As the European markets slow down considerably and the United States continues its painfully slow recovery, new markets with strong long-term growth potential can be found in Latin America. Companies in Europe and the US may have reduced R&D budgets considerably, while their counterparts in places like Chile and Brazil are investing heavily in technology. These growing economies have attracted a slew of high-profile companies to set up operations in their respective technology clusters. To start, let’s take a look at what’s been happening in Brazil.
There are two stories of Brazil – one of opportunity and the other of risk. We start with the opportunity side and the story of government and private sector investments. The Brazilian government is investing funds and energy into the technology sector. In August last year, Brazil announced a US$2.2B initiative to invest in 75,000 science and technology scholarships. The initiative will send students abroad as part of the government’s “Science Without Borders” campaign, which provides scholarships to Brazilian students primarily in the areas of science, technology, engineering and mathematics.
In an effort to create Brazilian technology clusters, several technology parks have sprung up across the country since 2006. According to my sources, these tech parks have been contributing increasingly to the country’s economy and are fueled in part by many governmental programs on the municipal, state and federal levels – which contribute to various incentives and increased funding for R&D.
On the Foreign Direct Investment (FDI) side, Brazil has introduced incentives to entice businesses from across the world to invest, including American companies. International interest in setting up base in Brazil is in part because of the implementation of the ‘Lei do Bem’ (Good Law), which offers tax incentives to companies focusing on technological innovation. Total FDI to Latin America was up 31% more in 2011 over 2010 to US$153.448 billion dollars. Brazil accounted for most of the increase, reaching US$ 66.66 billion.
Many companies are using Brazil as a base to help reach their markets throughout Latin America. There are many reasons. First, generally wages in Brazil are on average about half of those in the US. Second, Brazil has enjoyed over a decade of stability both economically and politically. Third, Brazil enjoys energy independence and is poised to be one of the great success stories of this decade. And for B2B technology industries, Brazil is ranked 33 out of 142 countries for businesses adopting new technologies. ECLAC ranked Brazil as 31st in the world for capacity for innovation, 29th for business Internet use, and 52nd for available venture capital funds.
If Brazil were all opportunity and no risk, every company would be moving down to Rio de Janeiro. The United Nations’ report from earlier this year noted that is still took 119 days on average to register a business in Brazil. And the United Nations must have been using different measures, because they ranked Brazil’s Business and Innovation Environment as 121 out of 142 countries. Finally, the legal court systems are always back-up in Brazil, which means that if a competitor attempts to block your company from selling in Brazil, the case could take over a year to clear while your company could be barred from the market place.
The best way to explore the opportunities and mitigate known risks in a country like Brazil is to find an international business specialist who has experience and connections in country. I would be glad to make a referral. But if your company is trying to figure where your best international opportunities lie, please contact me for help.
“Latin America creates rival to Silicon Valley”, World Finance, 4/23/2012 http://www.worldfinance.com/inward-investment/americas/latin-america-creates-rival-to-silicon-valley
“2011 Foreign Direct Investment in Latin American and the Caribbean” Briefing Paper, United Nations ECLAC http://www.eclac.cl/publicaciones/xml/2/46572/2012-182-LIEI-WEB.pdf
INSEAD & World Economic Forum’s “Global Information Technology Report” 2012 p. 191 http://www3.weforum.org/docs/Global_IT_Report_2012.pdf