A conversation in Brazil
Last week, I attended a Software Engineering Conference in Brazil. This is the first time I visit this country, so I would like to share with you some of my impressions. Brazil is the largest country in South America and the only Portuguese-speaking country on that continent. It is the fifth largest country by size and the fifth most populous country in the world. Today, Brazil is a regional power in South America, a leader among developing countries, and an emerging world power as one of the four emerging economies called BRIC (Brazil, Russia, India and China).
Brazil has the highest foreign investment in the world, its economy is growing at an amazing rate due to its large, well developed agricultural, mining, manufacturing and very strong exports economy. Export products include aircraft, coffee, automobiles, electrical equipments, ethanol, steel, soybean, iron ore, orange juice, and textiles etc. Today,Brazil is trying to shed its image as an exporter of agriculture products such as coffee, sugar and soybean and wants to emphasize its industrial power with expertise in advanced technology. Few people know that Brazil has been making highly advanced products like commercial airplanes, electronic equipments, satellites parts, radar equipments and hybrid cars that run on ethanol for many years. Brazil is the only country in the world that do NOT depend on oil import and instead using ethanol which come from its sugarcane. Without depending on oil import, its economy is very stable and with its rich natural resources and well managed agriculture, Brazil can retain its self-sufficiency economy and continue to grow steadily. As evidence of its confident in the future, Brazil will host both the FIFA Football World Cup in 2014 and the Summer Olympic Games in 2016, (First country to host two largest world events next to each other).
During the conference, I met many new friends and discussed with them about information technology (IT) industry. My new friend. Professor Da Silva, who also a CEO of a large software company told me: “Today India is the great power in Information Technology, but other developing countries such as China, Russia and Brazil are also established very well in this area too. Brazil, for the past 10 years, has been actively improving its IT industry through a government sponsor program called “Brazil IT”. Currently, we have 17 large industry parks reflecting our diversified economy with several areas such as Finance, Telecommunications, Aviation, Agribusiness, Healthcare, Oil & Gas, Mobile Applications, Information Security, and IT outsourcing. Of course, IT is still a small part of the economy but it is growing. Last year, our total IT exports is about 6 billion dollars but we think we could make 8 to 10 billion dollars this year. Although India is doing well in the outsourcing business but so do we. However we are different because we are focusing on few areas such as large scale software development for aerospace, manufacturing, finance and banking systems. You probably do not know that Brazil has one of the world's most modern banking network, with immediate settlement of transactions. We also have developed a universal, electronic ballot that shows the results of national elections within 24 hours and have the third largest aircraft industry in the world. We are the only developing country to take part in the International Space Station. Our software industry is in alignment with our aerospace, manufacturing and automobile industries so we are very highly specialized”.
Before this visit, I always thought of Brazil as a country that exports a lot of coffee and has a very good soccer team. So I asked: “How did the transition to high technology start? I always thought your country is still focusing on agriculture”.
Dr. Silva laughed: “Many people still think that we mostly exports coffee but we have been working in science and technology for a long time. We have a good education system similar to Europe. We adopted many European education programs, we had many European professors came to teach and many decided to stay here. We also have strong research laboratories in science and agricultures. Basically our current economic success is rooted from our excellent education system. We put a lot of efforts to make sure that our education is as good as the U.S or Europe. We set a very high standard for students who enter universities. We focused on science and agricultures as two key factors to drive our economy. Because of our education system, we was able to develop a strong aerospace and manufacturing industries where our engineers built airplanes, cars and heavy equipments to compete with other industry giants such as Boeing, GM, Airbus etc. Today we are number three aerospace industry in the world behind Boeing and Airbus when countries such as India, Japan have not even able to build large commercial airplanes yet. Our hybrid cars are unique as they run on ethanol which came from our own sugarcane manufacturing so we do not have to import oil. Because our economy is not impacted by the fluctuation of oil prices, it is very stable and that is why most foreign companies are investing here. Even with the financial crisis, our economy is still very stable and continues to grow”.
I asked: “I am interested in the software industry? How well do you compete with India or China?
Dr. Silva explained: “Brazil has been considered a better country for US companies to outsource due to its strong education and the time zone. However, our software workers are more expensive than Indian and Chinese. We believe that we are an alternative to India and China, not a competitor. The outsourcing market is growing so rapidly, so we don't need to steal customers away from India or China, as there are plenty of business for all of us. However, we are differentiated ourselves as highly skilled software engineers that can do things that the others could not do. We have many companies that have achievedquality standards such as CMMI and ISO 9001 but it only tells part of the story because you need to look at how business challenges have been met by our skilled people. Let me give you an example about our banking IT system on business payment and check processing system. Ten years ago, we needed to have a highly automated and efficient mechanism for making payments and transferring funds because we used check more than cash. Visitors to Brazil are astonished that checks can be used anywhere, including paying Taxi fare. Our Banking system is so efficient that we processed over 350 million checks per month with fund transfer within 24 hours. Today, our processing speed is unmatched even in the developed world, including the United States. Three years ago, we upgraded this national banking system where the original system was focused on increasing speed and efficiency, the new one aimed for further efficiency gains while simultaneously reducing risks. The development of the new Banking payments system only took 21 months, and met all functionality and quality requirements. No country in the world could build a large national IT systems like that within a short time. Even people from the U.S and Europe have to come and learn from us and they were so surprised at how good we are. Our software people are trained very early on quality, innovation, and meeting business goals because of the well established education rather than just code and test like in India and China. Of course, we requires higher wages but our quality results worth every dollar that you pay”.
I argued: “The key reason for outsourcing is reducing costs, if your cost is higher your competitors than how do you compete?”.
Dr. Silva laughed: “On the contrary, our IT outsourcing business is doing very well. The current economic crisis has spread around the world and everybody is doing cost-cutting but does low cost also mean low quality? What will happen when products are full of defects? Who has to pay to fix them? How long will it take to fix defective products? You can do it cheap but you also have to pay for fixing it too so it is no longer cheap. If you outsource few simple software projects then any programmers can accomplish them but would you let them work on your critical software products such as aerospace or manufacturing? Few years ago, companies were rushing to “Cheap labors” countries where most workers did NOT had good trainings, many only had about six months programming and put to work. Of course, their wages were low but also their quality and these products had created a lot of problems with “Unhappy users”. To fix that, customers have to spend much more so they learned that cheap is NOT a good solution. Now the rule has changed, instead of low cost, many customers are looking for higher quality and skilled workers. This is where we come in. We do NOT develop low labor programmers but advanced software engineers with special skills. We do NOT compete for any projects but focus mostly on large scale integration such as government projects like national banking systems, nation election systems, e-government projects, aerospace projects, manufacturing projects and large agriculture projects. Our favorable time zone represents another advantage in performing software outsourcing services for North American customers. Our major cities are only two time zones east of the US East Coast, normal working hours in both countries coincide and as a result it is much easier to provide real-time support for US customers from Brazil than from other destinations such as India or China. That is why in the past few years, thousands of US companies have outsourced here and the number is increasing fast due to our high quality results”.
I commented: “That is very interesting. So you are competing with a different approach”.
Dr. Silva smiled: “You may say so. We cannot compete on prices but we do compete on quality. However, we have much more to offer because our education system is better. We have been doing large scale software for many years and most of our software workers are college graduates. I know that software workers in India and China are mostly “Vocational trained” so their wages are very low because they need programmers to meet the outsourcing needs. Today, several countries are following this model to quickly produce workers but that is short term thinking. As most software products are getting larger and more complex, the needs will no longer be on the programming or testing but the entire lifecycle. I do not think people with a few months training would be able to work on these projects. We believe that no one would be able to work in software industry without a college degree. We even think few years from now, the industry may require workers to have advanced degrees as software products are getting larger, more complex and highly specialized. This is why we also plan for the future because strategy is about the long term to keep things stable and steadily grow. Today, Brazil can offer excellent opportunities for IT outsourcing such as good skills, cultural similarity with Europe and North America, geographical proximity and favorable time zone with North America and Europe, economic and political stability, excellent infrastructure, low annual employee attrition, unique mix of young talent with well managed leadership”.
I was impressed by his view and agreed with his assessment that the market will soon change as software are getting larger and more complex. I asked: “It seems that you know the market very well and your plan is excellent. What else are you planning to do next?
Dr. Silva explained: “Brazil still has issues. Our universities are producing several thousand IT graduates a year but many are not fluent in English. You cannot work in the software industry without a foreign language, even you only work for local company. Today software is becoming more global with workers come from everywhere so to stay in this field, you must be good in English. That is our main weakness so we are working on the requirements that all science and technology students must be fluent in English. There is another issue, most of our software companies are smaller than Indian or Chinese companies so our services are very limited and that will slowdown our growth. I believe there will be some acquisitions and mergers as the market becoming more competitive. There are also many social issues that need to be worked on as we have a large population and widespread poverty. Brazil is known for many slums called “favelas” where millions of people live without running water and electricity. This issue creates a major difficulty in our country on how to provide economic support for these poor people. Software industry helps educated people but there are many who are not well educated. We know that high tech jobs can create additional no-high tech jobs but that is not enough. Although our agriculture industry is well managed and helps people in the countryside but younger people do not want to work in the countryside anymore so they move to the cities. Without jobs, they get involve in crimes and social problems such as drugs, thefts, prostitutions etc. Today, security is becoming a major issue with gun crime and drug dealing on the streets of the big cities like Rio de Janeiro and Sao Paulo. Unless we can solve these problems, we will never be a fully developed country”.
Sources
- Blogs of Prof. John Vu, Carnegie Mellon University
