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Neo Group: Brazil IT Will Soon Be Bought

Neo Group founder and chief executive, Atul Vashistha, is well-known and respected in the international sourcing marketplace for his advisory work with Neo as well as his books and additional roles with the IAOP and US government. He attended the recent Brasscom Global IT Forum in São Paulo, so IT Decisions asked him for some of his thoughts on present and future trends in the Brazilian IT market.

“The key thing for me when looking at Brazil is that the domestic IT market is so big. A supplier told me that there was 40% growth in their market last year, so why would you expect the supplier community to go and look at the international market with the currency risk and having to compete with global players?,” Vashistha initially explained.

“As Brazil’s economy is rising in all areas, large international companies see that they must be in Brazil, but they will often want to work with a local IT player. The smarter companies in Brazil are exploring how to work on 20% or 30% of work outside Brazil. They may not make much of a margin on that, but they will be able to compete with the big international players and those players will be here in a much bigger way in the next five years,” he added.

IT Decisions asked the analyst why many in the conference endlessly compared Brazil to India, without considering differences beyond just the market opportunity for outsourcing.

“There is a tendency for people to look at earlier success stories, but I think Brazil is much more comparable to China than India. It’s worth nothing that the largest local IT player here has about 9,000 employees, with a huge market of around $85bn, so that tells me that there are two things happening,” he said.

“Outsourcing has not been adopted much by industry and there has not been a lot of consolidation in the local players. Another point is that everyone has focused on high-end services. To go for scale, you need more of a factory-type approach.”

Many conference delegated at the Brasscom event were quite wary of how foreign IT companies are hovering over Brazil, buying or exploring how they can buy their way into the market. With several purchases of IT companies in the past year alone, it’s a real fear of some that there will be no domestic IT players left soon.

“In the next 2 or 3 years you will see a significant number of the local players in Brazil being bought by the larger players in the market, whether American or Indian. And you will also see that the tier-one suppliers here will be buying the tier-2 suppliers to get scale,” Vashistha said.

“Brazilian suppliers are possibly the most mature and competitive in the whole of Latin America, so instead of always looking to the US for export business, I see a lot more business for Brazilian suppliers within their own region,” he added.

A sobering prediction for those who fear that the local IT market will soon be purchased, but in some cases with foresight and strategic planning, it’s true that the local players can raise their game and compete internationally. Perhaps it is these companies who are thinking ahead now that will succeed five years down the line.

About the Author: Atul Vashistha

Atul is the Chairman and CEO of Neo Group, a firm he founded in 1999. Neo is recognized globally as a leading supply and outsourcing analytics, monitoring and advisory firm.
11-14-2011|In The News0 Comments