Technology Opportunities in the Value Chains of key Industry Sectors
August 2012
Introduction and summary
The objective of this report is to outline the potential technology opportunities in the value chains of
some key industry sectors in Brazil, with a view to supporting UK technology companies to interact
with key players in Brazil and potentially exploit the opportunities that arise.
Economy
Brazil is one of the ‘BRICS’ countries considered to be a fast-growing economy – however the figures
do not necessarily sustain this: although the economy saw 7.5% growth in 2010, the average growth
in the last 10 years has been about 2.5%. The structure of the economy is changing rapidly with
industry falling from 30.1% of the economy in 2004 to 26.8% in 2010, whilst services rose from 63%
to 66.9% and agriculture remained relatively stable (6.9% to 6.2%).
Brazilian imports are divided fairly evenly between basic and industrialized goods whilst industrialized
products represent 90% of the value of imports. A deficit is particularly noticeable in the electronics
sector and technology in general. China has recently taken over from the US as Brazil’s number one
trade partner.
Whilst Brazil is considered to be on a par now with UK in terms of GDP, it must be remembered that
the GDP per capita (PPP) is only US$11,600, compared to US$28,000 for the UK (2011 figures). This
income level is reflected in factors such as 80% pre-paid mobile phones and only 12.5m smart
phones out of a total mobile phone population of 256m (July 2012). This means, as the major mobile
operator Vivo said, that many mobile products need to be adapted to the Brazilian reality.
Key economic drivers
Oil and gas sector will be a major economic driver in the next 10 years, from fully automated platforms
for pre-salt operations, through to transport and logistics solutions, refineries and petrochemical
plants. The UK is recognised as a leader in the oil and gas sector and already has good access to the
market.
In construction, major projects are dominated by large Brazilian multinationals (Odebrecht, Camargo
Correa, Andrade Gutirerrez, Mendes Junior, Galvao and the Spanish OAS). These use major
integrators for technology installations such as security and communications. They also have their
own ICT and security departments that search for technology solutions. It is important for suppliers to
make a multi-contact approach to these companies.
Doing business in Brazil, tax burdens
In terms of ‘business-friendliness’, Brazil has very high import tariffs, especially for products that
compete with locally manufactured goods; the country manufactures most products except for
electronic components and high-tech products. In addition, non-tariff barriers include bureaucracy,
customs practices, and industrial protectionist measures by existing major players. Added to these
factors, there are also the challenges of Government favouring local suppliers and certain bilateral
agreements with other countries – such as with France in public security.
As mentioned, there are several tax burdens. There is a need to cut out middle-men because of the
high tax burden. This means that often an agent is used on a commission basis. For electronics
hardware, local assembly is used to reduce the tax burden and to obtain tax and other incentives from
governments. For software and services, imported software is taxed at 25% income tax, whilst
imported services carry almost 50% tax burden. The solution is to provide services as software. A
local partner, often with complementary software of services, is the best route.
These potential barriers mean that a very smart approach is required to exploit the potential
opportunities that certainly exist in Brazil, as this report highlights.
Brazil market opportunity
Given these challenges, we still think Brazil is a good market to address for the right companies that
have the right approach and are prepared to invest time and resources in developing the market and
the relationships. Brazil is indeed a country in which there is a relatively low level of participation by
British companies in its economy, compared to France and Germany.
In speaking to various sectors of Brazilian industry, in general the message is that Brazil isn’t
necessarily at the cutting edge of technology, and is willing to learn or import knowledge or solutions.
Large Brazilian and multinational companies are open to suggestions for improvement or innovation
in their processes or technologies, in order to be more competitive.
It’s clear that there are some common themes across all industries: that ICT is an important
underpinning, and that communications, software and electronics technologies/applications play an
important role. While the oil and gas is the biggest sector that will drive the economy in the next few
years, the benefit will be felt throughout the economy and in several different industry sectors – from
construction through to consumer.
The major sporting and national events in Brazil over the next few years also present opportunities for
British companies that can demonstrate their part in delivering the technology, digital platforms and
applications for London 2012. Events coming up include the Confederations Cup, the World Cup
2014, and the Rio 2016 Olympics. Most companies were keen to understand the lessons learned
from London 2012, particularly in enabling the technologies and communications infrastructure
/applications that help deliver the best services to their customers.
Security (for example, physical and communications network, surveillance and monitoring) was a key
requirement for almost all companies in Brazil for at least one aspect of their business or offer to
customers.
A strong message was that British companies wishing to tap into the Brazilian market needed to have
patience and they need to work with local partners, distributors or local operations. Patience because
the gestation period for a sale can take one to two years, and the regulators – whether it’s the
communications, energy, or electronics products regulatory body – can drag their feet over approvals
for products not made in Brazil. Local representation is important because most Brazilian companies
need to have someone local they can pick up the phone to and speak to in Portuguese – whether it is
during the sales process, or for after sales support. The local element has another angle, in that most
products intended for the local market must have around 60% local content.
Key initial conclusions:
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Overall, the image of UK companies in Brazil is that they are high quality, high potential
added value but high price. In order to communicate the value added benefits of a British
product or service, it is essential to initially have a Brazilian partner who can carry out
technical sales and has the right contacts to access the correct sales channels.
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Need to have a local partner that understands Brazilian taxation, which is complex.
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Because of the importance of the local partner, UK companies have to commit to developing
a strong relationship with that partner.
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In the supply chain, the lead time from first contact to sale closure can be much longer than
might be expected – particularly in the larger companies, there is a need to make initial
technical presentations to researchers, consultants; and then the second phase might be
negotiations and presentations with technical teams. The third stage would be negotiating
with the buyers – and in the public sector it would be different to the private sector.
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Public sector is governed by fixed and strict law and regulations that can normally be followed
by experiences local partners.
Sectors
This report is based on meetings with individual responsible for business development and
technology procurement at major corporations in the following sectors in Brazil:
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Telecoms/mobile
Pharmaceutical/medical
Energy, oil and gas
Mining
Construction and engineering
Automotive and machine tools
Broadcast
Electrical and electronics plus instrumentation
Mining
Food and drink plus retail
Consumer goods
Security
Getting into Brazilian companies
There are several different routes into large companies in Brazil. If they are overseas multinationals,
the trend is for global procurement through the head office in the global headquarters country. For
example, GSK procures through HQ in the UK, DHL would procure through Germany, Vivo through
Telefonica in Europe. However, local Brazil/LatAm offices do have some say in in influencing the
selection or consideration of suppliers that have specific solutions that are region or country specific.
The major Brazilian organisations tend to require registration and accreditation as a supplier, and
usually as a local subsidiary office with local pre and post-sales support, or through a local distributor
or partner. Large companies like Petrobras, Vale, and Embratel, do require national support/service
operations across Brazil, which mean that UK companies would do well to work with local agile
partners rather than do everything themselves remotely.
Most of the large Brazilian companies, whether they were multinational or indigenous, were keen to
emphasize that although there would be a centralised procurement process, they still need to be kept
informed of potential innovation, technology, products or services at a local level, so at least they
know and they can also request their purchasing departments to consider sourcing new solutions. Fiat
in Belo Horizonte were particularly keen to entertain groups of companies that might be able to
showcase technologies or products for the automotive sector, and TIM (the telecoms operator), was
also keen to entertain groups of companies that can showcase their solutions for adding value to the
telecoms/wireless operations. In this respect, at least two companies told us that the Israelis
showcase companies to them at least twice a year at their offices.
The distributors we met in broadcast, electronics (including electronics security), and instrumentation
emphasized that British companies would have a tough time trying to tackle the Brazil market
remotely from the UK, and that they really need to use local partners. This was corroborated when we
talked to the major Brazilian companies/buyers, who said they would only work through local partners
and operations.
One distributor in the broadcast sector highlighted that British companies often treat a distributor as
an added cost rather than as an investment in the country opportunity. The former attitude hinders the
British company’s progress in Brazil. An example of a successful company in Brazil was cited (Vislink
in broadcast technology) as using a local partner to good effect, by thinking more like Americans in
treating distributor as an investment rather than additional cost.
UK reputation in Brazil
Several companies and independents in the broadcast technology and electronics instrumentation
sector have highlighted that the UK produces good quality products but at a high price for the
Brazilian market. When you consider the taxes on imported goods and the requirement of 60% local
content in most Brazilian products, this makes the sophistication and functionality often available in
British products unviable.
The big competition in the electronics and instrumentation equipment sector is the domination of
cheap Chinese products – they own about 90% of the market. This has even made it difficult for some
Brazilian companies to compete (for example Nansen in electricity meters).
This has also hurt the reputation of British products as some British products are sold by Chinese
companies via China, and they do not have the same quality as those that would be supplied from the
UK.
The opportunity therefore for UK companies to overcome the price and reputation issue is to consider
offering basic models or versions of their products, or adding some value – for example software that
does a specific task that the Brazilian company needs. For example the software could analyse data
monitored from multiple installations (for example from telecoms installations or oil and gas platforms).
Specific opportunities highlighted
Electrical, electronics and industrial automation
- Key sectors are electrical (generation and distribution of energy), electronics (components and IP for
electronics, semiconductors, manufacturing of components), and automation (manufacturing
automation and instrumentation). Of the $31 billion trade deficit in 2011, 60% was from components
and semiconductors.
- Hence from a policy point of view, there are special tax incentive plans to attract companies that add
value to electronic components, so there is an opportunity here.
- Electronics and semiconductors for oil and gas is an opportunity as it is a key focus area for
government, for example, in products for exploration 7,000m below the sea.
- From an industrial electronics perspective, food and drink (particular sugar cane industry) is a key
sector of opportunity for technology in terms of industrial automation. Oil and gas is of course a big
sector too as is automotive. Industrial communications networks based on Profibus and Profinet are
prominent.
- Generally, small systems integrators work with large multinationals like Siemens, Weidmuller and
others to implement industrial networks. The big market is for modems, connectors, peripheral
components for computers and internet – all imported products.
- 90% of PCBs in Brazil supplied from Chinese PCB manufacturers. Brazil produces only 10%, from
just about 60 Brazilian PCB companies. The Brazilian companies are only small production
(prototype/small volume) producers. Assembly is done in Brazil by about 15 key companies, including
Jabil, Flextronics, Foxconn and Benchmark Electronics.
- For industrial electronics, best route to market to service the key industry sectors in Brazil is through
local distributors; they are the ones who sell on to systems integrators; even Siemens uses small
distributors/reps (since this gives them the agility in market).
- Note that volumes are so small in industrial electronics that it is not worth exporting here – volume
kits are coming from China, with the difference in price being significant.
- The potential market opportunities are in LEDs (manufacturing and supply), solar energy, and RFID.
RFID is potentially growing; businesses are looking for opportunities to use this technology – just as
an example, for coffee sack tracking, or tagging wine bottles in supermarkets; Flextronics even has
capacity locally for producing RFID cards.
- Electronic security is also a big market, growing at about 15-20% per year. Security is a big concern
in Brazil. A typical example might include perimeter gates.
- In semiconductors and electronics, there is good opportunity for UK companies that want to come to
Brazil and license their technology and invest – like ARM for example. There is interest in attracting
companies to develop processing in the cloud and super-efficient data centres.
- Opportunities exist for electronics technology in consumer electronics, farming applications (e.g.
tagging cattle – there are some 250 million cattle), digital TV, digital certification.
Oil and gas
- In this sector, there are opportunities for integrated software solutions and applications targeting the
oil and gas sector, for RFID/asset tracking, bid management software, and supplier performance data
analysis; these would need to integrate with any existing company-wide ERP systems.
- Some companies highlighted areas of opportunity for software/technology solutions in production
planning, project planning, electronic management of documents, legal conformance, warehousing
software, asset tracking, materials quality management.
Mining
- Any technology solutions that enhance environmental, health and safety on their sites would be
welcome.
- Process automation is a challenge, but any specific products or solutions that address efficiency
aspects are always welcome.
- The industry is keen to stay abreast of the latest underground mining technology solutions.
Energy
- Brazilian manufacturers of electronic meters are finding it difficult to stay competitive due to the flood
of low cost Chinese imported products – which are an order of magnitude lower than theirs. Hence
Brazilian companies (like Nansen) that supply the main energy companies need help in various areas
to make them more competitive – for example, in PCB design, chip and system integration,
production and assembly.
- There are opportunities for UK companies to propose technologies both on the design of meters and
systems as well as the networks for areas like smart metering. For example, Nansen would be
interested in looking at the use of wireless sensor networks.
- In terms of remote metering, all companies in Brazil are currently using GPRS network, but taxes (on
the SIM cards) are exorbitant. If a UK company can demonstrate any solutions that can prove to save
R$ 1 million in taxes, then they’d like to talk.
- Nansen said that if UK technology companies in the smart grid/smart metering area have something
to offer energy operators in Brazil, then they (Nansen) would be an ideal market entry partner.
- There is a smart grid drive from the Brazilian government to enable consumers to have the freedom
to buy and sell energy in the market. Hence there is an opportunity for metering and automatic
solutions to address this need.
- UK suppliers can approach CPFL directly, who will analyse and carry out an industrial assessment;
for equipment they will also carry out tests, for services, they will look at the structure of the company
and its track record.
- Note: only 3 out of 11 suppliers to CPFL for smart meters have been approved so far by Anatel (the
communications regulator) – the equipment has generally been able to meet the requirement, but the
comms portion of the products is where Anatel has not approved the products.
- CPFL uses telemetry for protection of grids, and to control the dam level in the small hydro-electric
plants (PCH). The hydroelectric source is about 80% of energy.
- On the equipment side, CPFL is looking for suppliers of circuit breakers, reclosers, transformers,
insulators. For mobile workforce management they buy in antennas, radios and PDAs/tablets.
- CPFL is also researching into electric vehicles, in a joint venture with Fiat.
Mobile/communications
- It is important to remember that Brazil is a very different market to European or US markets, with
80% prepaid phones and only 10% being smart phones. Products often need to be adapted to the
Brazilian market.
- LTE networks rollout to be completed in the 12 cities due to host the World Cup 2014 by May 2013,
(in time for Confederations Cup) plus cities with more than 500,000 people with 80% coverage.
Operators are looking at all areas of innovation in marketing (ie – services to their customer); mobile
VAS (value added services) would be a key area – they are keen to learn as much as possible about
the different partnership models and operational models for VAS, as well as regulatory issues
(content and operators).
- Interesting in learning about UK knowledge in the use of femtocells and WiFi, how to use these in
high capacity requirement situations (eg. around events and stadia).
- M2M is emerging: market is currently affected by tax burdens and regulatory issues (e.g. tax on a
M2M SIM card is the same as the tax on a normal voice/data SIM, making it not very cost-effective to
embed SIMs into ‘things’ yet, for example in smart meters – the hope is that by Dec 2012 this issue
will be addressed, either with the reduction or removal of this tax).
- M2M opportunity in asset tracking; in addition, insurance companies are already using SIM cards to
monitor cars in Brazil.
- 4G equipment will be at the centre of broadcast for the Olympics [and World Cup], so any company
that has supported the Olympics in London would be likely to have opportunities in Brazil under the
right circumstances (e.g. with local partner).
- Strong interest in ‘lessons learned from the London 2012 Olympics’, in terms of capacity plans,
solutions, and products. Interested in learning about value added services that can be offered, and
how to keep services running during major events.
- One operator (TIM) holds workshops twice a year with Israeli companies showing them what’s
new/innovative; they are open to suggestions from UK.
- Vivo suggested that relationships should be nurtured through Telefonica Digital in London in order to
get in the Vivo system, but they should also keep local contacts in Brazil aware of solutions. Locally,
they are particularly interested in solutions in the mobile space for advertising, smart grids, content
delivery, social networks, mobile learning, security, applications and navigation.
- The operators are all generally interested in taking a more proactive perspective on what the market
can deliver and try to stay one step ahead of the market. In particular they are looking for any
innovations both in fixed and mobile telecoms in the areas of broadband, mobile, e-health, and
anything on financial services via mobile (eg. like mobile wallets).
- One supplier to the telecoms industry (Kerax) is looking to identify a manufacturer of parabolic
microwave antennas for a joint venture or transfer of technology in Brazil. This reflects the electronic
equipment situation (massive trade deficit, high import duties, tax incentives to local manufacture and
4G minimum local contact 60%)
- Another opportunity could be available through Kerax and Oi in the area of WiFi projects for airports.
Instrumentation
- Because of the import taxes and subsequent high cost of bringing products into Brazil, you need to
add value to a product in order to differentiate rather than sell just standard instruments – for
example, integrating specific software or intelligence into the system for a customer’s specific
application; or, rather than just sell the instrument, add some software interpolation capability for the
measured data.
- Significant opportunities exist for software companies and system integrators that are focused on
instrumentation for the oil and gas sector.
Security
- Security, monitoring and surveillance: many of the larger organisations have multiple sites across
the country, and the big challenge for them is to find a system or solution that can gather the
information in one place and monitor all installations; the current approach in some cases is
fragmented. For example, Embratel has 28 different fire security vendors - they would welcome
systems solutions from the UK that provide software or a platform for them to have all 28 systems
report automatically into a central control/monitoring system and alert them instantly of the location of
any fire that occurs.
- Again with Embratel, they highlighted another immediate opportunity in wireless video monitoring
that enables video and images to be transmitted over limited cellular bandwidth from 100 of their
sites.
- Security technology for all onshore and offshore installations for companies like Petrobras is always
being looked at.
- IP video security: open protocol approach to sharing the communications protocols for transmitting
camera signals would be welcome, so that large oil and gas companies can integrate all their different
installations.
- Training in security technology is also a key opportunity for Petrobras and other major companies –
proposals would be welcome.
- The Sao Paulo state government buying agency (Prodam) suggested that for World Cup 2014, the
key priorities for them are security and surveillance, and all related technologies – they are keen to
know what happened with London 2012, and what solutions would be applicable to them.
- Other security technology opportunities exist via systems integrators in public safety, prison
management, mobile/data communication (for police and critical comms), and healthcare (emergency
services).
- Car number plate recognition and aerial monitoring (cameras in balloons), and solutions for crime
analysis (evidence gathering) are also being looked into. Embedded computing in cars to access
databases for face and fingerprint recognition, or for ambulances to access health records is already
available in Brazil.
Construction
- Security of corporate information and physical security are the key areas that concern or challenge
the larger construction companies from a technology point of view. On a typical project they might
have 10,000 people, so security and access control are two key areas that would be of interest to
them.
IT products, services, solutions
- Digital mobility and security (especially in areas such as BYOD) in the corporate environment is a
key challenge; an example of a pilot being run is by GSK in Argentina to allow iPads to be used by
their employees, and the solution to enable this has been sourced locally in Argentina rather than
centrally from the UK..
Broadcasting, secure communications
- Opportunities in security, broadcast and cable TV – particularly in secure communications for military
and police.
- Also opportunities in areas such as multi-screen TV and applications for multi-screen TV, and IPTV.
- In broadcast, a contract with a standard setter like TV Globo can give you a high level of credibility in
the Brazilian market.
Digital
- Some of the large brands in Brazil (like Nestle, Unilever) are concerned about image and product
quality, so there are opportunities for companies with solutions in channels for customer engagement
and monitoring. For example, anything that helps them with market intelligence, consumer research
and behaviour, how customers are dealing with social media, social media analytics for their brand.
- Rapid consumer consumption growth for major brands is making them think about customer
engagement and innovative use of digital media and technologies, as well as marketing. For example,
the global innovation lead person for Unilever’s activity in this area is based in Sao Paulo.
- An example of digital innovation at Unilever in Brazil: they have looked at geo-location of ice-cream
cabinets and asset tracking, as well as how to monitor and maintain inventory; also, they are looking
at the gamification of marketing and at the point of sale.
- In this quest for digital innovation, they have partnered with Porto Digital in Recife to work with digital
start-ups that might be able to create some killer apps for them. In this respect, they may be
interested in exploring how UKTI/Tech City’s partnership with Porto Digital can also link into this.
- The Sao Paulo state government buying agency for ICT services (Prodam) highlighted key areas
they are looking for at the moment: a transparency portal for the city, converge all the information
about what is happening in the city and take action (‘smart city’ concept); they are keen to understand
what they can easily implement.
- From a state government point of view, they would be interested in technology solutions for health
(telemedicine), transportation and education, solutions for receiving electronic receipts/tax bills.
Healthcare
- Key opportunities in healthcare are in creation of electronic health records and their linkage to other
information systems. There are also lots of images taken by hospitals – the processing, handling and
storage of these images could be another area of opportunity.
- If you are considering supplying electronic healthcare equipment, it was highlighted that it takes time
in Brazil, and that you shouldn’t expect any sales for at least a year because of the regulatory
approval process. For example, Anvisa (the regulator for the healthcare sector) can take 18-24
months for product registration.
- Hence the advice is always to use a local partner. Even Smiths Medical uses a large distributor in
Brazil to do all its supply chain work.
General – across sectors
- Note for SME companies looking at Brazil: tax compliance takes many hours (Brazil is one of the
worst); SAP/e-invoicing requires deep knowledge of local tax complexities to ensure supply chain
complies with tax laws – for example, in France, the code for the tax in SAP is just 10 lines of code, in
Brazil this can be 10,000 lines of code!
- Companies emphasised that aftercare support, local service and repair centres are important for all
equipment (broadcast, telecoms, electronics and instrumentation).
- A good source of partners with engineering talent and Brazilian industry expertise is around key
technology hubs: for example, in electronics, broadcast and telecoms equipment, consider partnering
a hub like Santa Rita do Sapucai..
- Almost all companies were keen to get input from UK companies in the lessons learned from
London 2012 in the ICT sector.
Events
- CIO Forum in Rio meets regularly to discuss local issues related to CIOs of mostly large companies
in Brazil - IT networks, solutions, digital mobility, security.
- ASIS, the annual electronics security show in the USA: several Brazilian companies look at
emerging trends and technologies here.
- ISC in Sao Paulo is another major show where companies will explore the latest in security
technology.