Brazilian software industry: a general view of its structure, specialization and

competence building processes

Jorge Britto – UFF and RedeSist

“Comparative Study of the National Innovation Systems of Brazil, Russia, India, China and South

Africa”

April, 2007 Hotel Glória, Rio de Janeiro, Brazil

Main Topics ....and Some Myths

• 1- Technological regime and international trends• 2 - Historical perspective of policies issues and

institutional learning in Brazilian software.• 3 - The heterogeneity of Brazilian software industry:

main figures– Dimension of software markets – Characteristics of labor market– Characteristics of industrial structure– Regional Distribution of software activities

• 4 - Export orientation and outsourcing: the perspectives• 5 - Sectoral system of innovation• 6 - Software Specialization and new opportunities• 7 - Concluding remarks and policy issues

Characteristics of technological regime and

innovation in software • Driving force of the structural changes generated ICT

paradigm• Pervasive impacts of innovations generated to virtually

all economic activities• Decisive role to improve intra and inter organizational

learning and industrial productivity• Critical factor: intangible assets and knowledge

embodied in qualified and creative people • Structural heterogeneity: variety of competitiveness

determinants in each segment of software industry• Innovative dynamics varies according to the

characteristics of each segment, being not necessarily R&D intensive.

• Increase of internalization through outsourcing practices: emergence of new players in international markets through successive waves of entry.

Market for software and IT for selected countries (2003) - US$ millions

$0

$5.000

$10.000

$15.000

$20.000

$25.000

$30.000

Note: 1) Data sources providing supply market information for software and IT services are diverse with different definitions for what is included in software, hardware and IT services. This data does not include BPO figures.

sources: www.nasscom.org, neoIT Mapping off-shore Markets (2004), EIU figures, web.ita.doc.gov/ITI/itiHome.nsf/ExportITReports?OpenForm, Slicing the Knowledge-Based Economy in Brasil, China and India: A Tale of 3 Software Industries (2003), A.T. Kearney analysis

Domestic Exports

Canada

India

China

Ireland

Brazil

South Africa

Singapore

México

Argentina

Russia

Poland

Hungry

Malaysia

Philippines

CzechRepublic

Chile

Canada, India and Ireland are the main export markets

China and Brazil have large and diversified internal markets

Emerging economy IT spending by segment, 2000-2005 - USD millions in current prices – OCDE Information Outlook 2007

2000 2001 2002 2003 2004 2005% World

2005

China 12.507 16.639 20.357 27.027 39.057 47.927 9,7%

India 2.257 2.764 3.457 5.013 7.204 10.264 2,1%

Russia 1.816 2.107 2.345 2.881 3.900 4.852 1,0%

Brazil 6.263 6.404 7.031 9.905 12.407 15.946 3,2%

South Africa 1.661 1.707 1.698 2.503 3.457 4.024 0,8%

BRICS 24.504 29.621 34.888 47.329 66.025 83.013 16,8%

WORLD 440.912 374.883 359.311 396.603 455.255 493.164 100,0%

% BRICS 5,6% 7,9% 9,7% 11,9% 14,5% 16,8%

China 1.085 1.658 2.253 3.344 5.295 7.940 2,7%

India 358 456 588 948 1.350 1.908 0,7%

Russia 343 395 450 570 742 923 0,3%

Brazil 1.602 1.698 1.787 2.469 2.877 3.566 1,2%

South Africa 627 724 800 1.328 1.965 2.369 0,8%

BRICS 4.015 4.931 5.878 8.659 12.229 16.706 5,8%

WORLD 178.086 187.792 194.634 226.734 262.304 288.807 100,0%

% BRICS 2,3% 2,6% 3,0% 3,8% 4,7% 5,8%

China 851 1.389 2.155 3.591 6.203 10.006 1,5%

India 1.120 1.386 1.787 2.859 3.876 5.243 0,8%

Russia 891 979 1.158 1.537 2.099 2.747 0,4%

Brazil 4.937 4.792 5.101 7.353 9.040 11.911 1,8%

South Africa 1.293 1.351 1.486 2.440 3.632 4.408 0,7%

BRICS 9.092 9.897 11.687 17.780 24.850 34.315 5,1%

WORLD 472.814 482.679 489.766 557.614 630.025 676.656 100,0%

% BRICS 1,9% 2,1% 2,4% 3,2% 3,9% 5,1%

China 14.443 19.686 24.765 33.962 50.555 65.873 4,5%

India 3.735 4.606 5.832 8.820 12.430 17.415 1,2%

Russia 3.050 3.481 3.953 4.988 6.741 8.522 0,6%

Brazil 12.802 12.894 13.919 19.727 24.324 31.423 2,2%

South Africa 3.581 3.782 3.984 6.271 9.054 10.801 0,7%

BRICS 37.611 44.449 52.453 73.768 103.104 134.034 9,2%

WORLD 1.091.812 1.045.354 1.043.711 1.180.951 1.347.584 1.458.627 100,0%

% BRICS 3,4% 4,3% 5,0% 6,2% 7,7% 9,2%

IT HARDWARE

SOFTWARE

IT SERVICES

TOTAL IT

IT markets for BRICS countries

Source: IDC – BSA White Paper: Expanding the frontiers of our digital future (2005)

Brazil China Russia India South Africa

IT / GDP 1,8 1,7 1,6 1,1 3,1

IT growth 2004-2009 (%) 45 85 136 137 42

IT hardware - revenues 5.130 20.409 6.251 4.330 2.720

IT software - revenues 1.756 2.811 1.065 761 1.203

IT services - revenues 3.909 4.299 1.898 2.285 2.682

IT total - revenues 10.795 27.519 9.214 7.376 6.605

Annual Growth revenues software 2004-2009 9,1 20,1 20,0 19,4 8,2

Software exports US$ millions (2004) 250 2.600 750 12.900 nd

Software policy – the SOFTEX experience• The organization of software Brazilian industry is deeply articulated

with the orientation of industrial policy to the IT sector as a whole. • SOFTEX-2000 was created in 19992 with the target of exporting

US$ 2 billion in the year 2000 and of creating around 50,000 new skilled. The strategy was based on the establishment of local offices abroad (Beijing, Tokyo, Silicon Valley, Boston, etc.). Offices assisted interested firms in market studies, participating in major trade fairs (e.g. Comdex, Cebit, etc.).

• In 1997, SOFTEX launched Prosoft, a pilot credit program for software firms in partnership with BNDES, with a budget of USD 35 million to run until December 2003, providing loans up to USD 2 million to software firms with gross revenues under USD 30 million.

• SOFTEX moved into sponsoring incubators and regional software nuclei through the creation of 21 regional nuclei which were responsible for coordinating and assisting company activities that associate to this program, trying to take advantage of the potential of each region.

• The main real reason for the failure of Softex export strategy was the absence of a client-led drive. The strategy does not have a focus in which segments and which markets could be properly exploited

Software policy and institutional learning: the case of SOFTEX

There are some evidences of changes in the main policy focus:• “New Brazilian Software and Services Industry Support Program”

carried by SOFTEX and APEX is a medium term program of certification, utilizing the high degree of quality reached in some segments, such as: financial and banking, security, telecommunication, electronic business, enterprise management and public services automation.

• Software and Services Integrated Sectorial Project (PSI-SW) created in 2004 focuses its activities where the Brazilian software is competitive (banks, telecoms, health, business management, government, security and Internet in general) and incentives companies export of five business models (outsourcing, semi-customized software, package software, ASP – Application Service Provider – and software for download).

• Brazilian Software Process Improvement (MPS-BR) is an initiative oriented to the creation and dissemination of a Reference Model for the Software Process Improvement . The project involves a set of public and private agencies to create and improve a Process Reference Model (PRM) and a Process Assessment Model (PAM), compatible with CMMI, based on the reality of Brazilian firms.

Localization of Softex Regional Nuclei

1) Adetec – Associação do Desenvolvimento Tecnológico de Londrina

2) Blusoft – Blumenau pólo tecnológico de informática

3) PaqTcPB – Fundação Parque Tecnológico da Paraíba

4) CITS – Centro Internacional de Tecnologia de Softw are

5) Fumsoft – Sociedade mineira de softw are

6) Infomar – Incubadora Tecnológica do Paraná

7) Insoft – Instituto do Softw are do Ceará

8) ITS – Instituto de Tecnologia do Softw are

9) Softex Campinas

10) Trisoft – núcleo Softex do Triângulo

11)Núcleo Softex Salvador

12)Parasoft – núcleo de tecnologia de softw are do Pará

13) Parqtec - Pólo de Alta Tecnologia de São Carlos

14) Petrópolis – Tecnópolis

15) Riosoft

16) Softex Recife

17) Softpólis – Santa Catarina

18) Softsul

19) Softville

20) Tecsoft - Centro de Tecnologia de Softw are de Brasília

21) Tecvitória

Companies from the Software and Services Sector 2005

Source: ABES-IDC (2006)

Main Brazilian Market Indicators - 2005

Source: ABES-IDC (2006)

Brazilian software labour marketDistribution of software firms according to company’s size (2005)

CNAE Classes Less

then 5

Between 5 - 19

employees

20 to 99 employe

e

100 to 499

employee

More than 500 employe

es Total

No of establish

ments

(i) Hardware Consultancy 64,1% 25,0% 8,0% 2,3% 0,5% 100,0% 1.904

(ii) Development of package software 59,6% 27,3% 11,8% 1,2% 0,1% 100,0% 755

(iii) Development of custom made software 63,3% 24,5% 9,7% 2,0% 0,5% 100,0% 1.409

(iv) Data processing services 57,5% 36,2% 5,5% 0,7% 0,1% 100,0% 7.600

(v) Database activities 67,2% 23,1% 7,1% 1,3% 1,3% 100,0% 238

(vi) Informatics maintenance and repairing 72,0% 21,9% 5,3% 0,7% 0,1% 100,0% 3.018

(vii) Other informatics activities 67,1% 25,3% 6,1% 1,3% 0,2% 100,0% 4.813

TOTAL 63,3% 28,9% 6,4% 1,1% 0,2% 100,0% 19.737

Source: data extracted from RAIS-MT (2005)

Distribution of employees according to company’s size (2005)

CNAE Classes Less

then 5

Between 5 - 19

employees

20 to 99 employe

e

100 to 499

employee

More than 500

employees

No of employ

ee No of frims

Size of firms

(i) Hardware Consultancy 5,7% 13,5% 18,3% 30,7% 31,8% 32.770 1.904 17,2

(ii) Development of package software 8,6% 25,2% 39,3% 20,3% 6,6% 8.193 755 10,9

(iii) Development of custom made software 5,0% 12,1% 21,2% 22,9% 38,8% 26.511 1.409 18,8

(iv) Data processing services 11,7% 32,3% 20,7% 16,3% 19,1% 73.672 7.600 9,7

(v) Database activities 4,3% 8,4% 9,2% 7,5% 70,6% 6.099 238 25,6

(vi) Informatics maintenance and repairing 15,1% 26,4% 27,0% 22,2% 9,4% 22.097 3.018 7,3

(vii) Other informatics activities 10,9% 21,4% 22,9% 26,9% 17,8% 49.979 4.813 10,4

TOTAL 9,8% 23,0% 21,9% 22,2% 23,1% 219.321 19.737 11,1

Source: data extracted from RAIS-MT (2005)

Brazilian software labour marketSalaries paid by Informatics activities - 2005

Employees

Amount of Monthly

Salaries (R$)

Monthly Salary per

employee (R$)

Annual Salary per employee

(R$)

Annual Salary per employee

(US$)

Informatics Activities 219.321 379.201.420 1.728,98 20.747,7 8.703,5

(i) Hardware Consultancy 32.770 75.188.327 2.294,43 27.533,1 11.549,9

(ii) Development of package software 8.193 13.950.450 1.702,73 20.432,7 8.571,4

(iii) Development of custom made software 26.511 57.262.792 2.159,96 25.919,6 10.873,1

(iv) Data processing services 73.672 96.361.537 1.307,98 15.695,8 6.584,3

(v) Database activities 6.099 16.267.483 2.667,24 32.006,9 13.426,6

(vi) Informatics maintenance and repairing 22.097 34.593.240 1.565,52 18.786,2 7.880,7

(vii) Other informatics activities 49.979 85.577.592 1.712,27 20.547,3 8.619,4

All economic activities - BRAZIL 33.238.617 35.861.972.723 1.078,92 12.947,1 5.431,2

Source: data extracted from RAIS-MT (2005)

Distribution of employees according to the level of schooling (2005)

Under 4 years

Full 4 years and

under 8 years

Full 8 years and

under 11

years Full 11 years

Incomplete

university

studies BA and above Total Employees

Informatics Activities 0,4% 2,6% 10,3% 41,3% 14,7% 30,6% 100,0% 219.321

(i) Hardware Consultancy 0,3% 2,2% 7,0% 33,8% 15,8% 41,0% 100,0% 32.770

(ii) Development of package software 0,7% 1,8% 7,9% 30,9% 19,1% 39,6% 100,0% 8.193

(iii) Development of custom made software 0,2% 1,1% 4,7% 28,1% 20,4% 45,4% 100,0% 26.511

(iv) Data processing services 0,6% 3,5% 13,8% 45,3% 14,3% 22,5% 100,0% 73.672

(v) Database activities 0,3% 3,1% 8,3% 38,1% 7,2% 43,1% 100,0% 6.099

(vi) Informatics maintenance and repairing 0,5% 2,9% 11,8% 52,8% 11,6% 20,4% 100,0% 22.097

(vii) Other informatics activities 0,3% 2,2% 10,4% 44,3% 13,3% 29,5% 100,0% 49.979

All economic activities - BRAZIL 5,7% 17,4% 24,3% 33,4% 4,1% 15,1% 100,0% 33.238.617

Source: data extracted from RAIS-MT (2005)

Comparison of salaries in IT industry The annual salary of an graduated employee in Brazilian software industry was

around USD 12.000 – 15.000, increasing with additional labor costs

17.863

21.165

29.144

32.500

36.244

43.412

44.945

48.753

62.035

63.191

7.152

12.784

13.492

14.738

15.810

19.260

33.504

36.464

6.564

5.978

Annual salaries of a programer(US$ - 2004)

Annual salaries of IT manager(US$ - 2004)

Source: Economist Intelligence Unit, A.T. Kearney cost database,;Note: Amount paid includes salaries, bonus and benefits

India

Philippines

Malaysia

Brazil

China

Mexico

Poland

Czech Republic

Singapore

Canada

India

Philippines

China

Malaysia

Brazil

Mexico

Poland

Czech Republic

Singapore

Canada

Industrial structure: general figures • multinational enterprises tend to reinforce their positions in the

horizontal market, leaving for the Brazilian companies the vertical segment, as is the case of national banking software.

• software firms often have various lines of business and simultaneously develop service and product activities,

• majority of software companies were established from existing firms, part as a true “spin-off” of the mother company and the majority as independent companies created by employees of the mother company that spotted a new opportunity

• limited number of university spin-offs, most of them oriented to segments where the previously market experience seems not to be indispensable.

• Some strong government software firms, usually specialized in the manipulation of a high volume of data (SERPRO, as example).

• between 2002 and 2004 the number of software firms between the largest of the Informatics sector decreased from 33 to only 20 firms.

• total sales of the firms included in the list increase from US$ 1,28 billion in 2002 to US$ 1,68 billion in 2004.

• Sales per firm included in the list also increased from US$ 38,9 million in 2002 to US$84 million in 2004

Largest Software Firms in Brazil (2003-2004) – sales in US$ 1000 2004 Sales

1 MICROSOFT SÃO PAULO (SP) 365.400

2 COMPUTER ASSOC. S.PAULO (SP) 333.000

3 ORACLE SÃO PAULO (SP) 208.207

4 SAP SÃO PAULO (SP) 169.173

5 CONSIST SÃO PAULO (SP) 107.369

6 CPQD CAMPINAS (SP) 78.421

7 PEOPLESOFT SÃO PAULO (SP) 75.000

8 MICROSIGA SÃO PAULO (SP) 65.303

9 DATASUL JOINVILLE (SC) 56.316

10 RM SISTEMAS B.HORIZONTEE (MG) 41.556

11 SYMANTEC SÃO PAULO (SP) 37.500

12 ADOBE SYSTEMS SÃO PAULO (SP) 24.000

13 DÍGITRO FLORIANÓPOLIS (SC) 22.090

14 VERITAS SÃO PAULO (SP) 20.000

15 SPRING WIRELESS SÃO PAULO (SP) 19.694

16 SAS INSTITUTE BR- S.PAULO (SP) 15.300

17 BEA SYSTEMS SÃO PAULO (SP) 12.000

18 MCAFEE SÃO PAULO (SP) 10.700

19 BENNER SÃO PAULO (SP) 10.253

20 PROGRESS SÃO PAULO (SP) 8.977

TOTAL 1.680.259

2003 Sales

1 MICROSOFT - São Paulo (SP) 301.134

2 COMPUTER ASSOC. - São Paulo (SP) 277.700

3 ORACLE - São Paulo (SP) 144.559

4 SAP - São Paulo (SP) 123.532

5 CONSIST - São Paulo (SP) 84.671

6 CPQD - Campinas (SP) 59.650

7 PEOPLESOFT - São Paulo (SP) 59.340

8 DATASUL - Joinville (SC) 41.768

9 MICROSIGA - São Paulo (SP) 40.950

10 SYMANTEC - São Paulo (SP) 34.000

11 RM SISTEMAS - Belo Horizonte (MG) 30.548

12 COREL - São Paulo (SP) 30.000

13 VERITAS - São Paulo (SP) 19.500

14 DIGITRO - Florianópolis (SC) 14.433

15 SSA GT - São Paulo (SP) 14.390

16 LOGOCENTER - Joinville (SC) 13.284

17 SENIOR SISTEMAS - Blumenau (SC) 8.716

18 INTERQUADRAM - Rio de Janeiro (RJ) 8.467

19 PROGRESS - São Paulo (SP) 6.813

20 CETIL SISTEMAS - Blumenau (SC) 5.936

21 BENNER - Blumenau (SC) 5.839

22 MICROSTRATEGY - São Paulo (SP) 5.403

23 STERLING COMMERCE - São Paulo (SP) 5.368

24 PROCENGE - Recife (PE) 5.251

25 MEGA SIST. CORPorativos - Itú (SP) 5.227

TOTAL 1.346.479

Regional Distribution of Software Activities• software industry in Brazil is strongly spatial concentrated. The states of São Paulo,

Rio de Janeiro and Minas Gerais, aggregated with the Federal District, are responsible for more than 87% sales revenues and for 70% of the jobs generated in the informatics activities. São Paulo alone is responsible for almost an half of firms and sales.

Distribution of Software Activities by Federative States(2002) Federative States

Number of Firms

% Sales Revenues (R$)

% Employees

% Size (employee per firm)

Sales per Emplyoyee

SP 19.845 48,1 9.279.701.977 46,1 95.059 37,5 4,79 97.620

RJ 5.400 13,1 5.954.684.491 29,6 43.131 17,0 7,99 138.060

DF 890 2,2 1.510.053.083 7,5 23.543 9,3 26,45 64.140

MG 3.604 8,7 646.269.812 3,2 14.540 5,7 4,03 44.448

RS 2.745 6,7 636.922.603 3,2 13.579 5,4 4,95 46.905

SC 2.036 4,9 466.033.380 2,3 9.092 3,6 4,47 51.258

GO 546 1,3 410.920.283 2,0 8.431 3,3 15,44 48.739

PR 1.871 4,5 325.712.072 1,6 11.167 4,4 5,97 29.167

BA 928 2,2 229.522.154 1,1 6.146 2,4 6,62 37.345

PE 834 2,0 182.970.399 0,9 4.385 1,7 5,26 41.726

Others 2.559 6,2 466.566.785 2,3 24.092 9,5 9,41 19.366

TOTAL 41.258 100,0 20.109.357.039 100,0 253.165 100,0 6,14 79.432 Source: Roselino (2006) based on data from PAS-IBGE (2002)

Regional Distribution of Software Activities• The analysis develops an attempt to map the spatial distribution of some

agglomerations of software firms. The methodology is based on data extracted from the RAIS – 2004.

• Methodology tries to measure four elements: (1) the agglomeration of activities in the space; (2) labor and income distribution in two segments of software industry considered (package or custom made software); (3) the amount of salaries paid per year to software employees; (4) the relative specialization of the micro-region

30 agglomerations were identified - Main Trends:• Most of those agglomerations were located in the most developed areas of

the country: eleven agglomerations were located in São Paulo state, comprising approximately 35,3% of the jobs.

• There are strong differences between the patterns of software specialization to the different agglomerations selected. In seven micro-regions the specialization index is higher than three indicating a strong specialization in software activities.

• There are also differences in the average size of firms in the agglomerations selected, stressing the fact that the exigencies of firms’ integration and consolidation can vary a lot from one region to another.

• The analysis of the salaries paid by the firms in the agglomerations selected also points out strong differences between them. So, the general argument that the salaries paid in Brazilian software are relatively high might be qualified.

No of firms - Package Software

No of employees - Package software

% of employees in package software

No of firms - Custom made Software

No of employees - Custom made software

% of employees in custom made software

No of firms - Total of Software

No of employees - Total of software

salary in software

Size (employees per firm) in software

Relative Specialization Index

Total 667 7.069 26,8 1.190 19.302 73,2 1857 26.371 8.322 14,2 1 23.016 – Fortaleza 10 111 77,6 13 32 22,4 23 143 3.346 6,2 0,31 26.017 – Recife 11 61 18,7 26 266 81,3 37 327 6.018 8,8 0,63 29.021 – Salvador 13 17 2,6 16 647 97,4 29 664 4.433 22,9 1,03 31.030 - Belo Horizonte 54 882 25,9 77 2.528 74,1 131 3.410 4.549 26 3,06 32.009 – Vitória 11 69 36,3 20 121 63,7 31 190 5.954 6,1 0,66 33.015 – Serrana 2 13 15,7 6 70 84,3 8 83 4.137 10,4 1,19 33.018 - Rio de Janeiro 46 646 38,5 115 1.034 61,5 161 1.680 7.792 10,4 0,85 35.004 - Sao Jose do Rio Preto 3 27 34,6 5 51 65,4 8 78 4.894 9,8 0,68 35.014 - Ribeirao Preto 10 40 21,9 11 143 78,1 21 183 5.925 8,7 1,02 35.017 – Araçatuba 4 120 94,5 2 7 5,5 6 127 3.416 21,2 3,36 35.027 – Limeira 3 56 69,1 3 25 30,9 6 81 4.076 13,5 0,8 35.032 – Campinas 13 178 26,6 41 492 73,4 54 670 5.504 12,4 1,36 35.046 – Sorocaba 6 70 77,8 6 20 22,2 12 90 6.648 7,5 0,45 35.050 - Sao Jose dos Campos 9 72 78,3 8 20 21,7 17 92 6.375 5,4 0,41 35.057 – Osasco 23 407 36,7 53 702 63,3 76 1.109 12.575 14,6 3,1 35.060 - Itapecerica da Serra 3 12 10,3 13 105 89,7 16 117 6.938 7,3 0,8 35.061 - Sao Paulo 112 1.269 19,1 246 5.375 80,9 358 6.644 12.697 18,6 1,93 35.062 - Moji das Cruzes 5 60 54,1 18 51 45,9 23 111 4.709 4,8 0,69 41.009 – Maringá 7 61 64,9 8 33 35,1 15 94 4.795 6,3 0,96 41.011 – Londrina 3 27 29,7 8 64 70,3 11 91 4.188 8,3 0,7 41.037 – Curitiba 33 197 49,1 39 204 50,9 72 401 6.606 5,6 0,58 42.008 – Joinville 11 90 16,9 20 443 83,1 31 533 7.685 17,2 3,05 42.012 – Blumenau 27 491 75,4 21 160 24,6 48 651 6.554 13,6 4,03 42.016 – Florianópolis 25 146 33,7 35 287 66,3 60 433 6.345 7,2 1,88 43.016 - Caxias do Sul 10 75 26,7 20 206 73,3 30 281 5.603 9,4 1,58 43.023 – Montenegro 2 13 15,1 2 73 84,9 4 86 8.959 21,5 2,14 43.026 - Porto Alegre 26 212 22,7 65 722 77,3 91 934 6.161 10,3 1,12 50.004 - Campo Grande 5 527 96,5 5 19 3,5 10 546 2.538 54,6 3,41 52.010 – Goiânia 5 185 32,7 16 380 67,3 21 565 7.114 26,9 1,39 53.001 – Brasília 11 196 4,5 42 4.151 95,5 53 4.347 9.952 82 6,06Sub-total 503 6330 25,6 960 18.431 74,4 1463 24.761 8.625 16,9 1,72

Export Figures

• in 2004 71 companies exported software products or services, generating an amount of approximately US$ 235 million of exports, from which US$ 110 million came directly from software exports and US$ 125 million from services and outsourcing.

• sales of export firms reached approximately US$ 1,5 billion in the same year, with software exports corresponding to 15% of the amount .

• twenty largest exporters were responsible for approximately 98% of the total value of software exportations.

• Software become a priority in the new industrial policy announced by Lula´s government in 2004 with the definition of a target of US$ 2 billions of software exports to be reached in 2007

• largest markets for Brazilian exports in 2004 were Mexico (with US$ 78,3 million of exports, corresponding to 33,3% of the total) and USA (with US$ 48,1 million of exports, corresponding to 18,3% of the total.

• 79% of Brazilian exporters are multinational companies that use Brazilian subsidiaries to attend international customers.

• multinational intra-corporate transactions and of other exports that are hardly accounted by the Payments Balance: an amount of approximately 85% of Brazilian exports takes part of a “grey” market.

• local firms, responsible for 21% of the amount of exports, tend to privilege the segments of industrial automation and integrated management in their exports.

• They usually to use small offices abroad and customers´ connections as the main channels to access international markets.

Export performance

weaknesses of Brazilian exports: causes? • limited experience of companies and lack of a market-led focus• fragmented structure generates disincentives to cooperation • absence of an image that can be associated with Brazilian Software abroad. • Absence of a salary level difference for competing in the low value segment• lack of formal qualification to compete in high value segments.• tributary structure and absence of incentives for exportation.Opportunities to export growth:1. growth of global outsourcing in 2004, the global outsourcing market of IT

services reaches an amount of US$ 607 billions, with the perspective of getting a 6% annual growth until 2008. The offshore outsourcing was responsible for a share of US$ 18 billion of this market, facing a perspective of annual growth of 40% until 2008.

2. Brazil is relatively well classified as outsourcing alternative by specialized market monitors.

3. competences in applicative and software solutions to broader range of activities, (financial markets, insurance, oil exploitation, social welfare and governments activities).

4. dynamic niches where some small Brazilian software firms began to position themselves, such as digital games and applicative to telecommunications.

5. Local initiatives to strengthen cooperation and coordination among Brazilian exporters: BRASSCOM and NEXT

Exports Sales of Brazilian Software Companies (2004) and

expected Sales (2005-2009)

Main markets of Brazilian software

exports (2004)

EXPORTS (US$ millions)

2004 2005 2006 2007MNC 70 250 500 1.000Local companies 150 270 600 1.000TOTAL 220 520 1.100 2.000

Software exports – targets of industrial policy

Perspectives of outsource markets to Brazil• attractiveness has been affected by

structural conditions, such as the general level of education, the relative inflexibility of the labor market and the appreciation of the local currency.

• relative advantages: (1) size and sophistication of the internal demand; (2) qualification to develop world-class solutions for specific segments (such as financial services and e-government; (3) the business culture similar to the main market targets (North America and Europe); (4) good infrastructure of telecommunications (compared with other countries); (5) proximity with the main market targets.

• challenges: (1) construction of an image of technological reputation; (2) improvement of the quality of services provided; (3) improvement of local human resources; (4) reduce the gap of foreign languages skills: (5) investments in innovation to domain new technological platforms; (6) adaptation of the local the tax burden to international patterns.

Global Outsourcing Report - CIO Whiteboard (2005)Country Global

Outsourcing Rank

Future Outsourcing

Rank

India 1 2China 2 1Costa Rica 3 30Czech Republic 4 27Hungary 5 26Canada 6 10Latvia 6 28Russia 6 5Chile 9 14Romania 10 7Ireland 11 11Singapore 11 29Philippines 13 9Poland 13 20Armenia 15 15Brazil 15 4Ukraine 17 6Israel 18 22Mexico 19 19South Africa 20 15

Key point: outsource drive as an imperative to Brazilian software

growth?

Sectoral system of innovation• dynamism of software sector is intrinsically articulated with the

dynamism of the IT as a whole. Dynamism of IT market in Brazil is extremely connected to the expansion and sophistication of Internet basis.

• The e-business area is one in which Brazil is leader in Latin America (40% of the total and 60% of the B2B) and which may leverage the international competitiveness of Brazilian companies. The market for e-commerce in Brazil estimated in US$ 13 bi in 2005

• Concerning the question of property rights of software, we can note that the piracy rate of 64% is still high, but not as high as China or India, and Brazil is making efforts to reduce it

• match between quality and innovation: only a small number of Brazilian software firms have high maturity certification in the software development process (CMM level 3 or higher).

• The university systems annually provide approximately 29.000 IT bachelors, most of them qualified people. The basis for the generation of qualified people came from around 875 Graduation Courses in the areas of computer sciences with approximately 160.000 students .

• IT technical education has been increasingly provided at secondary or non-university levels and this has raised the effective supply of labor to the software sector.

SSI: the role of universities• picture at postgraduate education is more problematic: 29 Mastering

Courses in 2002, with 2467 enrolled students and 847 dissertations defended. 11 Doctoral Courses, with 560 enrolled students and 80 PhD thesis approved.

• low exposure to education abroad and a weaker science orientation compared with countries like India or China

• the share of scientific articles of Brazilian residents published in indexed international scientific is quite inferior to the share of other scientific areas such as agronomy, natural sciences and physics

• only two universities (PUC-RJ and UFRJ) got an grade six or seven i(the highest in the scale adopted to evaluate the post-graduate institutions)

• legal difficulties in assigning patent rules for work done in universities has also had adverse consequences for incentives

• weakness of systematic links between university and software companies basedo on an evaluation of cooperative links extracted from the Directory of Research Groups of CNPq to period between 2002 and 2004,

• university-enterprise links related to the development of software was responsible for only 4,9% of the total links of the basis.

Universities and SSI2002 2003 2004

Agronomy 3 3,36 3,34

Natural Sciences / Plants 2,1 2,29 2,58

Physics 2,31 1,99 2,48

Pharmacology 1,75 2,15 2,41

Microbiology 2,18 2,48 2,33

Space and Aeronautics 2,01 1,75 2,11

Biology and Biochemistry 1,75 1,89 1,99

Immunology 1,53 1,71 1,98

Ecology and Environment 1,74 1,67 1,89

Mathematics 1,73 1,85 1,81

Chemistry 1,68 1,59 1,66

Multidisciplinary 1,57 1,5 1,58

Materials and Metals 1,49 1,44 1,57

Neurosciences 1,38 1,43 1,42

Molecular Biology and Genetics 1,28 1,68 1,4

Medicine 1,16 1,24 1,4

Geosciences 1,46 1,48 1,38

Engineering 1,14 1,29 1,36

Social Sciences in General 0,8 0,79 1,02

Computer Science 0,86 0,88 0,83

Psychology and Psychiatrics 0,42 0,41 0,46

Economics and Business 0,41 0,35 0,44

Education 0,3 0,28 0,4

Law 0,05 0,1 0,11

Área

% of articles of Brazilian

No of links in the field

% of the field in total flow

Development of Software Links

% of the field in the flow of Development of Softwares

% of the Development of Softwares in total flow

Agronomy 1.640 19,5 46 11,3 2,8Biological Sciences 819 9,7 32 7,8 3,9Healthy Sciences 489 5,8 13 3,3 2,8Engineering and Computer Sciences 3.688 43,8 212 52,0 5,8Natural sciences 864 10,3 56 13,8 6,5Human Sciences 454 5,4 24 6,0 5,4Social Sciences 402 4,8 19 4,5 4,6Linguistics, literature and arts 61 0,7 4 1,0 6,9Total 8.417 100 408 100 4,9

Share of scientific articles in indexed international scientific

periodic 2002-2004

Links between Research Groups and Enterprises by Science &

Engineering Fields (2002-2004)

NSI and IT Indicators – BRICS countries

Source: KAM database (world bank) e OCDE (2007)

Number of firms adopting CMM (selected countries- 2003)

294

108

63

17

17

16

10

Índia

China

Canadá

Cingapura

Brasil

México

Filipinas

Brazil (2004) = 35 firms

Brazilian firms with CMN and CMNI Certification situation in August 2006

Source: : MCT/SEPIN/DIA and Brasscom e ATKearney (2006)

CMN

CMNI

Software Specialization and new opportunities

• segments where Brazilian firms had also consolidated a strong position – such as in the financial sector, e-business, telecommunications applicative, e-governament

• segments related to complex integration outsourcing• digital games to PC, mobile phones and internet• visual applicative to petroleum industries in areas such as

geosciences, engineering, environment management and operational security to attend demands of Petrobras,, particularly through 10 centers of virtual reality installed in its units.

• opportunities for software in broadcasting area opened by the diffusion of digital signals associated with the advent of high definition digital TV market.

• growth of free software / open source software (FS/OS): the market for FS/OS-based operating systems in Brazil is estimated to have a minimum volume of R$ 77 million, considering only the sale of Linux distributions and related services, with potential to grow 2.5 to 3 times by 2008. Growth can be encourage by the government trough the use of Linux, particularly in education

• opportunities generated by impact of IT to traditional industries, such as the construction industry, retail, logistics and the agribusiness market.

Conclusive remarks• software remains a very dynamic industry in Brazil with potential to amplify

its economic impact and to stimulate the adoption of innovations, contributing decisively to the growth of productivity.

• A policy regime which emphasized human capital formation, infrastructure building and support to new ventures still appear to help significantly the development of the industry.

• Besides the amplitude of the internal market, the basis of the Industry’s strength can be associated with the flexibility and creativity of companies and technical personnel, with the sophistication and attractiveness of some of its target markets and to the capacity of generating satisfactory technical solutions for a wide range of economic activities.

• confronted with the sectorial and territorial heterogeneity of the software industry and with the complexity of its technological dynamics, the policy measures might be flexible and properly adapted – in term of programs and to construct institutional arrangements - to the focus they target.

• In a country like Brazil, where the socio-economic contrasts are still very dramatic, these policies might also pursue a trajectory based on the reduction of social and spatial disparities (“digital divide”).

• Capacity to develop software solutions in a local base permits the accumulation of capabilities that make possible the expansion to more sophisticated markets, including international ones.

• Importance of improving the knowledge about the links between learning and competence building in LIPS of software activities.

• The importance of improve the knowledge about the industry through information to be collected in PINTEC 3.