Brazil as an Outsourcing Destination

It’s a fair bet that Brazil will beat off all challengers this summer to retain the Football World Cup in Germany. Brazil is well known for its stamina, skill and flair on the football pitch, usually leaving the rest of the world competing for second place. But far removed from these football certainties is how well Brazil will fare in a newer contest now taking place across the business world — the contest to be the next location for offshoring of IT and business process services. Is Brazil a serious competitor in the “BPO/ITO World Cup”? Do they have the “right team” to get to the final or do they face disqualification in the first round?

The business of offshoring has been maturing for decades. Driven by strategies to reduce costs, generate economies of scale, and focus on core competencies, it’s clear that IT and business process outsourcing work. India has stood out as the pre-eminent force in this process; but in practice most global companies and offshore service providers are looking to spread their facilities and investments on a global basis, rather than in just one location.

As a result, there’s keen competition to be seen as “the next offshore location.” And there’s no shortage of competing countries, ranging from Poland, the Czech Republic, Canada, Russia, even Costa Rica and Jamaica.

Source: The World FactbookBrazil Indicators

When searching for a suitable offshore location, client organizations need to scrutinise a comprehensive set of indicators, including labor costs and political, economic and social risks, among others. For Brazil to stand out as the “right decision,” it needs to provide a compelling answer to each of these points.

Geographical Proximity

Brazil’s proximity to the US makes it distinctly more accessible than more distant Asian locations. It therefore qualifies as a “nearshore” location for the US market, along with Canada and various Caribbean countries.

Labor Pool

With a population of 182 million growing at 1.1% per year, Brazil has an estimated educated workforce of 83 million. The country clearly has a substantial labor pool, potentially a major strength when many offshore locations are rapidly “overheating.”

Labor Costs

Brazil is cheaper than almost all other South American or European countries, with a 30% salary advantage cost over the US. However it is not the cheapest option, with Indian locations benefiting for an additional 30% cost advantage. The average salary for an “entry level” IT worker is about $9,000, while in China and India it’s about $5,500.

Language Skills

In the only South American Portuguese speaking country, English is only modestly spoken. The Spanish language gets bigger play, but nothing compared to its native Spanish speaking neighbours Uruguay, Argentina, Chile and Mexico, which are also taking part in this competition.


Elected in 2002, President Luiz Inacio Lula da Silva has been showing his eagerness to attract foreign investors. The government is keen to contribute to the development of Brazilian offshoring, with a target of $2 billion for IT services exports by 2007 (compared with $400 million in exports today).Security is a major issue in Brazil. Social inequality, gun crime and drug dealing are sad realities on the streets of the big centers like Rio de Janeiro and Sao Paulo, and should show up in the risk management assessments of any offshore program.


Economically, Brazil has changed a lot since the days of 2,000% inflation. Today the economy is stable, with a 6% inflation rate at the end of 2005. The IT sector itself is a well developed $10 billion market, with an $8.3 billion multinational presence.

The Current State of Play

Brazil has been showing signs of becoming a serious contender in recent years. Aware of the opportunities of tapping into offshore demand, in 2004 the big national players in the IT service industry in Brazil (CPM, Datasul, DBA, Itautec, Politec and Stefanini) created BRASSCOM with the main objective of promoting the export of IT services among its current roster of 3,265 IT firms. The Brazilian Association of Software and Services Export is a clear attempt to emulate the Indian success story (though, if the organization’s Web site is any indication, the effort is an anemic one).

As proof of concept for this approach, CPM was recently awarded a $7 million outsourcing contract with a major European bank. At the end of 2005 Stefanini became the first Brazilian native company to achieve Capability Maturity Model Integration (CMMI) Level 5 certification.

The global outsourcing service providers and software firms have a strong presence in Brazil and many are already serving their global client bases. Companies such as IBM, Unisys, HP, EDS, Accenture, Deloitte, Motorola, Intel and Nokia all have offshore centers in Brazil. In addition, TCS, the largest of the India offshore players, has plans to create a new global development center in the state of Sao Paulo, in addition to an existing center in Brasilia.

As the offshore market continues to evolve, Brazil appears to be well placed to compete. It won’t provide the lowest prices, but in an increasingly sophisticated marketplace, this is no longer the only assessment criteria. Brazil has a mix of capabilities that, in particular, position it to provide nearshore services to the US. It also has the beginnings of a track record in ITO and BPO. It appears unlikely they’ll ever displace the current market leader, India, but by the time of the next World Cup in 2010, Brazil may well be one of the leading runners up.

Useful Links:


CPM International

Datasul (site in Portuguese)