Consider this: Brazil is the world's sixth largest economy, and it's on track to take the No. 4 slot in a matter of years. If you were underestimating South America, it's time to take a harder look.
A huge driver behind the country's global economy growth is information and communications technology. Brazil's ICT sector is the world's fifth largest, worth some $212 billion in 2011 -- enough to make it 8.5 percent of the country's gross domestic product.
If you talk to industry folks in Brazil, that's only the beginning. The country sees IT as an engine of economic growth and a competitive advantage on the global stage.
To find out more, I rang up Sergio Pessoa, marketing director at Brasscom, Brazil's industry association of ICT companies. Here's what he told me.
ZD: Let's start by characterizing Brazil's IT market. Give me a sense of things, and how we got here.
SP: Brazil is the fifth largest ICT market in the world. It's a $212 billion market, just behind the U.K., U.S., China and Japan. If you just look at IT without communications, it's a $112 billion market and we're the seventh largest, behind France and Germany as well.
It's very significant, particularly because if you look at the entire IT sector, only $2.65 billion is for exports. We're a very large market for ICT, but it's a very domestic market as well.
There are some elements of why the domestic market is so well developed. If you take IBM as an example, it was established in Brazil in 1917. I was surprised when I learned that. Brazil has seen large influence from international companies coming to Brazil early on. Johnson & Johnson, GE -- companies like this established themselves in the Thirties. They brought with them best practices and management and it's evolved over time.
Our economy is very diversified. There's no one particular sector that's unique -- we have agribusiness and commodities, but if you look at financial services, oil and gas, manufacturing, retail, there's a large concentration of those sectors, too.
We have lots of cases of success of utilization of technology. We're one of the largest manufacturers of airplanes. We have the third-largest market for PCs and the fifth-largest for mobile phones.
ZD: Brazil is a 'BRIC' high-growth developing country, along with Russia, India and China. Given what you've just said, is the Brazil-as-young-Turk thing all hype? It seems you've been growing for quite some time.
SP: (Laughs) We're bad at marketing. We're a very domestic market. Why would you go international [with that story]?
ZD: But then the 2008 global economic downturn happened, and BRIC took hits like fully developed economies. Given that, what's the outlook for the IT sector, specifically?
SP: The IT sector grew 13.2 percent since 2010. The ICT combined grew 9.6 percent. We're looking at similar growth in the coming years.
We see a decade of opportunities. We believe that we can be, in the next 10 years, the fifth largest market for IT. We think we can increase our percentage of GDP from 4.5 percent in 2011 to 6.5 percent by 2022 -- and this is just IT. We want to go from $2.6 billion to $20 billion.
ZD: How do you get there? What are the hurdles standing in your way?
SP: The first big challenge we're fighting against is protective costs. Brazil has been protected -- certainly for exports -- by our currency, a strong real. That's one reason that they shift their focus to the domestic market. The labor costs are higher than all of Latin America. So we've been able to pass laws to incentivize innovation and growth. We want to allow Brazilian companies to serve international customers from Brazil.
Because markets are growing so rapidly, we have a lot of pressure on human capital. You have to develop that, so we're working with universities and technical colleges to better align curricula with what the market demands. In the long term, more alignment will ensure that we'll get there.
Language is also a challenge. (Portuguese is Brazil's dominant language, on a continent dominated by Spanish speakers -- Ed.) We have to present it in context, though -- we're a third of the population in Latin America, including Mexico. Economically, it's closer to 50 percent. If you just get English speakers in Brazil -- that number is higher than the populations of some countries, and the largest in Latin America. It's an issue we're working on to continue to promote English and Spanish education to our members.
We have a new program called Science Without Borders, where we send students to top universities globally to give them a global mindset and create global networks and improve the flow between profession and brain with other countries.
There's also the infrastructure side. Growing so rapidly, telecom and broadband penetration numbers are increasing -- we have 280 million cellphones for close to 200 million people. We're looking to our national broadband plan, which intends to universalize broadband access. We're trying to leave a legacy to support growth.
Brazilians are early adopters of technology. That creates a buzz that could continue to drive focus to that area.
ZD: Does Brazil's growth in IT come at the expense of other countries, or is the country merely addressing untapped domestic potential?
SP: From a domestic market perspective, there's huge potential still untapped. Two examples: education and health. We're still behind more mature markets, so there are significant opportunities to grow there. Plus there are new trends that will create opportunity -- cloud, machine learning.
It's not necessarily a zero-sum gain -- you could capitalize on those opportunities through partnerships. More international companies are coming to Brazil. If you are a global company without a presence in Brazil, it's not easy for you to enter the market. We're peculiar -- we have a strange taxation system, we have a unique culture.
But we're seeing both sides of this, which will intensify with a more global mindset. It's very important to be globally competitive. There's still a lot to be learned from the more mature markets. But there are also things from emerging markets that can be applied to mature markets.
In the next five years, the global ICT market is expected to grow 4 or 5 percent a year.
ZD: Where are the risks? Where could those plans go off the rails?
SP: Traditionally, Brazilian companies didn't have easy access to capital. Interest rates are pretty high. But we have private venture capital companies coming to Brazil, which will allow for better investments, and ICT adoption will continue to grow. Those startups will have more opportunities to create disruptive solutions that will be global winners. That was a scenario that significantly changed things between 2000 and now.
This is the knowledge economy we're talking about. There are two fundamental pillars you have to have: human capital and infrastructure. The risks for us are ensuring that we are delivering quality human capital -- business skills, technical skills, language skills -- to be globally competitive. That's the risk. We have to be sure that the demand for those professions [is there]. Education is a key component of that. It has been a big barrier for success here. But infrastructure, too -- growing so quickly has put a lot of stress on existing infrastructure. It can become a barrier to achieving those targets.
We have to compete with China, India, Korea, and those countries are putting a great emphasis on education. We have to keep pace with that.