Four challenges

Brazil has the world's eighth largest domestic Information Technology market and, coupled with communications, 8.3% of its Gross Domestic Product (GDP) is generated by the sector, with sales of US$ 140 billion in 2009. The worldwide market for software and IT services today is worth US$ 1.4 trillion and by 2020 it will have exceeded US$ 3 trillion. Within ten years global exports are expected to have reached US$ 500 billion, of which India plans to account for US$ 300 billion and Brazilian estimates indicate exports of US$ 20 billion. However, Brazil’s domestic market will continue to grow and by 2020 will be worth US$ 125 billion, so holding its position among the largest players in the world.

There will be a lot of opportunities in the next few years and for several reasons Brazil has the ability to become a strategic competitor. The challenges, however, are also huge, and in order to be able to increase the real chances of Brazil positioning itself on the global market, I have identified four major challenges: tax relief for the sector; qualification and training of people to meet market demand; strengthening of businesses and, last but not least, the fostering of innovation.

As a result of high tax burden, IT company payrolls are taxed at about 36%.As about 70% of a company's costs come from its payroll, Brazilian labor is prohibitively expensive, meaning that we now have the highest labor costs in the world. Labor in Brazil, for example, is 40% more expensive than Argentina and 70% more expensive than India. With a view to making improvements, representatives of the sector have presented the government with a proposal for change in the form of contributions that promises to significantly reduce costs and correct market distortions, without harming public revenue.The idea is to replace payroll taxes with a tax on turnover, which would result in taxation similar to that in other sectors of industry.

Another factor that contributes to the high cost of labor is the salary structure, which today is like a pentagon, as the low number of entrants to the industry means that people with higher wage levels have to do jobs which are below the levels their skill sets would allow them to do.The second challenge for the industry is, therefore, to make this pentagon into a pyramid .This is why the base must be broadened and average wage costs lowered by creating more training courses through digital inclusion programs, for instance.

Although there are extremely important small and medium sized companies, in order to compete internationally in the IT industry large companies are essential. This is the third challenge facing Brazil.Because of the high cost of labor and the limited supply of professionals, the Brazilian industry has become a target for undocumented labor, which prevents growth and bolder competition on the global stage. This situation limits companies' ability to raise capital on the stock market or through IPOs, for example, so halting the growth of businesses and hindering their ability to invest in improvements and higher productivity.

Finally, a battle is being waged to encourage innovation, since it permeates all the necessary and essential changes to create strong performance in the industry. After all, it will not do to be big, to have strong companies or a well-regulated sector if there is no innovation.
These four challenges need to be overcome now if Brazil is to become the third or fourth largest IT economy in the world by 2020 and for there to be a consistent defense of its domestic market. Naturally, there are many priorities, but these ones are fundamental and cannot be put off.

Antonio Gil