By Gérson Schmitt (President of ABES – Brazilian Association of Software Companies)
“An inadequate strategic vision of the policy and sectorial model is leading Brazil to lose the opportunity to position itself at the forefront of innovation and creation of global solutions for replicable software or for online services. This unfavorable context may leave the country with only a supporting role in the execution of contracted services, dependent on imports of international standard IT solutions and services.”
Symptoms
How many applications and online services among the most used in the country or with an important international market share originate in Brazil? Database solutions, intranet, content management, CRM, BI, procurement, e-gov, security, search portals, instant messaging networks, social networks, mobile device applications and many other specialized solutions that often dominate meeting the demand of the Brazilian market, except for the honorable exceptions of applications and specialized companies, generally small companies or rare cases of large companies, Brazil essentially consumes software and services of international origin.
Why a country that claims to be creative and innovative cannot achieve pioneering advances and achieve consistency in R & D - Research and Development and create solutions aimed at the profile of demand, resulting in only a modest generation of low-profile internet systems and services, even in the domestic market?
This signals the growing trade balance deficit in the software and services segment, which surpassed USD 3.0 billion in 2011, while a few exporters insist on the sale of IT services without added value, seeking to enable competitive costs in the dominated international market by the low level of Indian prices, while the lack of technical labor in Brazil increases and software imports, as a product, grow faster than the modest Brazilian exports?
Opportunity and Industry Profile
Paradoxically, Brazil, since the beginning of this millennium, has registered a relevant growth in the internal software and service market, both in absolute and relative terms, with an average of more than 20% per year.
The projection for this segment - which in 2010 was the 11th world market, with a GDP of around 17.4 billion dollars and, in 2011, reached the 10th position, reaching 19.5 billion dollars, in the domestic market – it is that by the end of this decade it may exceed 60 billion dollars in sales per year, to appear in a probable 7th to 9th position in the world ranking, calculated annually by the IDC consultancy, which studies the IT market in around 160 countries .
The ICT (Information Technology) sector in Brazil is estimated at 190 billion dollars, according to data projected in 2011, by the ABES-IDC survey, including the telecommunications, hardware, software, IT services marketed and also those produced services segment. in-house for own consumption. This sector of the economy is close to 8% of GDP and employs millions of people, paid well above the market average.
Software, services and the ICT sector as a whole are strategic because they are present horizontally in 100% of other sectors of the economy and in the lives of people in any country, with a great macroeconomic impact due to the power to generate wealth, income and significant gains in productivity in the most diverse business activities and in the administrative capacity and efficiency of the public authorities.
With the privilege of having a large domestic market that projects at least another decade of consistent growth, what would be missing or wrong in the policies and sectorial model that increasingly distances Brazil from this spectacular window of opportunity to create a new strategic area of international hegemony or at least in the domestic market?
Because all this potential for growth in demand has not been reflected in an opportunity for leadership or differentiated positioning of Brazil in a strategic sector for the world economy, nor in the strengthening of the fragile ICSS - Brazilian Industry of Software and IT Services, composed of 94% of micro and small companies, according to the ABES-IDC survey?
Why “Never before in this country” have so many Brazilian IT companies had their capital control bought by international funds or received so many participations from abroad?
causes
With 71% of the demand for services made to order, and only 29% of replicable software, of which around 22% are imported, there is a meager share of the order of 7% for national software.
The greater ease of selling services – which, in addition to training professionals, requires low investment, immediate entry into a high-demand market and low risk of failure associated with R&D and innovation processes – attracts entrepreneurs who prefer to intermediate the sale of hours of specialized professionals to result of innovative creation that could be generated and multiplied on a large scale.
On the other hand, the government self-service syndrome (largest entrepreneur, competitor, employer and consumer in this market) is no longer the largest buyer and directs its service, preferably, to purchase services and open codes that do not protect, encourage or finance R&D and Innovation, supporting a free software doctrine that, in more than 10 years of investments and massive support from the federal government, has generated an insignificant market of less than 3% of market share, companies with an average life of only eight months, with loss 34% average of macroeconomic productivity versus competing proprietary software companies – 2011 IDC survey.
Who cares about this situation? In this context, the Public Software Portal has consolidated itself as a sales channel for projects aligned with the dogmatic strategy of free software, so-called public, but which invariably needs services from privileged private companies, accredited in the form of legislation to act as " portal partners”, duly identified and disseminated and systematically presented in events to customers and in thematic forums as protagonists of successful cases.
Who is interested in the government's role as a broker and market influencer interfering in free competition between companies and the best practices of fair competition in accessing projects supported with public resources? This combination of vision and model results in a fragile value chain, little exporting, with a commodity sales profile, which widens its trade deficit as it needs to meet the demand for world class solutions that can be replicated in an economy and knowledge that is increasingly borderless .
This situation is aggravated by the lack of specialized professionals who are proportionately more demanded in a model of predominance of services. Added to this scenario, which weakens the BISS, is the Brazil cost related to bureaucracy, time for public and logistical processes, high tax burden and legal uncertainty arising from the lack of partnership and harmony between public authorities and software and service companies.
This context affects the labor and tax areas and starts to interfere in business models and contracted relationships between legitimate parties that do not want the State's tutelage, as happens with interferences in lawful outsourcing contracts, in the "CLTization" of the provision of specialized services, in addition to tax war processes that result in double taxation as has been happening with the municipal ISS.
The recognition of the heavy tax burden and social charges led to the good initiative of the government to change the calculation basis of employer charges on payroll (cost) for gross revenue, bringing gains mainly to large employers. But this measure benefits even more the service provision model that intermediates labor to meet custom software development contracts or other IT services.
However, the MP (provisional measure) 540 of 2011 and its successor, the MP 563 of 2012, affect much of the base of new and small emerging companies founded only with partners and ideas, the marketers of packaged solutions (replicable software) and the companies in the new digital economy that sell software as a service in the internet's cloud. In all these cases, the cost ratio of professionals with invoicing is generally very low, because in these business models, companies are not limited to intermediating the productive effort of their team to act predominantly with the creative result and high perceived value of the benefits the real technological domain of innovation in solutions and services provided via the internet.
Proposals
To change the strategy, policies and sectorial model, it is necessary to streamline support and direct promotion of R&D and Innovation aimed at creating new software, platforms and web services for the generation of software as a service to expand national production. For this, it is necessary to recognize and protect intellectual property in a stronger and more efficient way so that investments in innovation and creation of solutions that meet demand have the opportunity to create large companies and a strong sectorial value chain, with an exporting industry consistent, a better use of professionals, reducing the gap in insufficient training of professionals and generating a positioning of differentiation and leadership in the offerings of the BISS.
With support, strategic clarity, adequate promotion and financing, a large number of companies and entrepreneurs would tend to the software-as-a-product model, enabling a more balanced sectoral model in terms of supply and demand for professionals, with greater economic productivity and stronger to meet the large projected growth for internal demand and the opportunities of the global IT market.
It is positive, but not enough to relieve payroll charges to charge more federal taxes on gross revenue, benefiting in particular labor-intensive companies, which mostly support the 71% model of labor intermediaries serving the domestic market or compete globally in the services market. To make the BISS competitive, it is necessary to redeem it to focus on software as a product or as a service sold via the internet.
India has relieved its IT companies for 30 years to promote its strategy and sector policy to create jobs. Brazil needs a similar measure to stimulate innovation, not to continue exporting jobs and companies and importing packaged solutions and services, with a continuous expansion of the country's trade balance deficit.
To achieve this goal, it would be cheaper for the public purse and effective in terms of strategy, the exemption of all federal taxes on the sale of national software licenses or subscriptions to Brazilian companies' internet solutions and services – software as a service. This exemption could significantly increase the modest share of 7% of national software in meeting the country's software and service demand, and could generate an even greater final revenue by taxing the profits of a new emerging industry and sector model.
Below is a set of proposals and movements that would depend on the Government to change the profile, sectorial perspectives and the country's position in the strategic IT sector:
LEGAL SECURITY
1) Streamline and better protect software registration with the INPI (current average term of 8 years)
2) Extend the penalties for software piracy
3) Accept Outsourcing as a Business Model
4) Formalize relationships with Specialized IT Service Providers
5) Limit the ISS tax war on IT services to municipalities, eliminating the double taxation of companies
PROMOTION
6) Grant for INNOVATION linked to national software registration and sales counterpart
7) Exemption from federal taxes on revenue from sales of national software licenses or companies that operate in the software-as-a-service model, with counterpart in R&D and INNOVATION, with legal controls without bureaucracy;
8) Accept registered software and with licenses marketed as financing guarantee;
9) Offer of Project Finance for INNOVATION with securitization of receivables from sales of use licenses and support contracts;
10) Expand funds for equity participation in companies with emerging technologies
ROLE OF THE GOVERNMENT AS A SECTORAL ACTOR
11) To be less entrepreneur to be the biggest buyer and not the largest producer and employer in the software and services industry;
12) Buy more software and less service reducing costs and strengthening the sector chain
13) Change the preference policy for free software that weakens the sector and does not ensure lower total cost of ownership for the government
14) Provide access to the Intellectual Property Provider for Purchased-to-Order Software
15) Operate the Public Software Portal with neutrality and equal treatment and opportunities for open source and proprietary solutions, accrediting and disclosing ALL companies and software that have success stories referenced by their public sector customers, leaving the solutions to the free choice of the market more adequate to meet the specific demand of each case;
POLICY AND GUIDELINES COORDINATION
16) Treat IT as a strategic segment for the country's global positioning, with a decisive horizontal influence on the productivity of all sectors of the economy
17) coordinate and align with the executive, legislative and sector entities to propose, review and clean up the agenda of legal milestones in the IT segment
18) Create a strong inter-ministerial position for coordinating policies, programs and budget for the IT sector
19) Greater proximity and systematic inclusion in qualified forums of entities most representative of the base of the sector and not just large companies
20) Expand and qualify the QUALIFIED technical education to avoid the internationalization of the sector by the export of jobs and the growing import of IT software or services
There is still time for a major change of direction in sectorial policies and in the corporate profile of the BISS. But this movement needs to be agile, efficient and would only be solid and lasting with a deep understanding, alignment, partnership and discipline of execution between business and government. But in particular, as the owner of the rules, the biggest consumer in the market and the most powerful player today, the role and position of the federal executive power in leading this process are decisive for the success of the proposed change.
The good news is that Brazil depends more on internal forces to reinvent itself in the software and services segment, both domestically and abroad, than on international influences. If we like, this is a market game that we can win in a few years. But it has already started and we are acting more as a technology colony than as an innovation center or propagator of world class solutions and standards. We can do more, but we also need to want more and act in a conscious, planned, organized and persistent way to implement a new industry model that can generate “Brasil TI +”, in addition to the spectacle of marketing to achieve the positive numbers and leadership profile that the country pursues and desires.
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