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Online Extra: Brazil's Soft Spot For Software


Luiz Fernando Furlan, Brazil's Minister of Development, Industry & Foreign Trade, has the goal of developing a thriving domestic information-technology industry in his country. He discussed with BusinessWeek Senior Writer Steve Hamm the challenges involved in making the plan a reality. Following are edited excerpts of their conversation:

Q: Brazil has announced a new industrial policy, with software as a key element. Why did you identify software as a target, and what are you planning on doing about it?

A: Brazil is a well-known exporter of agricultural products, iron ore, steel. This generates a lot of trade and hard currency. At the same time, more and more we're producing and exporting value-added products. We're one of the major players in the aircraft industry. We have six international companies producing cell phones in Brazil for the domestic market and for export.

Brazil has an advantage. Due to the large domestic market we can have the economies of scale not only for the domestic market but for export.

Now, in capital goods, we want to use new technologies to modernize our production platform. In the IT area, we want to focus on software. We're the sixth- or seventh-largest market for software worldwide. We have an $8 million market for software.

We have hundreds of small and medium enterprises developing software in Brazil and supplying companies. We have the basic skills. But Brazilian companies don't have the channels to access foreign markets, and we don't have the size. We need to give to the production chain opportunities to develop.

We have all the conditions to be a player in the world software market. We have a good infrastructure of telecommunications and energy. We have the domestic market. We have more than 6,000 PhDs in technology coming out every year. The cost of production in Brazil is much lower than U.S., Europe, and Japan. We can deal with Europe and Japan in the daylight.

We have a target to improve our IT exports to $2 billion in 2007 -- software and services. Now it's $100 million. It's very ambitious. But the private sector tells us it's possible.

Q: How important is software and IT services to the future of Brazil's economy.

A: For us, software and IT has the same importance as capital goods. In this way, we can modernize the whole structure of production in Brazil. It's a horizontal spreading of competitiveness. You enhance the sector, but it spreads much further.

Q: Is there another country that's a model for Brazil.

A: We're building up our own model. We have seen Ireland, India. We look at other countries. We can't buy a canned model. We have a base already.

We can get a space worldwide in software for small enterprises. In some cases we can provide for government. Brazil has good experiences in electronic tax collection. Ninety-seven percent of the reports to the internal revenue [department] is made through the Internet. And Brazil has state-of-the-art electronic banking. It was the heritage of our periods of inflation. The cost of money, overnight, could go up 0.5%, so the banking system invested a lot due to the very high interest rates. It's part of the Brazilian life. It's an asset.

The niche we want is applications. We don't want to have low-cost labor rewriting programs.

Q: I understand Brazil doesn't have a venture-capital industry. Is there any effort to try to develop it?

A: We launched a credit line at the National Development Bank for small and medium-size software companies. We dedicated $30 million. Seventy percent of the money was taken in three months. We'll dedicate more resources to this area. It's a nontraditional industry, so the tools for venture and risk capital are being built.

Q: Is piracy a problem in Brazil?

A: It's a big problem. We have a new bill approved in the Congress to deepen enforcement. On the other hand, we're reforming the National Institute for Intellectual Property. It's like NIST [National Institute of Science & Technology] in the U.S. We're hiring new people and putting in new electronic systems to


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