Subsectors

Prominent subsectors in the ICT Sector within Canada are:⁹ ICT Manufacturing

• Commercial and Service Industry Machinery Manufacturing

• Computer and Peripheral Equipment Manufacturing

• Telephone Apparatus Manufacturing (Wired Communications Equipment)

• Radio and Television Broadcasting and Wireless Communications Equipment Manufacturing

• Audio and Video Equipment Manufacturing

• Semiconductor and Other Electronic Component Manufacturing

• Navigational, Measuring, Medical and Control Instruments Manufacturing

• Communication and Energy Wire and Cable Manufacturing ICT Services

• Software Publishers

• Communications Services

• Data Processing, Hosting and Related Services

• Computer Systems Design and Related Services 4.3 Global Context

The global Information Technology (IT) market reached US$ 1.3 trillion in 2007. ¹⁰ According to the initial statistical findings of ABIBEE [Brazilian Electrical and Electronics Industry Association],

10 | P a g e the recent global financial crisis has contributed to the decline of worldwide revenues by 9 percent in the global ICT sector in 2009.¹¹

ICT trends across the globe are similar to those in the Americas. Mobile subscriptions have overtaken fixed telephone line, which continue to decline. Surprising, mobile phone penetration in developing countries is much higher than that of developed countries. There is also an uptake in the adoption of broadband although not at the same pace as mobile cellular technology.¹²

The Global ICT Development trends from 2000 – 2010 are illustrated in Figure 5

Figure 5: Global ICT Developments 2000 - 2010

4.4 The Brazilian ICT Sector^{13 14 15}

Latin America’s largest IT market is in Brazil with over 45 percent of the total investments in the region. Business Monitor International expects Brazil’s ICT sector to grow at over 11 percent for the period 2008-2013.

In 2007, almost 2 percent of Brazil’s GDP (US$ 24 billion) was invested in information technology; about half this amount (US$ 12.5 billion) was invested in computer hardware, US$

8.5 billion in IT Services and US$ 3 billion in computer software. The growth in the IT sector has

0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010*

Per 100 inhabitants

11 | P a g e been supported by Brazil’s economic stability; strong local currency and the ease with which loans are accessible.

Spending in Brazil’s mature IT market is divided evenly between software, hardware and services. The southeast region accounts for almost 60 percent of the expenditure whereas the northeast region accounts for only 8.3 percent. Government incentives have been responsible for the rapid growth and prosperity of the southern region especially the state of Parana.

Small and medium companies represent 42 percent of the private investment in the sector and an increasing demand for hardware and services solutions is stimulating the development of the market. The domestic consumption of PCs, printers, digital cameras and mobile phones represents more than 20 percent of the Latin American market.

The banking sector in Brazil has provided many business opportunities for the telecom services, IT and security providers. Banks are projected to continue to increase their IT spending and in 2007, the financial sector accounted for around 20 percent of national IT spending. Moreover, the banking sector is expected to invest heavily in infrastructure such as ATMs, branches, back-office systems, technology investment and telecom expenses. Other sectors are also likely to benefit from new technologies such as digital certification, wireless LAN and mobile data transmission.

The 2014 FIFA World Cup and 2016 Olympic Games are expected to be a catalyst for large investments in many sectors especially infrastructure which, in turn, is likely to benefit the IT sector as well.

Software and Services are estimated to grow at an annual rate of 10 percent. Broadband subscribers are expected to increase to 22 million over the next five years which would represent a 10 percent penetration by 2013.

4.5 Macroeconomic Environment

4.5.1 Political

Procurement of information technology goods are governed by Decree 1070 (1994), which provides preferential treatment to locally produced computer products. Moreover, the rules

12 | P a g e surrounding pricing and technology are complex and non transparent. In order for foreign investors to participate in contracts funded by multilateral development bankrolls they must have an established legal presence in Brazil.¹⁶

4.5.2 Economic¹⁷

The Brazilian government is spending heavily in ICT especially upgrades to government departments and e-governance. ICT is a large strategic focus in the Growth Acceleration Plan and government spending is likely to increase to US$ 23 billion by 2013. Between January and July 2009 the government had already spent about US$ 1 billion on ICT.

Austrade’s website reports that the Brazilian government has revised its high tariff rates and aligned its current rates to the GATT (General Agreement on Tariffs and Trade) which makes the Brazilian ICT sector more attractive and accessible to foreign investors. Some of the principal duties and taxes identified by Austrade include:

• Federal Import Tax – most data communications equipment have import duties ranging from zero to 20 percent, some other equipment as high as 40 percent.

• IPI Industrial Products Tax – a Federal Excise Tax levied on most domestic and imported manufactured goods. The current tax ranges from 10-34 percent.

• ICMS Tax on Merchandise Circulation and Services – a State Government value added tax applicable to both imports and domestic products and rendered services. The ICMS tax on imports is assessed ad valorem (according to value) on the cost, insurance and freight (CIF) value plus the Federal Import Tax plus IPI.

In 2009, an agreement was signed through which close to 10,000 IT programmers would be trained and was expected to support over 100,000 jobs in the domestic software and services industry and an additional US$ 1 billion in revenue by 2010.

4.5.3 Socio Cultural¹⁸

There has been a marked increase in the usage of computers and the internet for personal and commercial purposes. As of 2008, Brazil reported more than 67 million internet users (up from 5 million in 2000). Business-to-business (B2B) e-commerce increased 10 percent from 2004 to

13 | P a g e 2006 (9 percent to 19 percent), and business-to-consumer (B2C) sales increased approximately 4 percent in the same period (2.9 percent to 7.45 percent). The value of B2B transactions amounted to R$ 267.6 billion in 2005, a 37 percent increase from 2004.¹⁹

4.5.4 Technological

In the education sector the one-computer-per-student program is to be implemented supported by a US$ 50 million funding from Brazil’s central bank. These funds are expected to help public schools buy low-cost portable computers as well as support infrastructure costs.

The Brazilian government encourages investment in R & D and education in the ICT sector and has developed several ICT Clusters and Technology Parks.²⁰

Brazil is a very strong proponent of 'open source' software and the Brazilian government and state-run enterprises are increasing their support for open source and free software like Linux and phasing out the use of Windows. The government believes this will save money in the long run as well as support local developers.²¹ A draft decree that would obligate federal department to change over to open source software has been under consideration and has received strong support from both the previous Brazilian President Lula and current President Dilma Rousseff.²²

4.6 SWOT Analysis²³ 4.6.1 Strengths

Brazil is the largest markets in Latin America and also one of the fastest growing. The government has been investing heavily in the ICT sector and includes investment in computer hardware, IT services and computer software. Government incentives have also been responsible for the rapid growth of this sector. Domestic consumption of ICT goods and services are high and represent more than 20 percent of the Latin American market. Requirements of the banking industry and the upcoming games have further fuelled the growth of this sector.

Retail channels are expanding due to the growing consumer segment fuelled by affordability.

14 | P a g e Furthermore, there is a federal plan to equip all elementary schools with computers indicating plenty of room for expansion.

The mobile market is robust and benefits from healthy competition from domestic and international players. Lucrative contracts are being won as fixed-line and mobile operators seek to keep ahead of each other through investment and new services.

4.6.2 Weaknesses

The PC penetration rate in Brazil is less than 25 percent and these numbers need to be improved in order for the industry to grow.

There is also a lack of educated professionals in the IT segment as compared to developed countries and there is estimated to be a shortage of 17,000 trained professionals. Moreover, the predominant language in Brazil is Portuguese and therefore all software products and services need to be customized to meet local needs.

The Brazilian government’s affinity to 'open source' software may become an impediment for companies that have strengths with Microsoft technology.

4.6.3 Threats

One of the major threats to the ICT industry is damage to infrastructure due to security concerns. Another significant threat comes from illegal and pirated software and counterfeit computers and notebooks. The gray market for computer hardware in Brazil reduced from 50 percent to 46.4 percent in 2007 whereas software piracy reduced by 1 percent to reach 59 percent. However, these are significantly large percentages and pose a serious threat to the sector.²⁴

4.7 Key Business Opportunities in Brazil

There are several opportunities in the rural markets in the telecommunication, broadband, cable, and IPTV segments. New technologies such as triple-play and quad-play are becoming increasingly popular. In December 2007, 3G licenses were auctioned and there are opportunities to provide mobile services to areas that are not currently connected.

15 | P a g e Brazil also has huge communication market potential, with particular focus on the mobile segment, with the three largest mobile operators owned by foreign investors. The country already has 143 million mobile phone subscribers and the market continues to show strong growth. Moreover, several fixed lines and broadband operators are also owned by international telecom companies.

There are also several opportunities for IT, telecom services and security providers in the banking industry. As cited by Austrade, the Research and Markets analyst firm reports, "Given their huge infrastructure and wide portfolio in terms of branches, ATMs, back-office systems, and Internet, the banking sector accounts for the largest share of total technology investment and telecom expenses". The financial industry is also expected to invest in new technologies such as IP-based solutions, digital certification and signature, wireless LAN, and mobile data transmission. Banking security applications are also in great demand given the growth of online banking.²⁵

4.7.1 Brazilian Industry Perspective

According to stakeholders in the Brazilian market, the ICT market in Brazil is growing rapidly and the Brazilian government encourages open source and local production of software. However, the sector is mainly dominated by international companies and many Chinese companies are establishing factories in Brazil. Brazilian law limits international participation in communication and news companies to 20 percent foreign capital. This law could to be reviewed in 2011.

With the advent of privacy, anti-piracy and anti spamming policies Brazilian consumers are looking for services that protect their privacy. Internet companies are now developing products and services to offer content such as news, music, videos, photos, statistics, games and applications for users.

There are many opportunities available in the sector, such as hardware and software production. Canadian expertise could be used in games, content and film production, mobile application and software development. Canada is known as a good game developer and a huge video content producer. These companies could be great exporters for Brazilian portals.

Canadian expertise can also be applicable in the creation of software for the communication

16 | P a g e sector. Aspects like intellectual assets, with experience in global technology projects, could improve the sector and Brazil could import the expertise to create more efficient software.

Currently Brazilian companies import from the US because of lower costs and proximity to the Brazilian market. Some imports are also sourced from Asia, however these imports are not regular and the Asian companies that export tend to vary. Products or equipments that are imported are usually not made in Brazil. Moreover, the price of imported Asian products and equipment tend to be less expensive.

Business leaders in the Brazilian ICT sector believe that the best way for Canadian companies to participate in this sector would be through partnerships and technology transfers.

4.8 The Atlantic Canadian ICT Sector

The Atlantic Provinces Economic Council (APEC) reported in 2010 that Atlantic Canada's ICT industry grew nearly twice as fast as the overall economy between 2003 and 2008, contributing an estimated $2.65 billion to Atlantic Canada's GDP in 2008. Furthermore, the region’s ICT industry employs over 32,000 individuals in over 2,000 firms. About 70 percent of the ICT employees work in urban areas such as Halifax, Saint John, Moncton, Fredericton, St. John’s and Charlottetown.

BellAliant, Eastlink and Rogers lead the telecommunication sector with almost 30 percent of all ICT employees in the Atlantic region. Longtail Studios and HB Studios are involved in software development and Keane, Research in Motion and Innovatia provide ICT services. Nautel and Rutter are the largest ICT manufacturers in the region. ²⁶

Atlantic Canadian companies in the ICT sector perform various services such as security, e-learning, IT services, multimedia, geomatics, advanced technology and business solutions.

Telecommunications infrastructures in Atlantic Canada are world class with 100 percent digital telecommunication network, high-speed digital links, broadband networks, and mobile and marine communications.

Advanced research and development by universities, research institutes and the business world enhance the competiveness of the industry. CGI Group Inc. Canada’s largest IT firm is

17 | P a g e headquartered in Moncton, New Brunswick and the University of New Brunswick’s Computer Science Department is a national leader in IT and advanced software research.²⁷

Charlottetown, PEI currently has five companies classified under the Entertainment Software Industry and has strong support from the provincial government. The University of PEI is now offering a video game programming specialization and a digital art program. One of the largest companies in this sector is Other Ocean Interactive.²⁸

ACOA cites an Industry Canada report which states that, "From 1997 to 2004, the ICT industry in Atlantic Canada experienced an 11 percent Compounded Annual Growth Rate (CAGR) in exports and a 9.4 percent CAGR in employment in software and computer services. The highly skilled labour force has one of the lowest rates of turnover and absenteeism in North America."²⁹

4.8.1 Atlantic Canadian Industry Perspective

Business leaders interviewed in the ICT industry in Atlantic Canada believe Nova Scotia Business Inc has been promoting this sector greatly and has announced many investments in the sector.

There has been a lot of consolidation with demand increasing across North America and the ICT industry is growing at nearly double the rate of the Canadian economy. New data privacy rules that apply to electronic records of individuals have driven this demand. Canada was a leader in this field, but the US, Israel and a few others have taken over recently.

Exports include software and intellectual property, internet and information security, hardware, e-learning, gaming, and media and other web related services. Importers include the rest of North America especially the US, the UK, Australia, New Zealand, South America, the European Union (EU), China, other Asian countries, and a small amount from Africa.

Competitive advantages in this industry include effectiveness and marketing support, talent stability, low turnover and a slight positive cost differential. Companies have the resources they need, are certified in Microsoft technology and are considered niche or specialty players.

Some of the disadvantages include tax incentive programs in Atlantic Canada as they are not internationally significant. New Brunswick offers 15 percent whereas the Scientific Research

18 | P a g e and Experimental Development (SRED) tax credits in the US are 35 percent and in the UK 100-125 percent.

Some of the companies interviewed do export data, maritime and port securities whereas others have been reluctant to consider Brazil as an export destination because of the language barrier, cost of developing the market, logistical distances and need to develop local partners.

Those that do have experience were introduced by Newfoundland Association of Technology Industries (NATI) and Department of Foreign Affairs and International Trade Canada (DFAIT), Canadian embassies and consulates, and Atlantic Canada Opportunities Agency (ACOA).

Companies may be interested in outsourcing opportunities or targeted business initiatives.

They believe there is a huge demand for modernization and would like the government to make more strategic investments. Some believe that promotion of services and services providers or export consultants who can help them with exports is as important as the funding provided.

4.9 Recommendations and Market Entry Strategies

Atlantic Canadian firms have strength in and opportunities exist in the Brazilian market in the following segments:

• Telecommunications - mobile telephony, fixed lines and broadband especially the rural markets that are relatively untouched. The Cable and IPTV markets are also lucrative and growing.

• Software & security services – especially in the banking and retail sectors.

• Computer hardware and networking infrastructure in the education industry.

However, Atlantic Canadian companies should be selective in the opportunities they choose to pursue in this sector. There are high investments needed in infrastructure, knowledge of Portuguese is a requirement for software and content, the government prefers open source software and finally, the piracy and counterfeit market are highly prevalent. Despite these concerns, Atlantic Canadian companies could explore specific opportunities in these niche segments:

19 | P a g e

• Technologies for the Banking sector

• Security and Privacy software and technology

• Internet and data security

• eLearning and distance education technology

• Gaming and mobile applications

A long term perspective is important to succeed in the Brazilian market and companies must not expect results immediately. Atlantic Canadian firms will need to establish local presence either through resident partners or a subsidiary. Although establishing a local office is preferred, firms may also be able to appoint local agents, distributors or representatives. Local partners can be identified through matchmaking services and trade missions.

Trade events are an excellent avenue to meet key Brazilian stakeholders in the ICT sector.

20 | P a g e

5. Environmental Technologies

5.1 Introduction

The environmental technology sector or "green economy" has seen increased awareness and focus in recent years as people, governments and companies have begun to implement sustainable business practices³⁰. This shift has come from increased social awareness of our effect on the environment as well as the continued strain on finite resources worldwide.

Environmental technology, also called green-tech or clean-tech, is not clearly defined and encompasses many sectors. The two most traditionally used categories when classifying green-tech is “end-of pipe” (EOP) and “cleaner” green-technologies. EOP refers to green-technology which makes existing technology more environmentally friendly, whereas cleaner technologies are focused on creating a new way of doing something which is more energy or environmentally efficient.

For this report the focus will be on the sectors in the green-economy where either type of technology exists.³¹ Traditionally, as green markets mature there is a shift from EOP investments to clean technology.

5.2 Subsectors

The Environmental sector is a complex industry which includes a wide range of products, services and applications. To define and categorize this sector the report will use an international definition which was developed with Statistics Canada’s Environmental Division.³² The model divides activities into two different headings: Environmental Protection and Resource Management. The model also includes a section for those goods and services which fall under both categories. Refer to Appendix "D" to view an illustration of the model.

Within each segment of the environmental sector, there are sub-sectors:

Environmental Protection – Protection of ambient air and climate, water protection, treatment, supply and conservation, waste management, remediation, protection of biodiversity and landscape, noise and vibration abatement, and other environmental protection services.

Resource Management – Management of natural resources, management of energy resources,

Resource Management – Management of natural resources, management of energy resources,

In document A Study to Identify Key Sectors of Opportunity for Atlantic Canadian Firms in Brazil (Page 21-0)