iMonitor IT (Brazil IT market survey)
Quarterly Survey Report
May 2022

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Yellow light in Brazil: time to worry...

 

According to a survey by ADVANCE, the IT market had a record growth of 23% in 2021 and began 2022 with a record growth of 21% in the first quarter with growth expectations of 22% in 2022 and another 22% in 2023. So, where's the worry?

First concern: 2021 had inflation of 10.1% and IT entrepreneurs were only able to pass on 7.5% to customers, on average, generating a reduction of 2.6% in margin. Entrepreneurs also think that 2022 and 2023 will have 10.3% inflation. This means an accumulated loss of 8.5% margin in 3 years.

Second concern: the IT market has suffered for many years from a lack of workforce. At this moment, the unbalance of supply and demand is inflating salary and entrepreneurs are unable to pass on 100% of this cost increase to their customers. A margin loss of 16.1% is estimated considering the two inflationary effects. Most entrepreneurs think that lack of workforce is an HR problem, but it's far from it, it's a problem to be dealt with by the CEO and directors with great financial impact. 

Third concern: IT companies with annual revenues lower than R$ 16 million grew less than the average market in 2021. These companies do not have a very efficient management on MARGIN or EBITDA. Many of them do not even have a 16.1% margin and are in danger of being hit by a large silent train.

Fourth concern: half of IT resales and integrators offer traditional products and services (on-premises), they have a hard time understanding the CLOUD model and changing their business model and modus operandi. 25% of software development companies still offer their product in a traditional way (on-premises), most do not know whether they will be affording the necessary investments in technological modernization. On-premises offering companies are growing well below the market average and with low margins.

The game has changed. The companies who want to keep playing will have to fly a plane with two turbines. Turbine 1 is the recurring revenue that is one of the great benefits of those who offer cloud products and services. Turbine 2 is MARGIN, i.e. how to do more with less and how to do better. Increasing the margin in an inflationary environment with such a lack of workforce is twice as difficult. 

IT entrepreneurs are seeking operational efficiency with intensive process use, automating and robotizing everything possible within companies, and using technologies that allow them to increase productivity. Entrepreneurs are creating training alternatives so that the on-boarding of new hires is faster and cheaper.

 

In this moment of transition, the entrepreneur has to analyze the market (opportunities and threats), redesign the business model to meet the demand in a differentiated way, correctly choose the portfolio of offers, establish a plan with strategies and actions, structure the areas of marketing and sales, have great discipline in the execution of the plan, think about innovation, have speed to plan, execute, learn and adjust the plan as quickly as possible.

In addition, the entrepreneur will have to prepare marketing and sales to sell in a year where the customer will have many excuses not to buy (war, presidential elections, world cup). 

There are many changes and many investments. You may think about the necessary investments that come out of your margin or face the investments as a safe bet to assure future margins.
 

Dagoberto Hajjar

CEO - ADVANCE Consulting

About our surveys

ADVANCE does a quarterly survey to identify BRAZILIAN IT market growth, trends and opportunities. We interview a large number of IT entrepreneurs to understand business strategies and challenges. We have been doing this research since 2008 and the historical data allows us to establish trending algorithms, helping us to establish sharp predictions.

Topics that are addressed in this quarterly survey:

  • Financial results of IT companies in the last 2 years

  • Investments made in employee slated, marketing and sales

  • Expectations for the growth of the economy and IT market for the next 3 years

  • Main strategies adopted by IT companies

  • Planned investments in staff, marketing and sales

  • Internal and external variables that are taking it entrepreneurs' sleep away

  • Characteristics of IT companies with high growth rate