Brazil: A chip in every cow

Brazil is hoping an effort to track its huge cattle population will jump-start the country's fledgling chipmaking industry.

By tagging every cow with a tracking chip, the South American country is aiming to make its beef supply safer while also helping to create big demand for Brazilian-made semiconductors.

"There are 200 million cows in Brazil, so that's a big market," science and technology minister Sergio Rezende said in an interview this week. So far, thousands of cattle from three or four large farms have been given the chips, Rezende said.

For all its rapid growth as a technology market--Brazil is the fifth largest PC market--the country has had a tough time getting investment to build its own technology industry.

"Brazil was seen as just a market, not a place to develop, to invest," Rezende told CNET on Tuesday. "The change in this pattern is occurring very, very slowly."

Venture capital is definitely starting to flow into the country--with more than 400 deals being done last year, according to Claudia Fan Munce, an IBM vice president. Overall, venture capital and private equity firms committed $27.1 billion in 2008, up from just $5.6 billion in 2004, she said. In 2009, though, the amount grew just 10 percent and overall foreign investment in Brazil declined amid the global recession.

Brazil still trails Chile and Argentina in total dollars invested, Munce said, but added that with its current growth rates, Brazil could easily become the top South American investment destination in the next few years.

Although it is still pushing for foreign investment--and has had a few recent successes--the Brazilian government is also trying to take matters into its own hands, such as using the locally made chips as opposed to importing cattle-tracking chips from overseas.

Many emerging markets have taken steps to spur development for their domestic markets, but the matter is particularly important in Brazil. While China has emerged as a global manufacturing hub and India as a major center for outsourcing, a combination of labor costs and cultural issues have, until the last couple of years, kept Brazil from becoming a major technology destination. But as India and China try to position themselves as more than just sources for cheap labor, Brazil is happy to pitch itself as a good place for labor outsourcing.

Munce said that IBM, like a lot of companies, used to just sell gear in Brazil, without doing much there on the services side.

"Certainly there are a lot of big vendors that are moving some aspects of call centers to Brazil," Munce said. "We're certainly increasing our IT services investment in Brazil to leverage for the global market that we serve."

The effort will take time, though. "Brazil is still trying to gain the world's trust," Munce said.

Brazil, like other emerging markets, must also decide just how much it wants to do to encourage local technology. A certain amount of investment and favorable policies can help spur the young industry, but too much interference runs the risk of being seen as overly protectionist and incurring the wrath of the very countries whose investment is being sought. China, for example, had proposed a rule that would have favored local technology in government purchases, but eased the rules after an outcry from the U.S. and Europe.

Munce said that Brazil tends to be a relatively open market, even as the government tries to stimulate local companies through investment and incubation.

The effort to tag the country's cows is part of a major rethinking of how to spur chipmaking in the country. Brazil has tried a number of things over the past three decades to build a domestic chip business. For years its attention was focused on trying to land major multinational companies to locate in the country, offering free land and other incentives. But after Intel picked Costa Rica over Brazil for a Latin American plant at the turn of the millennium, the country's government decided to go with a different approach.

Around 2003, the government started a campaign to foster training of chip designers. That led to the creation of several design firms. The next step, Rezende said, was the creation of a chipmaking plant where firms could test out their designs and even produce moderate quantities of production modules. After several years of planning, Brazil's Ceitec plant, in Porto Alegre, has begun cranking out chips.

Cows aren't the only target for Ceitec's RFID chips, Rezende said. Another project is for tagging the country's millions of cars. That will help with several issues. For one, crowded cities like Sao Paulo have laws restricting which days a car can be driven into the city. But, people have found ways around the rules, like switching the car's license plates. The chips should also help on the security front.

"It will be more difficult to steal the car and do something with it," Rezende said.

Interestingly, the country did have some chipmaking operations until the early 1990s, thanks in large part to a law that prevented manufacturers from importing a component if a domestically made one was available. When that law was changed, though, the industry disappeared.

"With the opening of the market in the early 1990s, all of the chip manufacturers closed the operations in Brazil," Rezende said.

Brazil has been taking other steps to make itself a stronger base for technology operations. In recent years the company has also strengthened its intellectual-property protections and relaxed its famously pro-Linux policy.

"The government currently supports all types of platforms," Rezende said. "We think that open software is important, but we don't think open software is the solution to all. The current policy is there is room (for) everyone."

To encourage more entrepreneurship, the Brazilian government has also helped start U.S.-style technology parks and provided both grants and seed money for young companies.

The country's education system remains a stumbling block to a larger technology industry. Although state and local governments are responsible for the public schools, the federal government has stepped in, for example, to set a minimum wage for teachers and to ensure there are buses to allow students in rural areas to get to a school.

"Education in Brazil (is) always a big challenge," he said. "Historically not much importance was given to this sector."

One key catalyst on the horizon is the Olympics, which are coming to Rio de Janeiro in 2016.

"The 2016 Olympics is driving a lot of infrastructure investment from the government," Munce said. "Brazil, similar to Beijing (in 2008), is going to be showcasing the technology as part of the Olympics."