Today at the Innovators Day 2013 event of Brazil Innovators, a panel discussed if Brazil still hot? Two years back the discussion was on “if Brazil  was warm or hot.”

This is is my first visit to Brazil with Geeks On a Plane, a Program of 500 start-ups. I met with few entrepreneurs and investors. My views of Brazil is based on a very limited interaction of last two days.

Brazil became hot in the group of BRIC. Brazil offered a new emerging market to the world . Over the past 10 years, Brazil has become a major market. I believe Brazil offers huge opportunities but the challenges are also huge. Let me compare Brazil as hot country with China and India.

China became a powerhouse in manufacturing for the OECD market and became a production country first before it became an emerging country . China has been exporters of manufactured products for the last thirty years. Global companies who got their products made in China gave China an international exposure which allowed them to establish excellence in manufacturing. After many years in export market, China looked inwards for market and now has become one of the largest consumption countries. China is using their global knowledge for local market. Today China has become the world’s second largest economy and is on its way to become largest.

India became part of BRIC also under different circumstances. After years of Government controls, India started the liberalization process in 1991.  For years, India’s contribution was insignificant in world trade. Y2K changed the range game. Before Y2K, India use to do database entry and medical transcription for US companies. For Y2K, US companies were forced to look for large English speaking talent pools. Indian software developers played a major role during Y2K and the world found a source of software developers and coders. US companies provided best practices to India’s talent. In a short time, India became a CMM powerhouse and established a huge lead in the technology business . For years to come, India will export deflation in the high talent. So India became a production country first and now has emerged as conspiring country. Because of their knowledge of sophisticated technology and large but fragmented domestic market, India will be an establish excellence in modular manufacturing and knowledge based industries. India will grow globally because the cost of doing business is still lower than all the large economies.

Brazil, maybe due to language and maybe distance, did not become a major production county for the world. Brazil became a hot country because of the size of the market. For the world, Brazil was part of BRIC as a consumption country. Today Brazil’s GDP per capita is $12500 which is impressive. I am sure the market will continue to grow, however, relying only on Brazil’s market is dangerous. Brazilian entrepreneurs and venture capital has to focus on global companies with Brazil as one part of market. The concern is the current cost of doing business in Brazil. Let us compares with China and India. China’s GDP per capita is approximately $7000 and India is $1600. They have a long way to go. Brazil’s real estate prices are compare to the US. Cost of high-end talent is comparable to the US. Cost of capital is also high . Regulatory environment adds complexity and cost. Compared to China and India , Brazil is pricing itself out to become a global player. Let me talk about local consumption. To increase local GDP per capita will become more and more difficult . China and India can continue to be global players in their respective areas because of their international exposure, large domestic market, and cost of doing business. If Mexico can fix their issues of security, it could also become a formidable global player.  They have an advantage of proximity to the US. Their 80% export goes to the US. Improving US economy and China’s cost increase in manufacturing will position Mexico not only to be a global player but also to expand the local market.

This is my first visit to Brazil. I think all the discussions here are centered around Brazil as a market. For Brazil to continue to emerge, there should be two focuses, local and global. Brazilian companies should use global locations to stay competitive. Brazilian companies must hedge against the volatility of the local market. Brazil can continue to be hot, particularly in the tech market if they go global. When I say global, I do not mean only to the US.  Brazil should look for global markets and global talent and then they will get global capital and global exits. A globally developed product will also be a better positioned for the Brazil market.

Go Global, Brazil!!