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All Points South: Brazil’s Offshore Star on the Rise

Brazil is emerging as a real alternative to India for firms seeking to offshore operations to lower-cost labour markets. With strategic investments in education and infrastructure, a skilled and affordable work force, and compelling timezone advantages, the land of Rio, Pele and Festival has much to offer. Andrew Delaney was coerced into making the trip South to investigate.

As the global recession starts to bite, financial institutions are frantically reviewing possibilities for reducing spend throughout the enterprise. Though protected islands of IT budget remain – high-performance trading infrastructure, enterprise risk and data management are oft-cited examples – many operations and technology executives are accepting that the offshoring of certain functions is no long merely plausible – it’s compelling.

While India has gobbled up the lion’s share of global offshoring business – both within financial services and without – that success has brought with it issues that are encouraging offshorers in the US and Europe to look elsewhere. And, in a growing number of cases, that elsewhere is Brazil. India pioneered offshoring as an efficient way of reducing the cost of more commoditized functions, like infrastructure maintenance and specific application development.

In recent years, it has moved up the value chain – even offering such value-added activities as research. In all cases, the basic argument is that certain activities can be more handled more cheaply by skilled workers based in lower-priced labour markets.

But in some respects, India has been a victim of its own success. High staff turnover rates, difficulties in recruiting staff with the right skill sets, and basic lifestyle issues, have combined to blunt India’s appeal. Many now believe that Brazil represents a viable alternative, with additional benefits in terms of timezone, skill sets, infrastructure and, of course, lifestyle.

Indeed, some practitioners say Brazil today reminds them of India 10 or 15 years ago, when the Indian marketplace represented true and significant value for money for those seeking lower-priced homes for specific commoditized activities. Brazil today, says one, is perfect for certain niche activities, much like India was at the beginning of its offshoring career, and is set to expand its capabilities as improving levels of education, funding and infrastructure begin to take hold. The case for Brazil as an offshoring centre is being actively promoted by the government through agencies like Softex, the Brazilian Association for Promoting Software Exports, for example, which recently supported an offshoring conference in Sao Paulo organized by local entrepreneur and former Motorola Brazil executive Flavio Grynszpan.

Brazil is a late entrant, and that gives it very low salary inflation, at around 4%. India’s success means that its workers’ salaries have been known to rise more than 20% annually. Staff attrition is a contributor. In India, staff turnover is also over 20% per annum, while Brazil’s is just 8%, even lower in the Northeast region, where many offshorers are focusing their efforts.

The Brazilian government – and the respective governments of Brazil’s regional states – continue to invest heavily in education and infrastructure. As a result, a visitor to Sao Paulo, and to IT campuses in the surrounding countryside – is struck by the sophistication of the people, the capabilities and the overall environment. Several Brazilian states are building new centres to expand the high-tech campuses they already have on offer, frequently located in or close to university towns and able to tap an emerging work force that’s frequently equipped with skills with specific application to the IT community. In many cases, the target is financial services, along with energy and telecommunications industry players.

The State of Bahia, for example, is about to break ground on a new 584,000 square metre tech park. The funding for construction has been secured and the architect selected. Bahia hopes to leverage its low cost of living, average temperature of 25C and local tax exemptions to attract offshoring clients to the new site, which is close to major universities. With Brazil the second-largest Java shop in the world, Bahia is nurturing local expertise in Microsft as well, including BizTalk and SharePoint. The state boasts the second-highest take-up rate of Microsoft’s Student2Business professional development programme, while the government is encouraging use of English in university courses.

Further north, in the Northeastern state of Pernambuco, the government operates the largest technology park in Brazil, DigitalPort, built on the site of an old seaport. DigitalPort is home to some 4,000 workers, working for the likes of Motorola. Strategically, it offers direct flights to Paris and Miami, and the state government is preparing to offer grants to encourage potential offshoring clients to pay a visit to assess its capabilities.

Another operator is CPQd and its international arm, CPQi, spearheaded by London-based financial technology veterans Terry Boyland and David Priestley. CPQd – which was spun out of telecommunications company Telebras a decade or so ago – operates campuses in Campinas, about an hour northwest of Sao Paulo, and Fortaleza on the Northeast coast, among others. It also is Brazilian redistributor for the Calypso trading and risk management platform, and offers Calypso development and maintenance expertise on an offshoring basis. Given its background, it also has specific expertise in the area of telecommunications.

CPQi CEO Boyland believes his company’s approach – which involves significant attention devoted to ‘onshore’ activities in addition to the offshoring function – stands it in good stead to expand its financial services client base, which already includes Rabobank and HSBC. Boyland says CPQi’s understanding of the banking marketplace sets it apart from competitors. Boyland has spent the past 20 years or so in the banking and financial IT space, including stints as a programme director at CAP Gemini, as head of IP services for Cable & Wireless and as chief technology officer of JP Morgan’s TSS group within Europe. Partner and CPQi executive chairman Priestley is well known as one-time head of video-switch provider Micrognosis, Ceres Trading and Raft International, which he took public and later sold – with Boyland’s help – in 2006.

A sweet spot for CPQi is its expertise in Calypso and in risk management systems in general. “We make certain that our staff undergo full internal education on the relevant systems before they go to the client,” says Boyland. Key members of the CPQi Calypso team, he says, have been trained at the supplier’s California headquarters and are fully qualified in versions 8 through 11. He says CPQi is looking to establish similar close links with other well known software suppliers, particularly in the trading and risk management area.

CPQi/CPQd’s client base is a mix of local firms, including many that have deployed Calypso, and international groups using the facilities for offshoring purposes. For the latter group, having Boyland and Priestley on the ground in London and centres like New York is key to the success of an offshoring project. Boyland says the balance between offshore and onshore resource for any given project varies by client, but often is around 70% offshore and 30% onshore. This, he says, ensures proper communication with the client, resulting in a full understanding of the requirement, which boosts the chances of a successful relationship.

As CPQi/CPQd expand the business, Boyland, Priestley and their team are looking at regional centres of the kind being established by Bahia and Pernambuco; Salvador, capital of Bahia, is a particular target. According to Boyland, these and other Northeast states offer compelling economic advantages that can take on the likes of India, while trumping the subcontinent in terms of infrastructure, training and education, communications and lifestyle.

Still, there’s work to be done. Boyland says he would like to see more emphasis on English language usage. While written and read English is strong, conversational English is weaker and restricted to the professional community. “We would like the taxi drivers and restaurant staff to be conversant in basic English at least,” he says. He also reckons tax reform could help boost Brazil’s appeal as it takes on the likes of India and even China. “We would like to see the Brazilian government accelerate tax reform to make it easier to work, particularly for an outsider,” he says.

“We would like more emphasis on taxing success than on taxing the cost base,” which can create a barrier for firms seeking to establish themselves.

But if it’s true that Brazil as an offshoring site today resembles India of the mid-1990s, then the future could be very, very bright. “Brand Brazil is a strong one”, says Boyland, adding that most foreigners respond positively to the very idea of Brazil. This could be down to any number of human factors – images of Rio and the festival, Pele and the great Brazilian football teams, the Amazon, who knows? But a visit to Sao Paulo and the surrounding area underscores the appeal of the Brazilian lifestyle. With the economy in good shape, and the old security and safety issues under control, the region is one where financial professionals can operate effectively and comfortably. The beaches aren’t bad, either...

Brazil Markets’ Star Rises as Greenfield Site for High-Performance Technologies

Aside from Brazil’s new and growing appeal as a potential offshoring centre for financial services firms, the country is growing by leaps and bounds as a financial centre in its own right. Among the underlying fundamentals behind this is Brazil’s growing emerging market stature as one of the BRIC (Brazil, Russia, India, China) group of nations, ongoing government reforms in education, and the country’s massive size and resources.

Recent high levels of trading technology activity have resulted from the merger of the Brazilian Mercantile & Futures Exchange(BM&F) and the Sao Paulo Stock Exchange (Bovespa) to create BM&F Bovespa, the largest equities and listed derivatives exchange in Latin America. Indeed, Bloomberg News reckons BM&F Bovespa is the thirdlargest listed exchange group in the world by market value, behind Deutsche Boerse and CME Group. Others have called it the fourthlargest by market capitalization in the Americas, behind NYSE Euronext, Nasdaq Stock Market and the Toronto Stock Exchange. Whichever way you look at it, BM&F Bovespa is a behemoth.

Furthermore, pre-merger, and in a joint initiative with the Brazilian Federation of Banks and the Central Bank of Brazil, BM&F moved to introduce trading in U.S. dollar-denominated derivatives trading on its own platform, backed by a central counterparty clearing system. The Brazilian exchange merger last year was accompanied by the installation of a new high-performance trading platform, supplied by what is now NYSE Technology, the former NYSE Euronext Advance Trading Solutions.

The new platform upgraded an existing implementation of NYSE Euronext’s NSC trading system, which had underpinned the Mega Bolsa platform, in place since 1997. Its implementation in the first quarter of 2009 spawned a veritable glut of ISV activity, with local brokerages and foreign firms alike implementing order and execution management systems to connect to the new fast market system.

Examples abound.

Brazilian investment bank Planner Corretora De Valores signed up to connect to U.K. trading system supplier Fidessa’s global connectivity network. The deal allowed Fidessa to offer its network of sell-side and buyside clients access Planner’s range of brokerage services for the Brazilian markets. Stephan de Sabrit, managing director at Planner, cited “a surge in interest” in the Brazilian markets from the global investment community in the past couple of years. “The overwhelming majority of those investors,” he said, “are looking for expertise from a local broker with local knowledge of stock performance and an unbiased view of the market.”

Thomson Reuters added Brazilian brokers Alpes and Ativa to its Reuters Trading for Exchanges (RTEx) order routing network, allowing any connected user globally to access liquidity from BM&F Bovespa.

Even before the merger – and in anticipation of it – Liquidez, one of Brazil’s largest futures brokers, implemented Orc Software’s trading and connectivity solutions to connect customers to local markets. The deal allowed Liquidez to offer its customers “implementing technology”, in the form of the Orc Trader and Orc CameronFIX systems, to directly trade on BM&F, using its new FIXbased direct market access (DMA) service. Likewise, U.S. agency broker BNY ConvergEx added a suite of algorithms to take advantage of new capabilities on Bovespa.

This year, SunGard – fresh from its acquisition of GL Trade – quickly moved to open a new hub of its GL Net low-latency market data and order routing network in Sao Paolo. The hub will provide international investors with access to BM&F Bovespa, and allow local financial institutions access to GL Net’s participating brokers, offering DMA on more than 110 exchanges and liquidity pools globally. Connectivity suppliers have joined the party. This spring, Atrium Network opened a point of presence (PoP) in Sao Paulo, extending its extranet to provide access to BM&F Bovespa. The Sao Paulo hub adds to Atrium’s PoPs in Paris, London, Frankfurt, Lisbon, Madrid, Brussels, New York and Chicago.

Chicago-based OMS provider announced plans to offer its new X_Trader Version 7.6 in the Brazilian marketplace. And Activ Financial signed an agreement with Marco Polo Network to offer a joint order routing and market data capability to enable high-frequency trading in the Brazilian markets. Further evidence of the Brazilian markets’ rising star is the invitation from the International Organisation of Securities Commissions (Iosco) to join its technical committee. The technical committee is responsible for devising key international regulatory standards; the invitation to Brazil’s regulator, Commissão de Valores Mobiliáros of Brazil (CVM), reflects the country’s growing stature in global financial markets.

Finally, post-trade services specialist Omgeo is working with the Brazilian investment management, broker/dealer and investment banking community to ensure moves to establish clearing and settlement systems are capable of keeping up with the fast-moving trading environment. Tim Keady, managing director of sales and relationship management at Omgeo in Boston, says he’s encouraged by Brazilian progress toward establishing the kind of depository Omgeo has helped implement in Japan and Canada, and expects to see concrete developments later in the year.