, and Internet, the banking sector accounts for the largest share of total technology investment and telecom expenses, says Research & Markets analyst firm. New technologies such as IP-based solutions, digital certification and signature, wireless LAN, and mobile data transmission, among others, find large potential on specific application of specific market segments, and are expected to raise the overall level of technology investments by the Brazilian financial market.
The concept of Internet banking continues to grow in Brazil and 70 per cent of retail as well as 50 per cent of wholesale banks now offer Internet banking services to their clients. As a result, the ever-increasing volume of online banking transactions, along with constant losses provoked by hackers, are fostering a rush towards banking security applications.
Competitive environment
Dell was a strong performer on the Brazilian PC market in 2008, and reported sales growth of 52 per cent in its fiscal year 2008, which ended in February 2008. Meanwhile PC market leader Positivo is expanding its activities and expects continued fast growth, reaching out to the retail segment and to the small-to medium-sized enterprise (SME) segment. IBM has the biggest market share of the Brazilian IT services market.
The new challenge for mobile operators is to reach new subscribers by extending the range of services into new towns and cities. The top three operators in the market are Vivo, TIM and Claro with little difference between them. Oi is also another big player in the market and is experiencing significant gains in terms of market share.
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