Category Archives: Brazil

The Case for Colombia

Buried at the bottom of an article over on World Trade that purported to offer insights into the next generation of outsourcing while, in reality, at least in SI’s opinion, offering none, was a little sidebar on the business case for Colombia that is worth checking out. According to the article (which focusses on an Argentina-based IT provider with a large operation in Colombia), Colombia, which is rated higher by the World Bank than Peru, Panama, Chile, Mexico, and Brazil as the “best place” to business, should be a locale of choice for North American operations to outsource to. Citing:

passion
and a strong work ethic
government resources
and wealth in the region
a strong talent pool
which is highly qualified (with over 50,000 IT and BPO professionals) and well educated with 67,000 graduates being produced every year in in Bogota alone
plentiful real estate
which is affordable
international experience
as a relevant percentage of the younger generation has been to, or lived in, the US
time zones
which are “local” to North America
a strong cultural fit
as the culture is more aggressive (in comparison to eastern cultures where subordinates won’t do anything until being told to do so by a manager)
English aptitude
which is official in San Andres and Providence islands, is now being spoken by a larger percentage of the population (eventhough EF Education First ranks Colombia in the bottom five in a recent study of English learners in 44 countries, source)
Free Trade Zones
which are very business friendly
the El Dorado airport
which handles more cargo than any other Latin American airport
the Conferias Pavilion
which is the continent’s largest event centre, capable of accommodating up to 21,000 people
the pending U.S. – Colombia Free Trade Agreement
that will see over 80% of U.S. exports become duty free immediately, with remaining tariffs phased out over 10 years
broadband penetration
which is ranked 4th in Latin America
lowered political risk
from efforts to weaken the guerilla groups while simultaneously lifting the middle class (in an economy that has tripled its GDP over the last decade), that were started by Colombia’s last President, continue to be pursued by the current President
increased safety
as Colombia experienced a decrease in homicides by 45%, kidnappings by 92%, terrorist attacks by 71%, and attacks on the country’s infrastructure by 83% between 2002 and 2009 (and Bogota’s crime rates are now lower than Miami, Atlanta, and Washington D.C.

the article paints Colombia as an attractive place to be if you are an IT or BPO provider or looking for outsourced IT or BPO services.

And with over 1,200 multinationals already in Colombia, you wouldn’t be alone. Plus, with Spanish as on official language, chances are that a considerable number of your North American employees will already be able to communicate with the locals as over 1/6th of the US population either speaks Spanish as a first or second language or is currently studying Spanish.

Brazil is About to Get a Lot More Popular

China might be the tiger, but Brazil was pegged to be the tortoise of the decade. (Remember, slow and steady wins the race!) After all, in last year’s special report on business and finance in Brazil in the Economist, Brazil was pegged for 4-5% year over year growth, while most countries, like the US, are struggling to achieve a mere 3%.

The article, which noted that Brazil could be one of the world’s five biggest economies by mid-century, joining China and India who are also climbing, pointed out that FDI (Foreign Direct Investment) in Brazil was up 30% year-over-year when the global average was -14% and GDP has been outpacing inflation in Brazil for five years.

And now, as per this recent article over on CNet, Foxconn is looking to invest 12 Billion in Brazil. That’s almost 1% of the annual GDP of Brazil! That’s quite a boost to the local manufacturing economy. Then when you add the proximity to North America, the deep cuts in taxes Brazil is granting to foreign companies, and the rapid growth projected for the coming years, Brazil is likely to get a lot more popular in the years ahead.

What Will The New Brazilian Consumer Mean to Your Supply Chain?

In supply chain, we are continually talking about how the BRIC: Brazil, Russia, India, and China, are going to revolutionize our supply chain by substantially decreasing our costs and, thus, increasing the overall value the supply chain organization brings to the business. For the most part, it hasn’t happened yet (as management costs, tariffs, delays, and expedited shipping costs usually serve to eat up most of the projected savings), although many companies, who took their time and did it right, did see enough savings and enough improvements to make it worthwhile. The real opportunities are going to come when the middle class in these countries reaches a point where the market is just as lucrative, if not more lucrative, then our home markets. Just like Japan, with its focus on electronics, achieved a rapid transformation over the last few decades to become the second largest consumer economy in the world until it was overtaken by China this month, the BRIC is on track to create a new middle class larger than the current global middle class in the next 15 – 25 years.

And while much has been written about the China and India Opportunity (as the 2.5 Billion people the countries contain are expected to contribute another 500 Million to 750 Million people to the global middle class), I haven’t seen much written about Brazil, which is still very respectable in size with it’s 8.5 Million square kilometers and 192 Million people. Plus, it’s current middle class, which is approximately 25% of the population, already earn between $1,000 and $3,250 US, which is on par with what the average middle class income in India (which is as low as $3,000 to $5,000 US by some estimates) and most of China.

Brazil, like any other country, poses a distinct market. As per The Brazilian Consumer: Opportunities and Challenges, Brazilians favour quality over low price, status over indifference, and interaction vs. seclusion in their way of life. The companies that have successfully reached the emerging middle class to date have focussed on quality, distinction, small stores (in lieu of hyper-centers), and exclusive distribution networks — all of which will have an impact on your Brazilian supply chains. But will the emerging Brazilian consumer have any impact on your supply chains for those of you sourcing from, but not selling to, Brazil? Probably not. But if anyone has any differing opinions, I’d love to hear them!

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Nearsourcers – Is Brazil in Your Future?

I’ve been on a nearsourcing kick for a while now because I never really believed in the outsourcing craze (and the outsourcing craze to China in particular) as it’s just not rational that it should be cheaper to source the vast majority of products from half way around the world. Now, it was for a while, but I’m blaming that on ignorance and incompetence and not what pseudo-economists like to call “market reality”. Let’s face it, fuel is expensive. Labor is expensive … and if you need trucks, boats, and trains to ship your product, that requires lots of extra labor to load and unload. And lead-time is expensive. Who knows where the market is going to move during the 35 days it takes the product to reach your warehouse? You might end up with a lot of unmoveable inventory and that’s going to cost you. (So unless you can air-freight affordably and without a lot of environmental damage, and unless the other factors Dick pointed out in his recent post on Nearshoring are met, outsourcing half-way around the world just isn’t a good idea.) And if we’re as smart as we’re supposed to be, we should be able to innovate a way to produce the (vast) majority of products more cost effectively close to (if not at) home. (If we can’t, shame on us.)

Now, my thoughts were that the rising cost of oil and the rising cost of labor in the former “low-cost” countries would push us back to Mexico — which received a lot of investment before the China craze, which has a lot of excess capacity, and which has a good understanding of our needs — but after reading this recent special report on business and finance in Brazil in the Economist, I’m wondering whether or not Brazil should be getting more attention.

For what might be the first time in modern history, Brazil is democratic, experiencing economic growth, and realizing low inflation. If the trend continues, it could be one of the world’s five biggest economies by the middle of the century. It’s already self-sufficient in oil, it’s government paper is classified as investment grade by all three of the main rating agencies, it is now lending money to the IMF (which was wary of lending to Brazil but a decade ago), and FDI in Brazil is up 30% year-over-year while the FDI global average is -14%. Plus, GDP outpaced inflation in Brazil in 2006 for the first time in over 50 years.

Most economists are pegging its expected growth in the 4-5% range, which is pretty damned good considering the current global economy. Furthermore, this growth should pull its higher-than-average interest rates down to normal levels soon, which will make Brazil a fertile ground for (new) business expansion.

All-in-all, Brazil is looking like a very good location to be near-sourcing from.