2

1. Executive Summary ................................................................................................. 3

1.1. SWOT for the Brazilian ICT sector ................................................................. 4

2. General Forecast and Opportunities .................................................................. 5

3. Industry Framework and Structure ..................................................................... 7

3.1. ICT Clusters ........................................................................................................... 7

3.2. Regulatory Laws and Agencies ........................................................................ 8

3.3. Import Procedures Overview ........................................................................... 9

4. Computer Hardware Market ...............................................................................11

5. Software Market ......................................................................................................13

6. IT Services ................................................................................................................14

7. Telecommunication...............................................................................................15

8. Enterprise Modernization ....................................................................................16

9. Market Opportunities – ICT as Growth Enabler in Other Sectors .........17

9.1. Education ..............................................................................................................17

9.2. Digital Security ...................................................................................................18

9.3. Health ....................................................................................................................19

9.4. Operation and Maintenance ...........................................................................20

9.5. Online Presence ..................................................................................................21

9.6. Mobile and Applications ..................................................................................23

9.7. Audio/Sound Technology ...............................................................................24

3

In 2014 Brazil has the fifth largest ICT market worldwide in terms of expenditure,

moving USD 259.5 billion, which corresponded to 51% of total ICT expenditures

in Latin America. In the last two years Brazil has surpassed Germany, France and

United Kingdom and the goal for the Brazilian government is to become the

fourth largest ICT market in the world by 2022.

The ICT sector has different import procedures than other sectors, especially

related to software. The current tax law distinguishes between whether a product

can be considered as a service or an actual good. Software is considered a service

whenever it is customized to the customers need. When considered a service the

tax applied is often lower than on other goods.

Brazil’s software market is expected to grow 9% in 2014, reaching BRL 10.3

billion, and is projected to reach BRL 14 billion in 2018. Especially in the corporate

marked IT expenditure is on the rise. Companies see IT as a way of modernisation

and efficiency to compete internationally. The hardware marked still meets very

low PC penetration, but it is expected that sales of computer hardware will reach

BRL 23.7 billion in 2014, up 6.8% from 2013.

The IT services market is expected to be one of the strongest drivers of the IT

market over the medium term. The average growth is estimated to be 9.2%

between 2014 and 2018. In 2014, solid growth of 9.7% is forecasted with a total

expenditure reaching BRL 24 billion. The flagship of the IT services boom is the

local investment in data centres and cloud computing. Furthermore the recently

held World cup and the upcoming Olympic Games are expected to drive

substantial investment in IT, not only directly associated with the events, but also

related to transport and other infrastructure projects.

ICT in Brazil, as in other countries, increasingly pervades other sectors, with

phenomena such as government digitalisation, game-based learning and E-Health

receiving more attention also politically. Likewise, more traditional sectors such as

Oil & Gas and Energy are also incorporating IT to a larger degree. States and

municipalities are planning smart city projects and Smart Grid energy efficiency

plans are in the works in various states.

Furthermore Brazil has three main ICT clusters for smaller companies that focus

on development of apps, software, hardware, electronics etc. The technology parks

are closely related to top universities and the skillset of the developers are high

level.

4

1.1. SWOT for the Brazilian ICT sector

ICT sector Brazil Deciding factor for

market potential Timeframe for the market potential

Value Little - Medium - Great Long - Medium - Now

Strengths

Fastest growing marked in the region Great Now/Medium

Lots of first time buyers of hardware Medium Now

Very large IT services market in absolute terms Great Now

Government backing of local development. Medium Medium/Long

Weaknesses

Low average income in many regions Medium Now/Medium

Shortage of well-educated professional in IT areas Medium Now/Medium

Opportunities

More local manufacturing from international vendors boast sales

Medium Medium

Rising income combined with low PC penetration. Little Medium

Larger investments in IT in the corporate marked Great Now/Medium

Large investments in IT infrastructure due to the World Cup and the upcoming Olympics

Great Now

Tax incentives when investing in R&D Medium Now

Well-developed ICT clusters Medium Medium

Government growth acceleration plan with USD 23bn earmarked for Science and Technology

Great Now

New law that on cloud computing to keep data within Brazil

Little Now/Medium

Threats

Lack of broadband access in many regions Medium Now

Software Piracy Little Now

Household debts could affect the consumer market Medium Medium

5

The Brazilian ICT industry is the largest in Latin America and one of the largest in

the world. In 2014, Brazil had the fourth largest ICT market worldwide in terms of

expenditure, with a projected value of USD 259.5 billion in 20141. In 2013, the

country reached the fourth position, only behind U.S., China and Japan. In the last

two years Brazil has surpassed Germany, France and United Kingdom and the goal

is to become the third largest ICT market in the world by 2022.

The macroeconomic environment, with monetary tightening, high interest rates

and the pressure to devalue the currency will change household spending. Despite

these aspects, the IT market has sales growth year after year. Low household PC

penetration, low enterprise adoption of IT software and services, major project

spending around international events – the FIFA World Cup and the Olympic

Games – and rising incomes combine to pull up the ICT consumption.

By the end of 2014 the ICT sector is foreseen to grow 9.2% and Brazil should

consolidate the 5th position in the ICT market worldwide. Sales of Smart

Connected Devices (desktops, notebooks, tablets and smartphones) should reach

71 million units2 in the same period. In Brazil, as on other markets, so-called 3rd

platform technologies including mobility, cloud computing, big data and social

business are expected to influence business executives IT investments. It is

estimated that USD 6 billion of IT investments are directly from business budget.

By combining new devices (smartphones, tablets and other wireless devices) and

new applications (unified communications, video, virtualization, and mobile device

management), the 3rd platform stimulates upgrading corporate networks to handle

the growing volume of data. According to IDC Networking Tracker, the

worldwide volume of digital information will reach 5.4 zettabytes in 2014 (one

zetta equals one trillion gigabytes).

The 3rd platform should also lead to increased sales of telecom services and the

data as a centerpiece. The expected growth in 2014 for the fixed data services is

9.7%, for mobile data 21%, and for data center 13%. The security of Wide Area

Networks (WAN) will also gain space in the CIO agenda. IDC Latin America also

predicts that the 4G network will be in full operation by the end of the year, with a

base of 3 million subscribers.

Another strong trend this year is the maturity structures of Big Data / Analytics,

which should generate about USD 426 million in Brazil, including hardware,

software and services, despite challenges such as the shortage of skilled labor and

competition with other priorities, such as cloud and mobility. The main application

1 Gartner – 2014 2 IDC – International Data Corporation Latin America

6

will still be the so called "Socialytics", a platform for capture and analysis of data

generated in social networks.

There is a trend from the traditional analytics towards higher-value technologies,

such as data brokers and analytics providers. Data centers have a crucial role and

the need for optimization will cause a refresh cycle. In this sense more than 20% of

total servers sold in Brazil in 2014 will be allocated to data centers. The search for

Colocation and Hosting will remain strong, but there will be a large increase in

hiring IaaS (infrastructure as a service), and the legislation can positively impact the

adoption of local data centres.

The adoption of public cloud driven by the modernization of applications is an

important trend. Investments should reach USD 569 million in 2014 and 2017 are

forecast to reach USD 2.6 billion.

The mobility remains high. The transition to mobile devices will continue to

accelerate by the end of 2014. Smartphones and tablets are expected to end the

year with sales of over 58 million units and 81% share in the Smart Connected

Devices market, gaining even more ground compared to desktops and notebooks.

The "phablets" hybrid phones and tablets still take their first steps, but releases of

smartphones with screens up to 5 inches promise to heat this segment shortly.

Another area of focus of the corporate Brazilian ICT market is Mobile Device

Management (MDM). It is estimated that over 5 million personal devices will be

brought into the enterprise this year (BYOD – Bring your Own Device), which

implies the need for basic mobile management to ensure security and manage

different components: device, connectivity, applications, security, access, identity,

content control information, analysis and reporting. Another important focus is the

modernization of applications for riding on mobile devices.

IDC Brazil highlights the acceleration of the "Internet of Things" with business

applications (B2B). The forecast is that technological solutions that enable a

continuous and autonomous communication between machines and devices move

USD 2 billion in 2014 in Brazil. Currently, the most significant initiatives are in the

logistics and transport sector, for fleet management, but the areas of health,

automotive insurance, automation of industrial processes and energy should also

develop designs based on this concept of connectivity.

7

3.1. ICT Clusters

3.1.1. Manaus Free Zone (ZFM - Zona Franca de Manaus)

ZFM is a free economic zone in the city of Manaus created by Brazilian federal

government to boost the economic development in western Amazonia. It is an

industrial pole with around 600 industries, mainly focused on electronics, chemistry

and two-wheeled vehicles. Recently the zone received tax incentives to promote

the implementation of technology of digital television in Brazil. ZFM consists of

three economic poles: commercial, industrial and cattle/agriculture. The industrial

pole is the basis of the Free Economic Zone. Mobile phones, audio and video

equipment, televisions, motorcycles and soda concentrate are among the main

products manufactured in this pole. The cattle/agriculture pole consists of projects

related to production of food, agroindustry, aquaculture, tourism, wood

processing, among others.

Tax incentives and the subsequent complementary legislation created comparative

advantages in the region with respect to other parts of the country, and as a result,

the Manaus Free Trade Zone attracted new investment to the area. These

incentives constituted tax exemptions administered federally by SUFRAMA3

(Superintendence of Manaus Free Trade Zone) and SUDAM4 (Superintendence of

Development of Manaus)

3.1.2. Porto Digital – Technology Park in Recife

Porto Digital is one of the mainstays of the state of Pernambuco’s new economy.

Its work involves two activities heavily based on knowledge and innovation:

software, information, communications technology services and creative economy,

especially in the fields of gaming, multimedia, cinema, video, animation, music,

design and photography. The technology park is located in an urban park, situated

in the historical city centre of Recife and Santo Amaro, on a 149-hectare plot. 11

years after its foundation, Porto Digital is home to 230 businesses and associated

services providers, including 3 business incubators, 2 higher education institutions

and 2 research institutes, which includes C.E.S.A.R. (Recife Centre for Advanced

Studies and Systems). Porto Digital is run privately by a non-profit organization

called Porto Digital Management Unit (NGPD) to which the government has

entrusted management of the park as a way of enabling greater flexibility

3 SUFRAMA: http://www.suframa.gov.br/ 4 SUDAM: http://www.sudam.gov.br/

8

3.1.3. Technology Parks in the State of São Paulo

The state of São Paulo is the main ICT pole in Brazil. The sector involves activities

and services that include companies working with development and

commercialization of computers, tablets and smartphones, programs and

applications, as well as consulting, technical support and maintenance. Another

important field in this pole is the services for data treatment, internet content and

equipment manufacture. The state of São Paulo concentrates the most important

development poles of the country and has the highest ranked universities and

research centres in Brazil. It also counts with a modern network of technology

parks, technology-based incubators and has the biggest consumer market of

electronic equipment in the country.

The Technology Park of Campinas is a technology environment with several

research laboratories and ICT companies. The enterprise complex occupies an area

of 360,000 m2 with a full service infrastructure.

The Technology Park of São Carlos has the goal to increase competitiveness in the

regional productive sector, with the participation of public and private universities,

research centres, governmental institutions and technology-based companies,

which operates in the areas of ICT, new materials, electronic instrumentation,

automation and robotics, fine chemistry and optics.

3.2. Regulatory Laws and Agencies

3.2.1. ANATEL

ANATEL5, the National Agency of Telecommunications, is a special authority

created by the General Telecommunications Law. It is administratively

independent, financially autonomous and it is not subordinated to any government

agency. ANATEL promotes the development of telecommunication in the country

in order to give it a modern and efficient infrastructure, able to offer diversified

services at fair prices throughout the national territory. The Agency inherited from

the Ministry of Communications the powers of licensing, regulating and

supervision. ANATEL is responsible to adopt the necessary measures for meeting

the public interest alongside the development of Brazilian telecommunications.

The creation of ANATEL was part of the Brazilian telecommunication recast,

which eliminated the exclusivity in the exploitation of public services to state-

owned businesses, which allowed privatization and introduced the system of

competition. The state went from a provider, to a service regulator.

The main activities from ANATEL are regulation, approval and supervision, which

together fulfill the mission to promote the development of telecommunications in

Brazil.

5 ANATEL: http://www.anatel.gov.br/Portal/exibirPortalInternet.do

9

3.2.2. Lei do Bem

Lei do Bem, or R&D Tax Benefits Act6 (Brazilian Law 11.196/05) provides tax

incentives for companies that carry out research and development of technological

innovation. In order to promote the growth of the country through investment in

research, development and transformation, the Brazilian Ministry of Science,

Technology and Innovation (MCTI) encourages investments in innovation by the

private sector. With this approach, the law seeks to bring closer companies,

universities and research institutes, increasing the R&D results.

3.3. Import Procedures Overview

There is still no jurisdictional consensus about whether software should be

considered good or service. For most tributary specialists, software can be defined

as service, and thus considered, above all, an intellectual work meaning that its

commercialization involves licensing and assignment of copyrights. For other

experts, software should be commercialized as a product. Others consider software

both service and good.

The current law distinguishes two basic ways for the import, production and

commercialization of software:

Standard software: serial production, sold by stores in large scale

Customized software: a unique system developed accordingly to the customer

requirements

There is an important discussion about which taxes each of those two sales

categories should collect, related to whether software is a product or a service. The

Standard Software sales involve the circulation of an intellectual work (the program

itself) inside physical support (the installation CD-ROOM, for example).

According to local law, the physical support is inseparable to the software it carries

inside. Therefore, Standard Software is seen as good, so their import collects ICMS

(Tax over Merchandise and Service Circulation), IPI (Tax on Industrialized

Product) and II (Import Tax), as any other imported good.

As for Customized Software, it is considered service, which means that importers

have to pay ISS (Tax on Services), IRFF (Withholding Income Tax), PIS-Cofins-

Import, besides of Cid-Technology (referring to the money sent abroad for

copyrights). Plus, Customized Software companies have to pay taxes over the

services rendered to their clients on installation and maintenance of the software.

This situation weakens the national software industry mainly composed by

Customized Software companies that cannot compete with the Standard Software

of multinationals. It is much cheaper for national companies and individuals to buy

6 Lei do Bem: http://www.leidobem.com/

10

ready software than customized, which is why multinationals holds about 70% of

the Brazilian software market.

3.3.1. Importing Software via Download

Currently, the trickiest discussions on software taxation concern online purchases

via download. By law, internet software sales need to pay the same taxes as the

ones sold physically. The online purchase of the software does not overrule the

tributary aspects of the activity.

There is no specific article in Brazilian customs legislation that contemplates

imported software sold via download. Because of that, software acquired by

internet from abroad cannot be assimilated to other imported physical goods. So

import taxes should not be charged on the foreign software internet sales. That is

the position of many tributary experts.

Until now, many national and international companies continue to sell their

software without registering the sales and paying the due taxes. In Brazil, the

internet commerce zone is still not highly regulated. However, the Brazilian fiscal

authorities are already improving their IT operations to better detect software sales

through download.

3.3.2. Tax Collection Generator Factors

The incidence of taxes in the software's sector depends partly on where the

software is developed and commercialized. According to the Brazilian Law, there

are three factors that generate the collection of tributes (tax and collections) in the

software segment.

Profit or revenue resulting from the software's commercialization and

provision of computer services. Taxes levied: IRPJ (Corporate Income

Tax), CSLL (Social Contribution on Net Profits), PIS, Cofins, ISS (Tax on

Services).

Customs clearance of products or imported goods from abroad and the

receiving of computer services provided abroad. Taxes levied: PIS-Import,

Cofins-Import, ICMS (Tax over Merchandise and Service Circulation),

IRFF (Withholding income tax), II (Import Tax), IPI (Tax on

Industrialised Product), ISS (Tax on Services). In this case, PIS, Cofins,

ICMS (Tax over Merchandise and Service Circulation), IPI (Tax on

Industrialised Product), II (Import Tax) relates to the software's physical

support (CD, for example).

Overseas remittance to the payment of copyrights for companies that

commercialize foreign software. Taxes levied: IRFF (Withholding income

tax), ICMS (Tax over Merchandise and Service Circulation).

11

As the overall consumption outlook weakened in Brazil, the forecast is slightly

lower and now expect sales of computer hardware will reach BRL 23.7 billion in

2014, up 6.8% from 2013, when sales increased by 7.3%7. Although there has been

sales reduction, some factors will continue to support the hardware sales increase.

The PC penetration in Brazilian families is still low, meaning the first-time buyer

and replacement/upgrade market has growth potential. In 2012, around 46% of

the Brazilian households had a personal computer. Also, as shown in the graph

“Household Computer Penetration” above, the distribution between urban and

rural areas are uneven, around 52% and 17%, respectively. For comparison

propose, in Denmark the household penetration is around 90% and in Russia, a

BRIC country, 57%8. The rise of the income for the lower classes in the society,

however, strengthens the retail sector putting downward pressure on average prices

and increasing competition in the mass product segment.

7 BMI Brazil Information Technology Report Q2 2014 page 33 8 OECD Factbook 2013: Economic, Environmental and Social Statistics – Graph “Household with accesses to home computer, 2012”

BMI, Brazil Information Technology Report 2014

12

Government sector spending is another significant driving force. Business Monitor

International expects growth to be boosted by the procurement of notebooks and

tablets by the Education Ministry. Inspired by the Nicholas Negroponte’s project

“One Laptop per Child (OLPC)”, The Brazilian federal government launched the

program “One PC per child” (PROUCA – Um Computador por Aluno) offering to

students from public schools the opportunity to reach new media materials and to

teachers, the access to digital pedagogic methods. The ministry hopes that the

distribution of tablets and notebooks reduce the attainment inequality between the

north and south of the country. iPositivo Informatica, for example, reported it was

starting to ship the 600,000 tablets in the end of 2012, which continued through

20139. There is also expenditure related to distance-learning, with relevant

initiatives for under graduation and post-graduation programs.

Investments to the preparation of the 2016 Olympic Games in Rio de Janeiro are

expected to develop the infrastructure regarding IT systems and solutions as well.

In addition, government sector spending in telecommunication and internet should

multiple its effect, with significant increases in PC procurement at national,

provincial and municipal levels10. Government actions are also observed under

Brazil's ambitious National Broadband Plan, the PBNL, which objective is to

spread connectivity through infrastructure investment and price controls to ensure

widespread affordability11.

The hardware market signalises to a continued erosion of prices due the fierce

competition. According to BMI, Brazil is a top-three global PC market, and has

9 BMI Brazil Information Technology Report Q2 2014 page 33 10 Iden 11 Iden page 34

BMI, Brazil Information Technology Report 2014

13

around half of the numbers in the Latin American region. Sales of desktops,

notebooks and tablets in Brazil reached BRL 18.4 million in 2012, and BMI’s

forecast suggests they overcome BRL 20 million in 2015. The demand for desktops

is waning, but with fairly low penetration, there is potential for notebooks even in

the face of competition from tablets.

According to the market consultancy firm Accenture, smartphones with larger

screens may gain field in the next years; and also reduce the sales for tablets. In its

latest report, among the Brazilians who plan to change the smartphone, 48% will

choose between a 5 and 7 inch model. Phablets, the new category of mobiles, is a

growing market for emerging countries, as India (67%) and China (66%). Another

consultancy, BI Research, identified the same behaviour and expects that the

market for phablets will be three times bigger than the tablets’ in 201812.

According to BMI, Brazil’s software market will expand 9% in 2014, reaching BLR

10.3 billion, and can reach BRL 14 billion in 201813. As enterprises are investing in

IT as a way of modernisation and delivering the efficiency to compete

internationally, it is expected to increase the consumption of enterprise resource

planning (ERP) and consumer relationship management (CRM) solutions. Not

only will the enterprise boost the software sales, but there are also forecasts of

consumption growth in the retail and government sector, the later related to the

focus on informatization ahead of the 2016 Olympic Games. Migration to

Windows 8 may also impact the entire market.

Regarding the enterprise expending, it is predicted a potential growth for the next

five years. Brazil has around 400,000 small businesses that do not have more than a

basic IT system. The government is pushing the change with new regulatory

12http://www1.folha.uol.com.br/tec/2014/08/1495512-smartphones-crescem-em-tamanho-e-engolem-vendas-dos-tablets.shtml 13 Iden page 41

14

compliance, since the revenue report and electronic invoices have become the

standard procedure.

While software selling is growing in Brazil, piracy still holds back the total market

value. Although the levels are declining, this practice competes with authorized

vendors. In terms of Latin American countries, Brazil does not have an expressive

piracy rate; just Colombia has smaller numbers. However, the country figures

above the Global average and it consumes almost the double of the Canada rate.

National Forum against Piracy and Illegality (FNCP) found that the rate of pirate

software declined from 64% in 2005 to 53% in 2012. Total illegal sales of programs

were BRL 2.84 billion in 2012, while the legal market was worth BRL 2.52 billion.14

Brazil's IT services market is forecasted to be the outperforming segment of the IT

market over the medium term. The average growth, is estimated to be 9.2%

between 2014 and 2018. In 2014, the forecast delivers solid growth of 9.7%,

reaching a total expending in the sector of BRL 24 billion. The flagship of the IT

services boom is the local investment in data centres and cloud computing. The

machine-to-machine and outsourcing segments are also important lead areas.

The awarding of the 2016 Olympic Games to Rio de Janeiro and Brazil's hosting of

the 2014 FIFA World Cup are expected to drive substantial investment in IT, not

14 Iden page 42

BMI, Brazil Information Technology Report 2014

15

only directly associated with these events, but also related to transport and other

infrastructure projects15. The government created a plan to invest in these areas

with the aim of modernization of the Brazilian infrastructure, being IT one of the

main components of this process. Key areas of spending will include data and

image transmission systems, as well as increases in indirectly related IT spending

such as that associated with healthcare, security, transportation and infrastructure16.

Brazil combines different setups for communication, especially when analysed

through a regional perspective. In the Centre-South, 3G HSPA, DSL, ISDB based

Digital TV technologies are present and with relatively high quality. On the other

hand, North and North-West areas lack even basic analogue telephone lines. This

is a problem that Brazilian government is trying to solve with the implementation

of the National Broadband Plan (Programa Nacional de Banda Larga – PNBL) and

the liberation of new technologies of remote internet access for less populated

regions.

The fixed-line keeps attracting investors. There are almost 44.4 million installed

terminals and density of 22.5 fixed-phones per 100 habitants17. ANATEL is the

regulatory agency for the sector and the market is operated by four companies

Telefónica, América Móvil, Oi and GVT. The mobile sector is an even more

interesting market with 277.3 million lines and a penetration of 136.4 devices per

100 habitants18. The main companies for this market are Vivo, TIM, Claro and Oi.

7.1. PNBL

The National Broadband Plan (PNBL) was developed by the Lula government in

2010, a strategy toward digital inclusion. The Plan has five key objectives:

Broaden access to broadband-based Internet services

Accelerate economic and social development

Promote digital inclusion

Reduce social and regional inequalities

Promote job creation and income

Telebras (Telecomunicações Brasileiras), a state-owned firm, will be responsible for

providing adequate infrastructure for the implementation of the program, as well

as ensuring that connectivity was provided for 2014 World Cup stadiums. The

company aim to cover 40 million households – 68% of Brazilian population – until 15 Iden page 49 16 Iden page 49 17 ANATEL, retrieved from: http://www.anatel.gov.br/Portal/exibirPortalInternet.do, 09/03/2014 18 Idem

16

the end of 2014 and to deliver fibre network infrastructure for 3,045 municipalities.

Companies like Vivo, TIM and Claro are now increasing the coverage of the

population with 3G and 4G technology and also, after a government push, they are

increasing their presence in rural areas.

The investment in wireline and wireless broadband infrastructure will guarantee

internet access, generating demand for PCs. Furthermore, as a result of the

government initiative to provide services at affordable prices, it is expected that the

gap between the regions will diminish. As PNBL open a new market in regions

with lower incomes, it is accurate to say that lower price product sellers will have

more success.

Today most of the enterprise demands while modernizing its structure is for ERP

and supply chain management system. The market is constantly growing and

should be seen as an opportunity. In 2012, companies invested 7.2% of the income

in IT solutions; and among medium and large enterprises IT spending tripled over

the last 18 years. The main fields of digitalization are for managing finances, sales,

production, stocks, purchases and human resources.

BMI, Brazil Information Technology Report 2014

17

In the last years the market was mainly for ERP and CRM solutions. However,

there are growing trends including more investment in security, analytics, and

software-as-a-service (SaaS). The business intelligence segment is another strong

tendency, with sales of databases growing steadily. Related to that, solutions for

banking and financial services are also growing, but most enterprise demand is for

applications, which can help to generate reports and tables.

According to Business Monitor, most of the companies are looking for this kind of

technology to improve business process and increase productivity. The Receita

Federal (Tax Authority) also pushed companies to digitalize their procedures.

Some taxes payments can only be done using internet-based systems to reduce

fiscal evasion.

The segments that possibly will drive the demand are the public, financial,

healthcare, telecoms, utilities and SME sectors. Business Monitor says that the

financial vertical is expected to be a strong source of opportunity, with banks

moving to integrate their IT systems and looking to enhance their ability to launch

new products and services rapidly, as well as ensuring good recovery plans and

security.

9.1. Education

The country has more than 29 million students in the elementary school and

around 8.6 million in high school from public and private institutions19. The

regional and social inequality however creates several challenges in education.

According to the Programa Internacional de Avaliação de Alunos (PISA) in 2010,

Brazil is the 53º country in education level, and despite the structural problems

directly related to education, few students has access to computer or internet. But

government planning to provide high quality internet to all Brazilians until 2016

configures opportunities to invest in e-learning in the country.

The National Plan for Education (Plano Nacional de Educação – PNE) already

identified the need of investment in creative and interactive teaching, considering

the use of technology inside the class. Despite the Proinfo (Informatics in School

Program), that is already bringing IT knowledge to the students, the development

of new software and systems regarding Education is a great opportunity to be

targeted. This is also important when the penetration of personal computers is

constantly growing and it is seen as a pedagogic tool.

19 Censo Escolar 2013 Inep/MEC

18

The government bought 600.000 tablets in 2012, to be distributed in more than

600 schools around Brazil, the first step to provide new opportunities to students.

Despite the needs and the efforts to include new technologies, it is necessary to

implement changes in the formal curriculum of Brazilian schools and training for

teachers to better use these new tools. Also, the infrastructure for internet should

be better provided to avoid regionalization of the digitalization process.

According to FIRJAN System’s (Association of Industries of Rio de Janeiro)

report, “Technological Perspectives for Elementary and High School in Brazil

from 2012 to 2017” (Perspectivas Tecnológicas para o Ensino Fundamental e

Médio do Brasil de 2012 a 2017), Brazil is following the global trends of including

technology in the education system. Made in partnership with the New Media

Consortium (NMC) Horizon Report, the research joined 30 specialists together to

write about the future of education, emphasizing the particularities of Brazil.

The main opportunities in a short-medium term are:

- Collaborative Environments: digital platforms which stimulate students

or teachers to share their knowledge, challenges or successful cases,

strengthening the network among their national and international peers.

- Game-based Learning: integration of games into educational systems.

Part of them develops communication and problem solving abilities,

reinforcing cooperation and goal-oriented mentality.

- Mobile: Smartphones and Tablets are becoming even more popular

because of their multitasked applications, portability and intuitive

interface. They are easily adapted to learning environments and provide

almost endless opportunities for teachers and students. The use of

audio and video tools is a leading area.

9.2. Digital Security

The Brazilian market for information security was USD 799 million in 2011,

according to ICD consulting, with the prospects to reach USD 1 billion in the

following years. Of that total, 32% came from software transactions, 25% from

hardware and 43% from services.

As the universalization of digital technologies grows, the need of impermeable

security systems is also an important field of ICT solutions. Also, the cloud

computing and the mobile use are demanding innovative and complex technology

to protect data storage. This concern is reflected in numbers, Tech Pro Research

affirms that 41% of the interviewed companies in the US, Europe and Asia expect

19

to spend more in digital security in 2014. In South America, these numbers are

higher, reaching 66%, according to a PwC report20.

Related to that, the themes of cyber-security, information security, cryptography,

cybercrime, among others, are constantly seen as an opportunity window. After the

NSA scandal, solutions to protect individuals and private or public institutions data

flow are a strategic field, especially with the investments in cloud computing and

the digitalization of other administration structures (telecommunications, energy,

defence, etc.).

Furthermore cloud computing gains should be balanced with security challenges

and their solutions. ISACA research in the United States showed that 69% of IT

professionals believe that public cloud computing does not outweigh the security

danger. A market tendency is the mixed use of public and private cloud storage

according to the classification of the information. The Forrester Research’s report

indicates that 45% of the corporations should use hybrid cloud computing systems

before 201621.

Despite the Brazilian organization culture that it is not used to have a strong ICT

team, the opportunities in this sector are growing, for example in hardening of

operational systems, integrated systems of defence (antivirus, malware analysis,

etc.), filters with smart evaluation, digital shields in applications, use of high-tech

computing system for security and cryptography. Also the Brazilian Government is

investing in the national production to establish the National Network of

Informational Security and Cryptography.

9.3. Health

World Health Organization (WHO) suggests the use of “eHealth” to characterize

this multidisciplinary filed, that links knowledge from computer science, health,

bioengineering and biomedicine. There are several types of applications of

technology in the healthcare market. These solutions can be used to support the

health management system or to supply more specialized areas, as image or sound

technology.

The health sector is under a deep transformation in Brazil and in the rest of the

world. The main concern is to find new ways to be more efficient, decrease the

expenditures and raise the accuracy of the treatments. In Brazil, the National

Health Service (Sistema Único de Saúde - SUS) serve 160 million people, while the

supplementary service attend 45 million and it is highly fragmented, compound by

several small players.

20http://www.itforum365.com.br/noticias/detalhe/111551/5-tendencias-do-mercado-de-seguranca-da-informacao 21http://www.itforum365.com.br/noticias/detalhe/111551/5-tendencias-do-mercado-de-seguranca-da-informacao

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The SUS covering 78% of the Brazilian population and private institutions are

stimulated in implementing new technologies in the health sector especially in

reason of the costs reduction associated. According to Guilherme S. Hummel,

eHealth specialist, the costs could be reduced in 30% or 50%22 . The growth of

eHealth occurs, despite of the Brazilian dimensions, the social and economic

challenges and cultural resistance. Today the transformation is still in basic level,

since software for hospital management is the main market.

On the other hand, public universities stimulate telecommunication among

medicine students and doctors all over the country23 and the federal government

has launched several measures to encourage computerisation in the health sector,

such as:

- Creation of the Information and Informatics Committee on Health (CIINFO -

Comitê de Informação e Informática em Saúde), responsible for the normative and

supervisory functions related to the information and informatics systems,

within the Ministry of Health and the public health system , SUS;

- Creation of the Information Standardization on Supplementary Health

Committee, responsible for promoting the development and improvement of

the standard of information exchange on supplementary health;

- Development of the National Policy for Information and Informatics on

Health (PNIIS - Política Nacional de Informação e Informática em Saúde);

- IT Plan, a strategic software programme and IT services which aims the

development of the sector in Brazil, to encourage greater integration between

scientific communities, the government and the private sector.

Among several lead areas, we indicate mobile applications related to healthcare and

fitness, software for homecare and tele health, personal registration data,

applications to mental health, interoperability of the different health systems, also

related to prescription and digital security, health and fitness social network and

software for image, sound and graphic visualization.

9.4. Operation and Maintenance

9.4.1. Oil and Gas

Projections show that oil and gas will have significant participation in the total

offer of energy in the next 20 years at least. The Brazilian market share is expected

to be three times bigger in 2020, moving from 5% of world’s production in 2010

to 16%. Also, the Petrobras strategic plan highlights the impact of pre-salt layer

exploration, that will grow from 2% of the Brazilian total production in 2010 to

40,5% in 2020.

22 http://www.diagnosticoweb.com.br/noticias/tecnologias/implantacao-de-ehealth-esta-atrasada-no-brasil.html 23 http://www.ehealth-summit.com/3198.html

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In reason of the expected production growth, the complexity of the operations and

the modernization and digitalization of the procedures make the oil and gas sector

a potential market for delivering IT solutions and services. The innovation

approach is also important, while the onshore exploration is diminishing and the

deep water activities are constantly increasing. This tendency requires investment in

equipment, platforms, new engineering projects and high-tech software and IT

solutions in general.

The market guidelines are services and software for 3D and 4D geological analysis,

simulation and mapping; automation solutions for oil and gas platforms and

manifold and FPS (Floating Production Systems) systems; support for drill

operations; software for subsea operations and for simulation of reservoirs; and

software for probes.

9.4.2. Energy

It is estimated that between 2000 and 2030 the world consumption of energy will

increase 1,8% per year, and developing countries will be responsible for more than

50% of the total. In Brazil, according to the Energy Research Company (Empresa

de Pesquisa Energática - EPE), the need of energy will be 660.000 GWh in 2020,

representing 20% more consumers.

The agents and utilities in this area constantly need support from ICT

infrastructure. They use software for operational and business management (ERP –

Enterprise Resource Planning); but also for metering, automation and security of

electrical systems. It is important to highlight that the energy sector is under deep

transformations in Brazil, characterizing a process of modernization and

implementation of Smart Grids. The know-how from international industries is

necessary, since this kind of technology is new for the Brazilian market, and also

there are few industries supporting wind or biomass generation and integration.

The market for smart grid was estimated around US$ 20 billion in 2008 and may

reach US$ 100 billion in 2030 around the world. The biggest investment is in

automation, almost 84% of the total, and in Brazil it will represent US$ 2.2 billion

in 2015. Therefore, solutions for optimizing the operations are tendency for the

national market. Also solutions for metering, microgrid, micro generation, energy

control and security are focus areas.

9.5. Online Presence

While internet access increase,s companies try to explore new tools provided by

the digital world. To increase their sales and revenues in the modern world, online

presence becomes essential. E-commerce, for example, is growing fast among

Brazilian sales strategy, due to the low-risk path to test new markets and

complementing already existing store footprints. However, A.T. Kearney’s paper

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on the subject reinforces the fact that a successful online strategy depends on

previous knowledge of the market and also its challenges24.

A.T. Kearney’s also developed an e-commerce index using 18 variables related to

infrastructure, regulatory procedures and retail-commerce25. Brazil was top ranked

in the final ranking, with score just one point below of the leader China. According

to the report, Brazil has 80 million internet users – in fixed and mobile devices –

who spend USD 10.6 billion per year – and forecast to USD 18.7 billion in 2017.

In Latin America, Brazil is followed by Mexico with a market of USD 1.2 billion

and Chile USD 749 million in sales, around 15 and 25 times smaller respectively.

The country also reached a relevant position because of the retail industry

performance, which is ready to implement or is already implementing new sales

channels.

Online consumers are price conscious, demand free shipping and interest-free

payment terms, and search opportunities in group-buying sites. In 2011, 10 million

Brazilians made more than 20 million transactions in such websites. Appliance and

electronic goods are the most common products, while fashion items are just now

becoming popular among Brazilians, after facing difficulties stressed by the social

characteristic of in-store shopping. The government is trying to combat issues with

logistic and online payment security, which contributed to lowering the country’s

score.

Even though just 38% (numbers of 2011) of the households have internet

accesses, Brazilians are top ranked in social media use, an important market to be

aware of. The retailer Magazine Luiza, for example, is already targeting this

opportunity to increase its online presence and also boost its sales. The penetration

of social networks among Brazilian internet users is around 97%26 and The Wall

Street Journal named the country as being “The social media capital of the

Universe”27 in reference of the booming market. While global average spent time

on Facebook dropped 2%, in Brazil grew 208% in 2012. The same happened with

YouTube time spent, proving that the Brazilian market have been growing steadily

and will keep this rhythm as long as internet penetration increases.

Social Medias also has influence in Brazilians branding formulations and marketing

impact. A study from Oh!Panel indicated that 61.4% of Brazilians look for

24 http://www.atkearney.com/paper/-/asset_publisher/dVxv4Hz2h8bS/content/e-commerce-is-the-next-frontier-in-global-expansion/10192# - accessed in 08.28.2014 25 http://www.atkearney.com/paper/-/asset_publisher/dVxv4Hz2h8bS/content/e-commerce-is-the-next-frontier-in-global-expansion/10192# - accessed in 08.28.2014 26 It’s a Social World – Report from comScore, December 2011. 27 http://www.atkearney.com/paper/-/asset_publisher/dVxv4Hz2h8bS/content/e-commerce-is-the-next-frontier-in-global-expansion/10192#

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information about products in social networks, also 79% look for friends and

family recommendations28.

9.6. Mobile and Applications

Since 2011 mobile technology is a booming market for Brazil. In the reference

year, the smartphone sales increased 84%, and the broadband 3G reached more

than 50 million users and it is predicted to be 124 million in the end of 2014. The

reform in the television, which expects to implement digital signal all over the

country, stimulates mobile devices sales.

Today, the country has more subscriptions in mobile (277.3 million29) than

population (almost 202 million30), with a penetration of almost 137%31. In 2013, 32

million of smartphones were sold in comparison with 29.1 million of feature

phones, the first year that this new technology overcame traditional sales32. In the

second quarter of 2014, the sales of smartphones represented 74.5% of total

sales33. Regarding service, only 22% of the consumers are on contract – or post-

paid – and the growth of this segment (0.3%) is lower than the pre-paid (16.9%),

between January 2013 and January 201434.

28 http://www.atkearney.com/paper/-/asset_publisher/dVxv4Hz2h8bS/content/e-commerce-is-the-next-frontier-in-global-expansion/10192# 29 Telecon, retrieved from: http://www.teleco.com.br/en/en_celprod.asp , 09/03/2014 30 World Bank data base 31 Telecon, retrieved from: http://www.teleco.com.br/en/en_celprod.asp , 09/03/2014 32 Idem 33 Idem 34 Idem

Which apps do Brazilians use?

“The mobile Consumer: a global snapshot” – Nielsen, Feb.2013

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A report from agency Nielsen showed that 67% of the Brazilians prefer to use

their devices with social media apps and 68% with games. Other popular apps

among national consumers included maps, 51%, and video/movies, 45%35. The

low rates for shopping and banking shows areas that there are opportunities to be

explored.

The use of smartphones for commerce is in the early stages, but it won’t be long

before costumers explore this function since the broadband connection through

mobile is around 5 times bigger than fixed connections36. There is still lack of data

in the sector, in reason of financial institutions security, but Camara-e.net predict

constantly growth and, also, the government is studying the possibility of using

phones as a channel for payment of social benefits37.

The Brazilian government is also investing in innovation for apps. The Ministry of

Communications has launched INOVApps, a competition which will give around

USD 1.9 million to selected applications that focus on public services.

Regarding games, research made by PwC showed that the turnover in 2011 was

USD 420 million and it was predicted to be up to USD 640 million in 2016. Out of

these numbers most of the video games are imported.38

9.7. Audio/Sound Technology

The audio and sound technology market in Brazil is a competitive market in which

companies seek for technological excellence. It encompasses several segments,

from concert and event audio broadcast to forensic phonetics and hearing aid

technology. In Brazil an important growing sector is the professional audio and

visual media, which presents an increasing demand for studio and broadcast

equipment. The enablers of multi-screen options such as broadband are growing

fast and media players are deploying multiscreen strategies. This sector has been

leveraged by major events, such as the World Cup, the Olympic Games and big

music events and festivals. It is a “system dominated” segment that requires an

analysis of the whole value and production chain, which comprises several

suppliers. Although there are big players in this segment there is still opportunity

for smaller companies due to the high demand of the market and the complexity of

the chain, which requires different technologies. This is a market with a big

presence of foreign companies, due to the development of cutting-edge technology

for professional audio is still in the early stages in Brazil.

35http://www.nielsen.com/content/dam/corporate/uk/en/documents/Mobile-Consumer-Report-2013.pdf 36 Anatel/Teleco – retrieved from: http://mobithinking.com/country-guides-home/guide-mobile-Web-brazil, 09/03/2014 37 : http://www.camara-e.net/2014/07/30/comercio-eletronico-cresce-26-e-fatura-r-16-bilhoes-no-primeiro-semestre-de-2014-segundo-e-bit 38 http://oglobo.globo.com/sociedade/tecnologia/brasil-avanca-no-mercado-de-videogames-

segundo-pesquisa-da-pwc-5449821

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An important differentiator for companies in this market is the service for pro

audio equipment. The delivery time of spares and replacement parts nationwide is

crucial for offering high-quality service. In that sense, partnerships between

companies that sell and use the equipment are very common, as it enables that

each company carries specific spares to the facility to offer loan stock to each

other. In addition companies also carry out repair on behalf of others, which can

be an additional revenue stream.

Another important segment is the sound technology for the health sector, which

comprises fields such as recording and reproduction, digital media, diagnosis and

monitoring, designed sound and assistive technologies. This is a strong segment

among innovative institutions and R&D centres in Brazil. Companies and research

institutions have developed several projects within audio processing in connection

to vibration and acoustic building; and communication and interactive technologies

in connection to hearing, speech and language analysis and disorders.

In cooperation with Danish Sound Innovation Network, the Trade Council in

Brazil has mapped important Brazilian research groups in sound technology in a

50-page report from 2014. The report is available on demand through

saogkl@um.dk, to the attention of Innovation Centre Denmark.

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Ministry of Foreign Affairs of Denmark Consulate General of Denmark, The Trade Council, Brazil Rua Oscar Freire 379, cj 31 Cerqueira César 01426-900 São Paulo - SP Tel: + 55 11 2127 0750 Fax: + 55 11 3068 9867 E-mail: saogkl@um.dk http:///www.gksaopaulo.um.dk/en

The Trade Council is a part of the Ministry of Foreign Affairs and is the official export and investment promotion agency of Denmark. The Trade Council benefits from around ninety Danish Embassies, Consulates General and Trade Commissions abroad. The Trade Council advises and assists Danish companies in their export activities and internationalisation process according to the vision: Creating Value All the Way. The work in the Trade Council follows specific procedures and quality guidelines. In this way our customers are secured the best possible quality under the varying working and market conditions at any given point of time.