Brazil Hungry for a Byte : The Nation’s Middle Class Is Gobbling Up Computers at a Startlingly Fast Pace : Nation Is Fast Becoming One of the World’s Hottest Personal Computer Markets
Joao Batista de Souza doesn’t know much about computers, but he knows he needs one. Since he started his video-rental business six months ago in the Sao Paulo suburb of Carapicuiba, his list of customers has grown to about 1,000.
“There are a lot of customers and a lot of merchandise to keep track of, and it gets hard,” said Souza, 32, as he waited to sign a purchase contract for an AT&T; Station 500 personal computer. “I want to computerize the whole business, with bar coding, make everything easy.”
Souza’s purchase is one grain of sand in a beachhead named Brazil, where international computer companies are charging ashore. With sales of hardware and software totaling an estimated $9 billion in 1994 and growing at about 30% a year, this is one of the world’s hottest emerging markets.
Three years ago, Brazilians could not legally buy foreign-brand personal computers. In a failed policy aimed at developing its own technology, Brazil enforced a “market reserve,” putting this nation of 155 million off-limits to international manufacturers.
Today, foreign companies are assembling computers in Brazil and selling them at a booming rate--and at increasingly competitive prices. Brazil is moving fast to make up lost time in modernizing its economy, one of the world’s 10 biggest.
Luis Rubio, Apple Computer’s general manager for Latin America, said Brazil leads the company’s priority list of five emerging markets for personal computers, ahead of China, India, South Korea and Mexico.
“The Brazilian market is growing so fast that it’s accepting new technology at a rate unsurpassed by any other country right now,” Rubio said.
In fact, all of South America--notably Argentina and Chile, leaders in market reforms--is scrambling to computerize. As economic liberalization has spread through the continent, its countries have lowered trade barriers and moved to join the global marketplace. Technological advances are a major part of the trend.
But there is nothing like the hunger in Brazil, which has more than half of South America’s population.
And companies that set up Brazilian manufacturing centers get a bonus: duty-free access to Argentina, Paraguay and Uruguay, Brazil’s partners in the Southern Common Market, or Mercosur.
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The importance of the Brazilian market was clear at the annual Fenasoft computer trade show, held recently in Sao Paulo, which pulled in 800,000 visitors--small-business owners and individual buyers alike.
“You get the whole middle-class buying computers,” said Joel Dreyfuss, editor of Information Week, who came to Fenasoft. “They want their kids to have them. They don’t want to be left out.”
The boom has been augmented by new stability in the national economy. Early last year, inflation was racing at 40% to 50% a month, but this year the government has kept it to less than 3% a month. Confidence in the economy has encouraged consumers and businesses alike to invest in computers.
Between 800,000 and 1 million personal computers are expected to be sold in the country this year. With the total number of PCs in Brazil rapidly approaching 3 million, demand for hardware accessories and peripherals is also growing.
Charles Wohl, president of an Alameda, Calif., company named Talking Technology, was at the Fenasoft fair, touting his voice mail and other features for computerized telephone systems.
“We have a major market share in Brazil for voice mail, and it’s expanding very rapidly,” Wohl said. He said he is selling several hundred boards a month here, and he predicted that his Brazilian business will grow 50% to 100% in the next year.
Fenasoft organizers predict that Brazil will have at least 10 million personal computers by the turn of the century. Foreign computer companies are rushing in to help make such forecasts come true. IBM, Compaq, Acer and Hewlett-Packard already have factories. AT&T; and Digital have joint-venture plants with Brazilian partners. Unisys, Packard Bell, Apple and others are interested.
If finished computers are imported to Brazil, the import tariff is 33%. If they are built in Brazil with imported parts, they are exempt from tariffs and receive other tax breaks as well. To qualify for full tax benefits, even a computer’s motherboard must be assembled and soldered here.
Compaq, which began building PCs in Brazil last October, has no regrets. “We found a market with a serious shortage of world brands,” said Compaq executive Luiz Pimentel. He said the factory opened with a single shift, added a second shift in March and is preparing to start a third one soon.
Compaq computers produced in Brazil are sold not only on the local market but also in Argentina, Chile and Venezuela. The factory is one of five regional manufacturing centers operated by Compaq in the world. The others are in Scotland, Texas, Japan and Singapore.
As more computers are produced in Brazil, efficiency and competition have increased and prices have come down. Smuggling is a problem, but cheap clones no longer are as attractive to consumers who can get the latest name-brand models made in Brazil.
Mario Matesco, Digital’s marketing manager in Brazil, said that smuggled computers have dropped from 55% of the market in 1993 to 45% now. Buyers are learning to value the guarantee and service support that come with a legally purchased name brand. “The mentality is changing,” Matesco said.
IBM, No. 1 in Brazil’s market, has been assembling PCs here since 1992, when the market reserve ended. “Now the market is just exploding,” said Paulo Andre de Andrade, a Brazilian IBM executive.
Andrade said Brazil’s computer business is still less than a third the size of Canada’s, but “Brazil will catch up in two years.”
Magazines, such as Byte, PC World and PC Magazine, publish Brazilian editions in Portuguese. PC Magazine reported selling more than $100,000 in subscriptions at the Fenasoft fair.
As hardware goes, so goes software. And as in other countries, IBM and Microsoft are competing fiercely for burgeoning sales of operating software.
“The market is exploding,” said Luis Popienia, a Microsoft executive. He said the company’s sales have grown by a compounded annual average of 94% in the last five years and jumped by more than 200% in 1994 alone. Microsoft’s Brazilian staff has grown to 100 from 15 in 1992, he said.
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Some small Brazilian companies complain of being at an unfair disadvantage against multinational giants. Facil, a Brazilian company that sells its own word-processing program, accuses Microsoft of offering MS-Word at prices far below cost to lure customers away from the Facil program.
“It’s unfair competition,” said Carlos Pereira, co-owner of Facil. “It happens frequently.”
Alfonso Luna, a Florida-based Microsoft executive, denied that the company was cutting prices below cost but said that competitive discounting is normal for most software distributors. “Between them it’s not unusual to see price wars,” he said. “They are very aggressive.”
Luna said the main problem for all software companies in Brazil is the sale of pirated copies. “We estimate that for each legal copy, there are four to five pirated copies,” Luna said.
Luis Bucciarelli, a U.S. Commerce Department counselor in Sao Paulo, said Brazil imports about three-fourths of its software, and U.S. companies have 95% of the import market. Bucciarelli said software imports this year from the United States are expected to be worth nearly $600 million.
Big new niches in Brazil’s software market are opening up rapidly. For example, Bucciarelli said, bar-code programs are starting to take off in commerce, and Internet access for home and office users “is just beginning.”
“The demand is voracious,” said Geoffrey Walser, an officer with the U.S. Commercial Center in Sao Paulo. “It’s like consumers hadn’t eaten for years.”
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Brazilian Boom
With sales of hardware and software soaring, Brazil has turned into one of the worlds hottests computer markets. U.S. companies enjoy a huge share of the market. Brazilian computer software market, in millions of dollars: (chart) Source: Commerce Department
