LOCATION AND PEOPLE ATTRACTIVENESS FOR OUTSOURCING

Offshoring, when a company conducts activities outside its country of origin, took off in the late 1990s, and was mainly driven by an increased need for large-scale IT operations. Currently, many large companies have large parts of their service operations offshore, and analysts expect that midsize and small companies will follow. For hosting countries, attracting offshore activities is an important manner of boosting its economy, attracting know-how and building skills. As a result, countries are continuously trying to entice companies to offshore production to their premises.

LOCATION ATTRACTIVENESS | | PEOPLE ATTRACTIVENESS | | INFRASTRUCTURE | HIGH | QUALITY OF POEPLE | MEDIUM | COUNTRY RISK | MEDIUM | COST OF HIRING PEOPLE | MEDIUM | TIME ZONE ATTRACTIVENESS | HIGH | TYPE OF SKILLS | LOW | | | ENGLISH PROFICIENCY | MEDIUM | TOTAL | HIGH | | LOW |

Global Services Location Index
The ‘Global Services Location Index’ (GSLI) 2014 by A.T. Kearney is the sixth edition of the report in which the consulting firm examines the offshoring landscape in 51* countries around the globe, and ranks the top destinations for global offshoring. To come to this ranking, three main categories were researched; financial attractiveness, people skills and availability, and business environment. The weight given to these metrics is based on their importance to the location decision. ‘Financial factors’ constitute for 40% of the published index. ‘People skills and availability’ and ‘business environment’ both account for 30% of the total weight.

CRITICAL ANALYSIS OF BRAZIL FOR OUTSOURCING

Trends in Brazil that support sourcing. In 2009

Population – 193.7 million (fifth largest in the world)
GDP – US$1574 billion (eighth largest in the world)
GDP per capita – US$8220 (57th)
GDP (PPP) as a % of world total – 2.87 (ninth in the world)
Worldwide rankings according to the World Economic Forum’s Global Competitiveness Report:
Secondary education enrollment rate – Rank 22
Availability of research and training services – Rank 36
Financial services availability – Rank 27
State of cluster development – Rank 23
GDP was forecasted at 7.7% growth in 2010 and reached a 7.5%.

MACROECONOMIC ENVIRONMENT
Steady economic growth and limited uncertainty regarding interest rates and the exchange rate are examples of the underlying conditions required for business development and increased investment in any country.
Many of the themes that make up the macroeconomic environment are quite positive in Brazil.
Brazil is now the world’s 7th economy, and is expected to rise to the 5th position by 2030,some scenarios, such as the one reported recently by the economist1, have this happening as early as 2025.
The average annual growth rate went from 2% between 1996 and 2000, to 4.4% between 2006 and 2010, despite the impact of the global economic crisis. For comparison, China’s growth went from 8.6% a year to 11.2%, while the USA went from 4.5% down to just 1%.
The domestic market has been strengthened by the rise of economic segments that now have actual purchasing power. Socioeconomic classes A, B and c, which in 2002 accounted for 55% of the population, now account for 69%2;
Inflation, which in past years was as high as 2,500% annually (at its peak in 1993), has dropped significantly since 1994, remaining in the single digit since 2003.
Net public sector debt went from 60.6% of the GDP in 2002 to 40.4% in 2010. In addition, Brazil has been a net foreign creditor since 2007, with reserves and Brazilian credits abroad in excess of its foreign debt.
Brazil’s country risk, which in 2002 was over 2,000 points as measured by the EMBI+, dropped to somewhere around 200 points in 2010, and by 2008 most international credit rating agencies considered Brazil to be investment grade.
Regardless of the progress made in this indicator, there are still opportunities for improvement to consolidate Brazil as an attractive investment and business destination these include:
• Rationally increase the amount invested between 2000 and 2009 investments in the country amounted to just 16.7% of the GDP, whereas China, India and Singapore invested 39.1%, 28.4%, and 24.9% of their GDP respectively.
• Reduce and control inflation; the forecast for inflation in Brazil is 4.8% annually over the next five years, whereas in China it is only 4.0% annually, despite its accelerated economy.
• Increase domestic savings to more than the current 19%.
• Fully enforce the Fiscal Responsibility Law (enacted in 2000), fill its gaps and ensure it is properly interpreted, in particular regarding federal fiscal practices.

INSTITUTIONAL ENVIRONMENT
A solid state of law, enabling economic agents to fully meet their obligations and transparent and efficient administrative processes are key elements if a country wants to qualify as a hub, in particular compared to other potential hubs. Here Brazil stands out as it has been a solid democracy for over 20 years now; the World Bank’s league table on political stable places Brazil alongside countries such as the USA, France, and the united Kingdom. There are no ethnic or religious conflicts in Brazil, nor does the country have any existing or potential conflicts with its neighbors. The institutional markers that define the national borders are solid and were established peacefully. Recently it has made progress in the form of rules to reduce the number of cases pending trial in the courts, such as binding precedents, the principal of general repercussion. In addition, the national Justice council and computerized courts have contributed to a more transparent and efficient judiciary.

Nevertheless, Brazil still has room to improve along some of the dimensions of institutional environment. Specifically:
• Politics still influence some decisions regarding the structure of Government. This becomes evident in examples such as no fixed mandate for central Bank Presidents, appointment criteria and political influence on regulatory bodies, the country’s excessively large number of ministries, and ministries themselves that come and go;
• The complexity and length of the process to open and close a business.
• The proliferation of new laws - in 2009, Brazil issued 317 new laws each month, whereas in the USA and France this number was only 159 and 24 respectively.
• An excessively slow judicial system. A recent assessment by the World Bank estimates that it takes 616 days to resolve a commercial dispute in Brazil that would be resolved in 280 days in Hong Kong and 150 in Singapore.
• The negative impact of bureaucracy on business in Brazil is quite high (scoring 9 out of 10) an in a survey by the imd, whereas in this same survey Hong Kong and Singapore scored 5.9 and 4.0 respectively.
• The large number of taxes and rules that continuously change, especially at the state and federal levels, and the large number of ancillary obligations, which imply in a lack of clarity as to how they apply and high cost of compliance.
TALENT AND HUMAN CAPITAL
A talent pool that is adequate in both quantitative and qualitative terms, a strong alignment between what the job market is looking for and the academy, along with the possibility of attracting and bringing in experts from outside the country, are also some of the requirements that any location that aspires to be an international hub must fulfill. Today Brazil stands out in only a very few of the dimensions that make up this pillar: Demographic availability of economically active population (EAP): Brazil is the largest economy where the economically active population is expected to grow fast enough to meet the expected increased demand for labor. The number of students enrolled in primary schools has grown, and Brazil is quite close to offering universal primary education (93%)10.
Brazil must improve along a number of the dimensions of this pillar, such as:
• Enrollment in secondary school is only 77%, far from universal levels.
• At the university level, enrollment is only 30%, lower than the global average.
• The quality of teaching in the country is still poor, as shown in the low scores obtained in the international test known as PisA.
• There is very little alignment between the teaching of foreign languages and what the job market needs (3.1 on a scale of 0 to 10).
• Brazil makes no attempt to attract international talents as a tool to train its own local talents.
• The alignment between academic output and the demands of the manufacturing, service and financial sectors is poor.
PHYSICAL INFRASTRUCTURE
Multimodal shipping options that enable flows into, out of and within the hub, and access to a communications network that is competitive in terms of both cost and performance are clearly some of the success factors for any business hub.
Brazil does fairly well along some of the dimensions of this pillar, Ample telecom coverage, especially in the urban centers. According to an IMD study, access to potable water and basic sanitation in Brazilian urban areas is comparable to developed nations. The Government’s accelerated growth plan, or PAC, includes investments to rapidly close the existing gaps.
Nonetheless, the gaps are still quite considerable, some examples of which are,
• Infrastructure investments that went from 5.4% of the GDP in the 1970s to 2.1% in the 2000s, which according to numerous economists is only enough to maintain the current infrastructure, with nothing left to expand it.
• In terms of its infrastructure, Brazil is ranked only 28th out of the 59 countries assessed by the eiu12, and it is a known fact that its infrastructure shortcomings harm the country’s logistics efficiency.
• Brazil’s main airports are already operating above their ideal capacity.
• Telecom costs are three times the world average.
• Among the world’s major urban centers, São Paulo has the 6th worst traffic index, and even by 2015 the city will have only 8 kilometers of subway line per million inhabitants, whereas Beijing expects to have 56.
• There is no clear and robust regulatory framework for public-private partnerships (PPPs).
FINANCIAL INFRASTRUCTURE
The existence of capable financial intermediaries, continuous access to several sources of funding and tools to mitigate risk all directly support the development of an investment and business hub. Here Brazil stands out in a number of ways, The regulation of its financial system is considered a reference around the world. The availability of business funding, typically through the use of corporate credit and/ or access to capital markets. A central negotiating model and registration of derivative transactions that is an international reference. Brazil has a strong and profitable financial system, which over the past five years has delivered one of the highest levels of shareholder value creation in the world.
There is still room for further development along the dimensions of this pillar, focusing on,
• Increasing the use of debentures as a financing vehicle, and enhancing the liquidity of the secondary derivatives market.
• Attracting more small and midsized businesses to the capital market.
• Encouraging the development of the insurance, reinsurance and commodity derivatives markets.
• Further developing its capacity for innovation in financial products.
CONNECTIVITY
Intense trade in goods and services, together with capital and people flows, are vital to continuously nurture an investment and business hub. Below are some of the highlights of Brazil’s and Latin America’s current status regarding international connectivity, Brazil leads in attracting foreign direct investment in Latin America; There is already a free residence agreement, known as the Mercosur Free Movement and residence Agreement, signed by Brazil, Argentina, Chile, Uruguay, Paraguay and Bolivia, and other countries may adhere.
Meanwhile, examples of areas that should be further developed are like for example Latin America still has only a small share of the global exports of goods (5%) and services (4%). services in particular should receive more attention, given the importance of the service industry for any investment and business hub. Although their number is growing, “multilatin” companies still play a limited role worldwide. in the specific case of Brazil, vale, the top ranked Brazilian company in terms of assets held abroad, is not among the world’s top 100 when it comes to assets held outside the country of origin. Limited regulatory alignment and no integration of systems or records between countries in Latin America make it harder for companies to operate internationally. Although in the past Brazil received large numbers of immigrants, and now has significant communities of their descendants, the number of foreigners living in Brazil today, whether from Latin America or elsewhere in the world, is small compared to the size of its population. Compared to other countries, Brazil’s air travel network is not well connected to the rest of Latin America and the world.
IMAGE OF THE COUNTRY
A positive perception of what a country as a whole has to offer is an important asset to consolidate its position as hub, and especially to attract businesses and talents. Brazil already has a positive image and stands out in the following attributes. Highly ranked in multiple cultural, tourism and hospitality assessments. In terms of the best cities for business in Latin America, São Paulo is ranked number three and Rio de Janeiro number five. Brazil is becoming a more attractive venue for international congresses and conventions; in 2003, 62 international events chose Brazil as their venue, compared to 293 in 2009.Brazil is ranked number three in the world in terms of the number of companies publishing annual sustainability reports.
Opportunities for improvement include, When it comes to the goods manufactured in the country, Brazil’s image is below average. Only three Brazilian companies are among the 100 most sustainable, according to international league tables.São Paulo and Rio de Janeiro are not considered good places to live, and are tied at 92.The number of foreign visitors to Brazil is small compared to other hubs.
OUTSOURCING IN BRAZIL MAJORLY IN SECTORS
Brazil is expanding its position as a competitive global sourcing location, collaborating with local software companies to advertise its information technology worldwide. According to the Brazilian Association of Information Technology and Communication Companies (BRASSCOM), Brazil’s outsourcing market reached USD $1.4 billion in 2008, a 75 percent increase that year alone. According to Gartner Research, "Brazil's economic footprint, combined with the largest domestic IT consumption in 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." * IT industry, offers Brazil’s IT industry offers numerous opportunities for research and development centers, consultancy firms, and the ICT Industry. It has around 250,000 IT professionals, with an advanced telecommunications infrastructure that is a result of a billion dollar investment made in the late 1990’s. Brazil has minimal time differences to the U.S. making it more convenient for American companies specializing in data and call center operations. In addition, Brazil’s progressive domestic market for software services has a strong history of being receptive to new technology.

* Global services industry, Brazil has a well-established global services industry, with Rio de Janeiro and Sao Paulo hosting most of the shared service centers for U.S. firms since 1980. Another smaller city gaining momentum is Curitubal, the capital of Parana. Some of the major outsourcing players in the industry include Accenture, Wipro, Siemens, HSBC Global Technologies, HP, and Unisys. In June 2010, IBM opened its ninth new global research laboratory in Brazil, the first research laboratory in South America and the first new IBM research laboratory in nearly twelve years. This global research aims to develop technologies related to information technology and sustainability of natural resources, advanced semiconductors and human systems.

* Healthcare, Brazil, a signature country of South America just surpassed 200 million residents. It is the main economy in Latin America and one of the most important at world level, regionally considered industrialized in spite of the variety of income, from very low in rural and peripheral areas, to very high in the most populous cities. Taking in consideration that Brazil has more than 15 cities with over 1 million people and 38 over 500.000, being the Sao Paulo the most populated city in Latin America, with a metro population of 20 million people

Sources 1. http://www.nearshoreamericas.com/outsourcing-brazil-the-complete-picture/ 2. http://marketrealist.com/2014/06/brazil-attractive-investment-destination/ 3. http://www.sourcingmag.com/brazil-as-an-outsourcing-destination/ 4. http://www.consultancy.uk/news/763/at-kearney-overview-of-top-20-offshoring-locations