In October of 2003, a report from a prominent investment banking firm linked four developing powerhouse economies together with a fateful acronym — BRIC, for Brazil, Russia, India and China.¹ The quartet of nations has huge economic potential in common, but one of them has garnered considerably less attention than the others: Brazil.

There are some good reasons for this. For starters, China and India sit at the center of two hot-button global issues — offshore manufacturing and outsourcing, respectively — and are thus attracting outsized amounts of media coverage. Further, Brazil's economic health has lagged that of its fellow BRICs in recent years, with lower gross domestic product numbers and higher inflation.²

But that is all starting to change. Brazil's economic fortunes are stabilizing and many of its historical impediments to economic success are starting to disappear. These facts, combined with the Brazilian government's commitment to economic expansion — including a new Innovation Law³ passed in July 2005 — are making Brazil an increasingly attractive location for innovation-minded businesses.

Indeed, Business Week magazine calls Brazil a "hot incubator for tech startups," noting that the country's information technology industry has been growing 10 percent a year since 2000. Exports of high-tech goods and services should rise from around $500 million in 2004 to $2 billion in 2007.⁴ This comes as little surprise to those in the know. "Brazil is a place relatively unburdened by legacy infrastructure," says Robert Payne, Vice President of IBM Global Services, Brazil. "As a result, it is in many ways ideally prepared to be an on demand environment."

True, the Brazilian business community is not widely regarded as a cradle of innovation, but it probably deserves more credit than it receives. One of the country's most important lines of business, agriculture, has thrived in part because of farmers' willingness to find high-tech solutions to low-tech problems, says Rogerio Oliveira, General Manager, IBM Brazil. For example, it is now common among agribusinesses to use global positioning systems to monitor weather and soil conditions, allowing farmers to make highly targeted adjustments to irrigation, fertilization, seeding and harvesting cycles. Such technology greatly improves crop yields, which is important in a macroeconomic sense, because agribusinesses generate 10 percent of Brazil's gross domestic product (GDP) and employ 20 percent of its labor force.⁵

Brazil also has a history of putting its agricultural output to creative use. During the oil crisis of the 1970s, it used its massive sugarcane resources to create an alternative fuel: ethanol. By the mid-80s almost every new car sold in Brazil ran on it, and today, ethanol comprises 40 percent of the nation's fuel.⁶

Another industry reaping the rewards of forward thinking is airplane manufacturing. In 1995, Empresa Brasileira Aeronautica®, or Embraer, was close to bankruptcy. Incoming CEO Mauricio Botelho decided that the company's situation was the result of failing to anticipate customer needs. Recognizing that the airline industry was in the process of reshaping itself to create more frequent flights to smaller cities, Embraer adapted accordingly, pushing a 50-seat regional jet into production. The expectation was sales of 400 of the planes total; the company actually sold 900 through the first quarter of 2005. Embraer has since built on that success, landing a deal for up to 201 of another model of plane with JetBlue®. The contract can be worth as much as $6 billion.⁷

Given the economic turmoil in Brazil during the 1980s and 1990s, Embraer and the agribusinesses can be said to have thrived in spite of their host country. By contrast, businesses operating in Brazil now enjoy a much more favorable environment.

For starters, socioeconomic factors have improved in recent years. "The current environment in Brazil is one of low inflation and political stability, so the foundation for growth is there," says Oliveira. The government, perhaps noting the better GDP and inflation rates boasted by other BRIC countries⁸, is encouraging innovation. The aforementioned Innovation Law, for instance, is part of a nationwide effort to "create adequate conditions to encourage a greater number of firms to invest and become involved in technological developments," according to an analysis by the World Intellectual Property Association.

Currently in Brazil, 70 percent of the nation’s technological research and development is publicly funded and 80 percent of researchers work at public institutions, such as state-run universities, according to the World Intellectual Property Organization. The Innovation Law aims to make it easier for these R&D workers to collaborate with small - and medium-sized businesses (SMBs), thereby encouraging the creation of more marketable technologies. This is great news for businesses that would start operations anew in Brazil.

On the infrastructure front, things are progressing nicely, as well. As mentioned previously, IT spending in Brazil is growing steadily. In addition, after years of operating as an isolationist economy, Brazil opened up its doors a decade ago, and it is now reaping rewards from that decision. Specifically, the country now has a "wide open and competitive" telecommunications industry that is providing cutting-edge services, according to Oliveira.

About 12 percent of the Brazilian population has Internet access, outpacing both India, (3.6 percent) and China (7.1 percent).⁹ Meanwhile, over 45 percent of Brazilians have a cell phone, most of them the pre-paid variety. In developing country terms, this constitutes a well-wired population, and it bodes well for the future of technology firms there, says IBM's Payne.

Indeed, the wiring of the population is resulting in a trickle-down technology effect. The heavy demand for Internet services has spawned a robust Internet Service Provider (ISP) industry, and IBM is finding these firms a useful conduit for distributing its technology — including database software like DB2® — to small and medium sized businesses. The SMB deals, numbering about 700, "we could not have touched" without the ISP connections, says IBM's Oliveira.

Given these factors, it is not surprising that a number of Brazilian companies are seizing the opportunity to become On Demand Businesses. Perhaps the best example is Casas Bahia®, a Wal-Mart®-style retailer based in São Paulo. Operating over 500 stores in eight northern states, Casas' entire operation runs on Linux®. But more interesting than that is the way the retailer has wired itself to collect business intelligence.

With IBM's help, it has created a system that tailors marketing, distribution and sales efforts to meet the needs of specific stores. If, for instance, a cold winter is predicted in one region of the country, the stores in that area would receive an extra delivery of space heaters and/or winter clothing. Appropriate in-store announcements and sales incentives would accompany the influx of targeted merchandise. "It's creating management systems that detect opportunities in stores," says Oliveira. Frederico Wanderley, CIO Casas Bahia, adds that the IBM solution his company has deployed makes the Casas' S390 legacy systems "available rapidly to all corporate users, with a very modern and user-friendly interface, without any changes to the logic of the applications."

There are other industries adapting and innovating in similar ways — banking, for instance, and manufacturing firms. Some are developing new products specifically for the Brazilian market, such as low-cost versions of coffee, shampoo, even washing machines.

But, for all of this, many challenges remain. In Brazil, equitable wealth distribution continues to be a problem, with the vast majority of the nation's wealth concentrated in urban areas on the east coast. Indeed, this gulf between the haves and have-nots is an issue for all the BRIC nations, and most agree that the best solution to the problem is to educate as many people as possible. This not only creates a larger labor pool, it also generates economic growth, as the better jobs allow for more consumer spending.

To this end, Brazil is moving in the right direction. Ninety-five percent of children between the ages of seven and 14 are in school currently, according to Oliveira, and the high enrollment rates are a good sign of things to come. "Brazil has the capacity to compete with India and China," Oliveira says. "In some ways, we are better positioned than they are for growth. But in others, we still have to improve."