Workshop on Internet Use in the Americas Panel 3: Business Use of the Internet CIDE, Mexico City, 16-17 June 2005

1
Workshop on "Internet Use in the Americas"Panel
3 Business Use of the InternetCIDE, Mexico
City, 16-17 June 2005

• Small is Digital? IT Internet Diffusion in
  Brazil's SMEs
• Antonio José J. Botelho
• Genesis Research Unit, PUC Rio,
• abotelho_at_dctc.puc-rio.br

2
Agenda

• 1. Overview
• 2. Ornamental stones cluster
• 3. Aeronautics cluster
• 4. Problems for SMEs in introducing and utilizing
  IT
• 5. Policy responses
• 6. Conclusions

3
Agenda

• 1. Overview

4
Micro and Small Enterprises in Brazil, 2001

• From 1996 to 2001, micro and small enterprises
  went from 3.1 million to 4.6 million
• Going from 98.9 to 99.2 o total
• Generated 3.5 million new jobs
• Whereas medium and large, only 686 thousand
• Acounted for 14.5 million formal employment,
  56.1 of the total

5
Exporting SMEs

• Exports are 15 of GNP (2003)
• Growth rate 58 (2004 to August)
• Exporting micro and small enterprises represent
  over 75 of the countrys total export base, BUT
  account for less than 11 of exports by value
• This share is further reduced to 5, once
  excluded a select group of about 200 high
  exporting enterprises, made up mainly of trading
  companies and others

Source Markwald e Pessoa, 2003
6
IT Development

• Brazil accounts for 1.7 of total global IT
  expenditures (contrast 1 world exports)
• 4.7 of GDP (2002)
• PC per 1,000 inhabitants of 7.5 (smaller than
  world)
• Mobile growth rate 30 (above world)
• In 2003, electronic transactions in Brazil (B2B,
  B2C, B2G, m-commerce and on-line retail) reached
  USD 47.2 billion (about 4 of world)
• B2B over 2/3 B2G B2C

7
SMEs IT Diffusion

• Less than 35 of the 5 million formal firmss have
  a computer
• Of these, less than 40 have internet access
• In São Paulo and other developed states these
  numbers are about 50.

Source FIESP, Pesquisa Perfil da Empresa Digital
2003/2004
8
SMEs IT Diffusion São Paulo (FIESP)

• Half of SMEs do not have any intention of
  implementing Internet-based EDI
• 20 do not even have a website
• Among Micro enterprises
• only 8 make use of B2B for sales
• 16 use it for purchases
• 8 do B2C.
• Among Small enterprises
• 15 use B2B (purchases and sales)
• 11 do B2C.

Source FIESP, Pesquisa Perfil da Empresa Digital
2003/2004
9
SMEs IT Diffusion São Paulo (Sebrae-SP)

• Progress 47 per cent of sampled enterprises
  (2002) make use of IT (informatizadas), versus
  31 per cent in 1997 and just 19 in 1993.
• On the one hand, diffusion in small enterprises
  reaches 61 and in services 47 of MSMEs have at
  least one computer, against 43 in retail.
• On the other, of the micro and small enterprises
  without IT (53), well over half (64) indicated
  they did not see a real need or perceive a
  benefit in adopting IT tools

Source FIESP, Pesquisa Perfil da Empresa Digital
2003/2004
10
SMEs IT Diffusion São Paulo (Sebrae-SP)

• 54 per cent of SMEs access Internet
• Half of the IT users has only one microcomputer
• IT use is greater in older firms, in the
  industrial sector and in larger MSEs
• By contrast, IT use is smaller in MSEs in the
  commerce and services sectors, in traditional
  activities and in smaller and newer enterprises

Source FIESP, Pesquisa Perfil da Empresa Digital
2003/2004
11
SMEs IT Diffusion São Paulo (Sebrae-SP)

• Internet access main uses are
• 1- Banking services
• 2- Government services
• 3-News
• 4-Communications (e-mail)
• 5-Research on business deals, prices and
  suppliers
• 6-Website for advertisement of business.

Source FIESP, Pesquisa Perfil da Empresa Digital
2003/2004
12
Barriers to IT diffusion

• MSEs non-users of IT do not see a clear benefit
  in use of IT
• Find it expensive for their current level of
  revenues
• Those opting not to invest in IT in the short
  term are divided between
• those that see no need,
• those which already have the required IT
  resources or are happy with their current level
  of use of IT.
• Lack o human resources with specofic knowledge on
  how to best use IT to improve SMEs managerial
  processes

13
Barriers to e-commerce

• Government regulations
• Privacy of data or security issues
• Lack of business law for e-commerce
• Inadequate legal protection for Internet
  purchases
• Internet taxation
• Staff with e-commerce expertise
• Cost of implemengting e-commerce

14
Agenda

• 2. Ornamental stones cluster

15
Characteristics

• In Brazil 6.6 of SMEs exports
• Brazil 7th largest exporter in volume
• Exports growing faster than world
• Espirito Santo marble and granites (90)
• Largest producer (47 of total) and exporter (
  222 million or 52 of total 10 largest just 6
  of that)
• 24 thousand employees in 1,200 firms, mainly
  SMEs, of which 12 exporters
• Horizontal cluster with ring structure governance
• Most advanced technologically

16
Policies and Impacts

• Sindirochas trade group (1973)
• Organizes fairs
• Training (Sebare/Senai)
• Technological research (Cetemag)
• Maqrochas (2004) 20 associates
• Regional Action Program vortal (Prossiga)
• Static / Portuguese only
• Other (private) websites
• Marble on-line price quotes
• The Way of Stones
• E-commerce website Marmoregranito

17
Barriers to IT use

• Small production scale
• Unfamiliarity with new technologies
• Access to financial resources
• Shortage of specialized workers
• Vortal discontinued
• Cooperate and share
• Role for APEX and BNDES Prosoft and Bank of
  Brazil IT deployment credit line

18
Lessons learned

• Export promotion policies (PNPE) increased
  value-added
• IT could deal with low productivity
• IT could also help overcome barriers to exports
• foreign language,
• lack of experience in foreign business
• information on export procedures
• Emerging cooperative relations geared to IT
  diffusion

19
Agenda

• 2. Aeronautics cluster

20
Characteristics

• Embraer - One of Brazils largest firms
• Worlds fourth largest aircraft manufacturer
• Revenue USD 3 billion (2003)
• Located in São José dos Campos, SP. Share in the
  states economy went from 6.5, in 1996 to 11,
  in 2001
• Buys over USD 60 million from SMEs
• 50 in Brazil and 50 foreign companies
• Over 30 small specialized suppliers located near
  its plant
• Goal of cluster Capture 0.5 of 33 billion
  market

21
Characteristics
22
Policies and Impact

• APEX program in 2002 (process began in 1999),
  11 SMEs formed High Technology Association
  HTA, an export association
• Average of 15 years in the aeronautical sector
• Most companies founded by ex EMBRAER employees,
  bringing 20 years experience in several areas
• Firms have complementary capabilities
• HTA is a trading company High Technology
  Aeronautics
• Since then, the HTA has participated in several
  international fairs and missions
• Participation in fairs and trade missions
• ISO 9000 certification

23
IT Use

• Low level of Internet and e-commerce use
• Relatively high level of IT use
• Average
• 11 PCs per company
• 1 PC per 7 employees
• No use of EDI or any form of e-commerce
• All information websites are available in 3
  languages
• Portuguese, English and Spanish
• HTA website is still in early stage of
  development.
• It shows only static information about
  consortium, its products and services

24
Barriers to export

• technology gap of about 30 from state of the art
• distance from major markets
• freight costs
• high cost of inputs (often imported)
• lack of working capital
• lack of investment capital
• lack of guarantees
• Embraer does not award long-term contracts
• does not generate the necessary incentives for
  firms to invest in technology and productivity
• grace periods, and finance rates are generally
  unfavorable

25
Barriers to Export with IT

• Websites does not have
• A reserved area for associates or potential
  clients
• Possibility to register potential clients
• Even links associated firms websites
• Only 4 (36) of the firms have their own website.
  
• Sites allows client registration, but some do not
  even provide product and services information

26
Lessons learned

• SMEs in high-tech vertical clusters face
  particular problems toward exports in so far as
  the nature of the business exposes them to
  intense international competition very early on
• Lead or anchor firm in a vertical cluster is a
  mixed blessing
• subcontracting patterns has developed to the
  point of relying on a limited number of
  first-tier suppliers.
• Breaking into this closed group, often made up of
  foreign firms is hard task.
• A lead national firm could, in principle, assist
  SMEs in this endeavor

27
Agenda

• 4. Problems for SMEs in introducing and utilizing
  IT

28

• Group 1
• High cost of purchasing equipment and operating
  it,
• Scarcity of affordable quality human resources,
  and
• Difficulty in identifying the companys IT needs
  ad designing and implementing a strategy to meet
  them

29

• Group 2
• Limited scope and administrative burden of
  finance programs,
• Availability of expertise on SMEs IT functions
  and needs and
• Lack of knowledge of sector-specific network and
  export-oriented IT processes

30

• Main barriers that inhibit SMEs IT adoption
• Industrial structure (in the case of high tech
  sectors),
• Industry fragmentation (in the case or ornamental
  stones) and,
• One-size fits all format of existing support
  programs and
• Quality of the public activities /services
  offered

31
Agenda

• 5. Policy responses

32
BNDES

• Export promotion finance programs
• Program of Technology Support to Exports-PROGEX
• provide technological assistance to the micro and
  small enterprises which want to become exporters
  or to those already exporting that wish to
  improve their performance in external markets
• Project National Network of Trade Agents
  REDEAGENTES
• Until December of 2003 trained more than two
  thousand agents of foreign commerce and about six
  thousand entrepreneurs and employees of diverse
  institutions such as cooperative, trade
  associations, city halls and other similars. The
  agents of foreign commerce, after the training,
  are integrated in a net based on the Internet,
  the REDEAGENTES. In this net, they start to
  contribute in the process of spreading the
  exporting culture and to give orientations to
  other small business on how to export.

33
BNDES

• PROSOFT-Comercialization
• Acquisition of products and services
• Funds up to 100 of qualified products
• Funding of related services limited to 100 of
  product value
• Demands certification of origin during online
  accreditation process (BNDES/MCT)

34
Banco do Brasil - Foreign Trade Platform -

• Balcão de Comércio Exterior allows an online
  export operation and responds to a demand by
  small firms willing to start exporting.
• Wweb site www.bb.com.br gives entrepreneur
  access to a virtual international business room,
  with no restrictions to a bank client (exporter).
  
• The service takes advantage of the streamlining
  of the export process for values up to US10
  thousand.
• From its beginning in January 2003 until December
  of the same year, the service registered 2.846
  exporters and 680 importers and completed 173
  operations valued at US483 thousand.
• Today, there are 4.790 export product offers and
  701 importing firms registered.

35
Web sites for SMEs that wish to export

• Exporters Portal (Portal do Exportador in
  Portuguese) (http//www.portaldoexportador.gov.br/
  )
• Exporters Window (Vitrine do Exportador in
  Portuguese) (https//www.exportadoresbrasileiros.g
  ov.br/), both managed by MDIC
• Brazilian Trade Net (http//www.braziltradenet.gov
  .br/), managed by the Ministry of Foreign
  Relation (MRE).

36
Postal Service - Easy Export

• Exporta Fácil (November 2000) aims to take
  Brazilian products to the four corners of the
  world.
• In 2003, MSEs products accounted for 62 of total
  sales and MSEs for 67 of the exporting firms in
  the program.
• Main results are
• in 2001, 6,745 shipments were made to a total
  value of R 8,670,349.89
• in 2002 there were 11,440 shipments totaling R
  19,011,898.37, with a significant increase in the
  value of exported merchandise
• and in 2003 shipments reached 19,631 valued at
  R 35,543,007.40, a growth of 87 in relation to
  the previous year.

37
Infocenters of Information and Business

• Goals
• Qualifying entrepreneurs and workers in the use
  of the technologies of the information,
• Promote emergence of new enterprises,
• Increase exports,
• Enlargement of partnerships
• Productive and service quality improvement
• strengthening of projects of productive
  arrangements.
• By July of 2004, 400 infocenters were operating
  and 10 cooperation terms were signed to implant
  more 163 units.
• The projects goal is to implement one thousand
  infocenters up to July of 2005 and at least one
  unit in each of Brazilian 5,567 municipalities up
  to 2007.

38
Enterprise Informatization Program

• Credit line to SMEs that want to buy computers
• Operated by the Brazil Bank (BB).
• purpose to finance the acquisition of computer
  and peripherals to the micron and small
  companies, being aimed at modernizing its
  management and to make possible the electronic
  communication of the customer with the BB.

39
New networks or websites

• In June of 2004, the federal government has
  launched a new program to promote SMEs exports
• Finances the exporter of goods produced by SMEs,
  in the phase pre-embarkment, through credential
  finance institutions
• Credit can go up to 100 of FOB value and will be
  related to the long rate term rate, plus 1 a
  year of BNDES remuneration (the program agent)
  and remuneration of credential finance
  institution (of no more than 4).
• These exporters will operate as Anchor
  Enterprises, making possible the indirect export
• Trading companies, commercial exporting firms or
  firms in the supply chain that acquire the
  production of a significant set of SMEs looking
  for exportation.

40
Agenda

• 6. Conclusions

41
Lessons learned

• Experiences analyzed show us the importance of
  paying attention to the nature of the industry
  and its structure.
• In the case of aeronautics parts, the small
  number of firms, their highly specialized
  production capabilities and the critical role
  played by the lead firm Embraer in the vertical
  cluster requires
• a tighter cooperation between firms to negotiate
  better and more long-term contracts with the lead
  firm
• to develop foreign niche markets which are often
  part of national industry supply chains.
• Need a marketing strategy aimed at building trust
  with potential clients,
• Long-term process.
• Firms need to integrate their complementary
  capabilities and fill in absent ones in order to
  offer foreign customers a more solid solution
  platform.

42
Lessons learned

• In aeronautics proto-cluster, non arm-lengths
  forward linkages to first-tier suppliers might be
  more important than backward linkages to even
  smaller firms, and in complement to the current
  direct strictly business linkages to the lead
  firm.
• For these first-tier suppliers, pressured by end
  buyers will be always pursuing cost reductions,
  including in services provision and new parts
  development.

43
Lessons learned

• In the ornamental stones, the cluster is more
  horizontal and centerless.
• The relatively large number of firms and the
  length of the supply chain with several levels of
  inputs and equipment suppliers, make the
  formation of stronger and denser networks more
  difficult to achieve.
• The cluster is very active in exports,
  particularly when compared to other industry-like
  clusters and in other regions.
• Success partly due to previous export promotion
  policies.
• The challenge ahead is to sustain its momentum
  and to increase exports value-added
• An emphasis is being put by the new
  administration in a wholesale policy of expansion
  of telecenters, which while needed may be a
  setback to the in relation of the previous
  orientation of IT diffusion of targeted local
  empowerment

44
Assessment of the experiences

• SME export promotion policies in Brazil are
  entering a second-generation, those for IT are
  still in their infancy.
• Beginning to gain an understanding of the SMEs IT
  needs and uses individually.
• Do not yet fathom possibilities for IT use in SME
  networks.
• Beyond the basic goal of achieving widespread
  diffusion, there has been little policy
  development in this area.
• In regard to broad diffusion, the new government
  initiative of developing a cheap computer could
  be part of the answer
• SMEs will still face problems adequate software
  and, most important, qualified IT personnel aware
  of the organizational and strategic challenges
  facing SMEs

45
Assessment of the experiences

• The full potential of Internet-based instruments
  has not yet been fully grasped by export
  promotion
• Full interactivity and high-quality graphic
  interfaces are critical into breaking into an
  overcrowded export market.
• Marketing is often the weak or lacking export
  capability in exporting SMEs.
• Either because of the type of specialized
  training in the case of high-tech firms or a lack
  thereof in the case of traditional industries
  clusters.
• Internet tools can be employed effectively in
  building missing capacities