Outsourcing IT to Brazil Should Be Less Expensive with New National Plan

One conventional criticism of outsourcing IT services from Brazil is that it's too expensive, relatively speaking. And Brazilian IT executives are often the first ones to acknowledge the cost differential. "Don't come to Brazil if you're looking for the lowest price," as one CEO told me recently.

"Tax, labor, and import/export policies and regulations are difficult, some even call them hostile," said an executive from a software company that is based in Mexico but operates in Brazil.

Those factors have all contributed to Brazil's "Lexus" reputation. Complaints from businesses that deal with international customers have become louder as the currency heats up and Brazilian goods cost even more. The government appears to have been listening.

This week, following months of speculation, Brazil president Dilma Rousseff rolled out a series of measures that could help lower the costs of outsourcing from Brazil. Plano Brasil Maior, or Bigger Brazil Plan, includes first and foremost changes to payroll tax structures that will lower the cost of labor. Businesses in certain industries that require a large number of employees — including the IT sector — will not have to contribute to the tax that funds the social security program, for example.

Antonio Rego Gil, president of Brasscom (Brazilian Association of Information Technology and Communication Companies), told Computerworld that with implementation of the new plan, Brazilian IT firms will be more competitive in foreign and domestic markets because of lower employment costs. Gil, who was involved in the negotiations that resulted in the Bigger Plan, said, “This measure represents a turning point in the IT industry."

According to Agência Brasil, one minister in Dilma's cabinet calculates that the industries that would benefit from the new plan would save about US$16.1 billion by the end of 2012 because of the tax changes.

Many details remain to be revealed, so it is too soon to scope out all the effects the new competitive plan will have on Brazilian outsourcing companies and their clients. But it is a safe bet that Brazil IT providers will be able to offer their considerable skills — which run the gamut from Cobol programming to mobile user interface design — for less than they've been selling. What this will do to the balance of power in Latin American outsourcing is hard to say. You might at first think Indian firms would be the obvious losers if this all goes through, but on the other hand, they have to hire Brazilian IT workers too, and now they should be able to hire them for less than they're shelling out now.

One of the most positive aspects of the Bigger Brazil Plan is that a government administration has listened to industry and tried to put together a plan to make the country more competitive on a global stage. The president and her ministers are pushing investment in the country, including its IT sector. Not to get too gushy, but it does look as if Brazil has its eye squarely on the future. Meanwhile, a faction in the large government to the north is insisting on looking backward, investing in nothing, and hoping to restore the America of the 18th century.

The Bigger Brazil plan is also designed to help boost R&D and innovation, which is of course also good news for IT services providers, but that's another story.