Outsourcing: Brazil Blossoms as IT Services Hub

CapGemini's $300 million bet on Brazilian outsourcer CPM Braxis is another sign of a sizzling South American IT services market. But much of the activity remains focused on serving local Latin American customers rather than winning over U.S.-based clients.

By Stephanie Overby
Wed, September 08, 2010

CIO — CapGemini's announcement last week that it would invest $298 million in Brazilian IT service provider CPM Braxis attracted a lot of attention in outsourcing circles. The move will give the Paris-based company a 55 percent stake in CPM Braxis, the option to buy the company outright within three to five years of the close of the deal, and the chance to leapfrog its global competitors already entrenched in the country.

"CapGemini is visionary, getting into the market ahead of its global competitors," says Atul Vashistha, president of offshore outsourcing consultancy Neo Advisory. "This is a very promising strategic move."

Meanwhile, CPM Braxis—a major South American outsourcer with 5,500 employees—is predicting 20 percent growth and $450 million in revenue in 2010.

The Brazilian company's financial outlook is emblematic of the Latin American market for outsourced services, which is expected to grow 12 percent in 2010 to $8 billion, according to Forrester Research. That's on top of the $19 billion that local companies will spend on IT consulting services.

Brazil—with its 250,000 IT professionals, 23,000 annual IT graduates, and infrastructure capable of supporting double-digit growth—is at the heart of the IT services supply chain in the Southern Hemisphere.

In fact, most major U.S. players including HP, Accenture and Unisys (UIS) have an escalating presence in Brazil, which has been largely unaffected by the recent global economic slump. In June, IBM (IBM) announced plans for its first South American research center, located in Brazil, as part of its strategy to sell technology and services to large, fast-growing emerging nations.

Indian outsourcers such as Satyam, Infosys and Wipro have been aggressively expanding in Latin America. Tata Consultancy Services (TCS), for example, has three global delivery centers, including an Oracle (ORCL) center of excellence and more than 1,500 employees working in Brazil. Home-grown providers, like Politec, Ci&T and Stefanini, have been expanding rapidly.

"They are looking to grow regionally and also tap the U.S. market, hiring resources in the U.S. and other South American [countries]," says Vashistha.

According to the Brazilian Association of Information Technology and Communication Companies (commonly known as BRASSCOM, an allusion to NASSCOM, which worked to fuel India's IT industry), Brazil's offshore outsourcing market hit $1.4 billion in 2008, rising 75 percent in a single year. An October, 2009 report from Gartner states that "Brazil's economic footprint combined with having the largest domestic IT consumption in all of Latin America, as well as international recognition as one of the most promising and rapidly emerging economies, makes it a natural destination to evaluate for IT services."

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