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BusinessWeek: November 11, 1991 |
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Information Processing
BRAZIL OR BUST: THE GREAT COMPUTER RACE For years, Latin America's biggest computer market has been off-limits to most foreigners. It was all part of a Brazilian effort to foster a homegrown information-processing industry. Now, Brazil is preparing to lift that decades-old ban. "The potential here is enormous," says Gregorio Diaz, the Sao Paulo director for Microsoft Corp. "Brazil is a huge country with very diversified industry and 20 years of pent-up demand." He sees "a great boom for a long time -- for software, hardware, training, consulting, and research." Ending the ban has launched a race by foreign companies to set up joint ventures to cash in on one of the world's hungriest markets for personal computers and other information technology. Entrants include such big names as IBM, Digital Equipment, Japan's NEC, and France's Bull. The scramble was triggered by a new law, signed by President Fernando Collor de Mello on Oct. 23, that eases protectionist curbs on information processing, although it still doesn't fully open the $7 billion annual market. Starting in October, 1992, the law will allow imports of all digital technology, both computers and telecommunications, but tariffs and taxes will still add at least 100% to import prices. It also provides incentives for foreign companies to set up joint manufacturing ventures with Brazilians. Since the 1970s, Brazil has severely limited imports not just of computers but of everything from talking teddy bears to factory robots. Also barred: foreign investments that would compete with local companies. The result, Brazilians now realize, is a mollycoddled industry lagging behind the rest of the world. In turn it has hobbled Brazil's economy with costly, low-quality computers. HOOKUPS. "The whole country has been held hostage to a tiny group of nonviable manufacturers," says Richard Herson, Apple Computer Inc.'s Brazilian representative. By attracting up-to-date computer technology, Collor hopes to spur Brazil's sluggish economy as a key move in his free-market reforms. Exempted from Brazil's curbs were foreign products, mostly big computers, that had no locally made counterparts. Thus, IBM and Unisys Corp. have continued to make mainframes. Now IBM Brasil is expanding into PCs through a joint venture with SID Informatica, a local computer maker. Digital Equipment Corp. opened a plant last year to make large minicomputers that were likewise exempt from the curbs. Recently, DEC bought a 30% interest in Elebra Computadores, which has been making low-cost DEC machines under license -- and DEC has an option to take up to 49%. DEC is also talking with a Brazilian company to produce PCs. And NEC Corp. has signed a joint venture with Scopus Tecnologia to produce laptops and notebooks. The lure for investors is a market of 150 million Brazilians with potential sales of 600,000 PCs annually within five years, analysts estimate, up from 160,000 at present. Of these, as many as 65% are contraband. Access to better, cheaper computers would make Brazilian industry more competitive. General Motors do Brasil, for example, has only 200 PCs, compared with 2,000 to 3,000 for a similar company in a free market. 'KNOWHOW.' Even under the new law, however, tariffs are still a steep 60% on imported computers and 40% on components, although Collor proposes to cut them to 40% and 20%, respectively, in 1994. Thus, while Apple is talking with Brazilian companies about possible joint ventures, Herson says, "we won't decide until we know the kind of playing field we'll be on." Defenders of Brazil's protectionist strategy argue that it created Latin America's biggest information processing industry, with nearly 400 companies. The system was "a smart move because we developed knowhow, but it was far too protectionist," says Carlos Eduardo Correa da Fonseca, director of Itautec Informatica, which makes everything from automatic teller machines to laptops. For U. S. companies, the risk is mistiming their moves to supply Brazil's demand backlog. "It's a huge potential market, but no one knows when it will hit its pace," says David Robertson, who opened a Sao Paulo technical support office in January for software producer WordPerfect Corp. "Maybe in 1994, when the tariffs come down." Until then, foreigners will be gambling on an uncertain Brazilian payoff. | |
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