The Brazilian software industry

In the course of the nineties, Brazil developed a vibrant, dynamic and large software industry. Experiencing double digit growth rates during the whole last decade, the Brazilian software market, at US$ 7.7 billion (values for 2001), is the world's 7th larger, comparable in size to the Indian or the Chinese, with the domestic industry accounting for 98% of the total 1. In the late nineties, the industry employed over 165,000 people in 10 thousand firms. Its share in the Brazilian IT market increased continuously throughout the nineties, becoming the most important segment (including related services) after 2000, surpassing hardware. In spite of recent economic turmoil in Brazil, its software industry has continued to post growth rates above the national industry average and the global software industry. Between 1991 and 2001, its share of the GDP more than tripled to 1.5%. Although with deeper roots in earlier path-dependent trends, the current industrial pattern dates from developments in the early and mid nineties. In the previous era, an amorphous proto-software industry was characterized by extensive in-house software development activities in both user firms and hardware producers and sellers (Botelho, 1987, 1991). Domestic firms occupied niche interstices and foreign firms mainly provided system products and large applications. Following the liberalization of the Brazilian economy in the early nineties and the economic stabilization that ensued the 1994 Real Plan, reigning in the inflationary spiral and establishing currency parity to the US dollar, a sustained domestic demand for software emerged. 1 Brazil has the largest packaged software market and accounts for over a third of the total software market in Latin America.-2-As local businesses users facing increased foreign competition in their sector markets struggled to survive, they refocused on core business activities and, consequently, began to outsource software development rather than developing it in-house, the prevalent model until then. They also perceived that their superior knowledge of domestic market and production culture over new foreign entrants could have its competitive advantage component amplified by an efficient codification in software systems and applications. This further enhanced their interest in contracting software to an emerging software industry. At the same time, the end of the market reserve policy which framed the regulatory framework for the IT industry in the previous two decades, allowed for a decline in hardware prices that further expanded the market demand for software (Tigre 1992, 1995). In response to the new environment, strategic …