Knowledge workers, unite! Brazil's video game industry is ready to grow, but that may not be enough
Latin Trade, Oct, 2005 by Kenneth Rapoza
Anyone who has ever heard Brazilian Trade Minister Luiz Fernando Furlan speak has heard his standard speech about how nobody knows that dozens of Brazilian companies make video gaines for cellular phones and computers destined for Europe and the United States. Who would have thought? More than 90% of the game developers' market, whether for cell phones or home video game consoles, comes from the United States, U.K., Canada and Japan. Countries south of the Rio Grande just don't register.

According to Informa Media, a London digital media consulting firm, the global games industry will grow to US$52 billion in 2007, compared to $33.2 billion in 2003. Most of that growth will come from mobile and interactive TV games, which are forecast to generate $8.8 billion by 2007, triple that of two years ago.

Game developers in Brazil are counting on their own industry associations and the Brazilian government to help them, at minimum, become an outsourcing choice for 3-D computer animation and software engineering. "Right now, nobody knows we exist," says Andre Penha, 25, director of Delirus Entertainment in Campinas, Sao Paulo. "Now is the time to inject money into these companies otherwise it'll be tough for us to keep up with developers worldwide."
 

Delirus started out with four people in 2004, operating in an incubator at the University of Campinas. One year later, the company has 18 engineers and concept artists on staff making under $900 per month. Low labor costs help make Brazil an attractive outsourcing destination for game publishers.

Delirus has a partnership with the university to develop "middleware" for 3-D games for the growing smart phones market. Their soccer game called ProGoal came in third place in the Sony Ericsson 2004 Game Developers Challenge. Ice Post--an ecological theme game where you rush to save the ozone layer in Antarctica--is a downloadable game made available through French cellular carrier Orange. Still, exports are small potatoes for now, well under $100,000.

According to the Brazilian games association Abragames, there are 40 developers in Brazil. Ten percent work exclusively for multinational cell phone operators, including those in Brazil, like Vivo, the joint venture of Spain's Telefonica and Portugal Telecom. A third of Vivo's game portfolio is made in Brazil. "The truth is that Brazil is a mere blip on the radar, but that's way better than most countries in Latin America," says Eugene Kublanov, president of NeoIT, a tech outsourcing consultancy with its eyes on Brazil these days. "There's tremendous capabilities in Brazil, but there's a gap in the way the country at the top level, from government to industry associations, promotes themselves. It's not a supply issue, that's for sure."

Furlan would disagree. His non-stop promotion of Brazilian game makers has led to plenty of domestic press attention, at least. The country also has set a goal to increase overall software exports to $2 billion by 2009 annually from $100 million now. Most of the incentives will come in the form of tax breaks. Brazil's development bank Banco Nacional de Desenvolvimento Economico e Social (BNDES), created a new credit line called Nova Prosoft, available for software companies.

As of the first half of 2005, 42 companies have taken advantage of more than $126 million in credit. None, however, are purely game makers, according to BNDES.

Education. Sergio Rodrigues, country manager of Tara International, a $12 billion outsourcing consultancy headquartered in India, says tax incentives don't top the list of needs, not for multinationals looking for outsourcing partners, nor for domestic companies looking to expand. "Education is more important. For a country as big as Brazil and so connected to the Internet, the time has come to start educating young people on very niche sectors of the software market so that they become experts of a certain platform," says Rodrigues.

Brazil should consider how best to support the sector, not focus so much on duty-free industrial zones, he says. "This is where the government plays a role because they have the infrastructure for it," says Rodrigues. "The private sector just provides the content. I know that there are people in the Trade Ministry that realize the importance of knowledge workers."

Abragames agrees. It published a detailed, 58-page report outlining their sector's greatest challenges, most pressing needs, and the examples they'd like to follow. They're also looking for incentives to teach new developers. The models it cites are South Korea and Australia, where a homegrown game industry grew from government support and promotion, as well as from outsourcing contracts from major video-game retailers like Electronic Arts. Today, South Korea has 50,000 software engineers in a gaming business valued at over $3 billion, light years ahead of the entire BNDES loan program for software.