The Brazilian industries that form the electronics sector, that is, data processing, consumer electronics, telecommunications, and industrial automation, and which represent the market for integrated circuits, supply almost exclusively the country’s domestic demand. They do not have a cost structure to make them competitive in foreign markets, however, and this even includes subsidiaries of multinationals established in Brazil. The industrial policy adopted by the Brazilian government for the development of its electronic industrial complex, unlike that of countries such as South Korea, has generated supply and demand structures that differ widely in various sectors.

The data processing segment, for example, with a total market estimated at a little over $3.2 billion in 1990, and imports of $320 million that year, is larger in absolute figures than its South Korean counterpart and more diversified than Argentina’s and Mexico’s. Protected by a market reserve established in the late 70s and due to end in 1992, the sector was actually able to grow at a 25 to 30 percent average annual rate during the last decade. The potential for growth in this segment is still considerable, especially in the area of commercial automation, office automation, and networking of smaller equipment.

Brazil’s consumer electronics sector, representing a total market estimated at nearly $3 billion in 1988, enjoys a high level of participation in Brazil’s over-all electronics complex. However, production is still extremely low when compared to the country’s population of more than 150 million people, although total consumer buying power is also low by international industrialized standards.

Brazilian consumer electronics manufacturers, which represent the highest demand for integrated circuits, are largely concentrated in the Manaus Free Trade Zone. This trade area, administered by the government agency known as SUFRAMA, offers tax incentives to attract investment and industry, including facilities to import components and parts for assembly of final consumer products.

Manaus is practically a captive market of Japanese suppliers because the majority of companies already established in the area are Japanese subsidiaries, licensees, or joint-venture partners. The Manaus market is further restricted by the fact that a large number of the companies located there only assemble final products from imported parts that already contain electronic components such as integrated circuits.

Brazil’s telecommunications industry, representing a total market estimated at $1.5 billion in 1990, and imports of only $100 million, has long had its import purchases of integrated circuits restricted due to the government monopoly of the country’s telecommunications infrastructure. It has only been during the last two years that the government of Brazil has announced its intention to deregulate the sector, so far with only negligible results.

Finally, an industrial automation sector in Brazil is virtually non-existent, in absolute terms, due to the low level of utilization of digital technology in industrial plants.

The following demonstrates the relative participation of different segments of the Brazilian electronics sector in the total demand for integrated circuits:

Data Processing      - 30.6 percent
Telecommunications   - 12.1 percent

Consumer Electronics - 31.7 percent

Others - 25.6 percent

The Brazilian market for integrated circuits is heavily supplied by imports, which represent more than half of the total demand, which amounted to $384 million in 1990. This does not take contraband into consideration, estimated by some trade sources as being close to yet another 50 percent of total registered imports.

According to a 1989 study prepared by the Brazilian Secretariat of Science and Technology, more than half of the demand for integrated circuits refers to digital ICs, which in fact reflects current international market trends. As regards the technology employed, 67 percent of the total demand relates to bipolar ICs, while the remaining 33 percent requires MOS technology.

Application specific, or customized, ICs are not presently manufactured in Brazil. The participation of these types of circuits in the total Brazilian demand for ICs was estimated in 1988 at only 3-5 percent, but average annual growth rates are expected to be higher for these special ICs over the next five years, reflecting the development of the technological capacity undertaken by different segments of Brazil’s electronics sector.

Competitive Situation

Japan provides the strongest U.S. competition for the Brazilian market for integrated circuits, since Japanese suppliers benefit from favored treatment by Brazilian subsidiaries of Japanese companies, a large number of which are established in-country. Competition has also been stirred by the very attractive, lower prices offered by manufacturers in Asian countries such as Taiwan, Korea, and Hong Kong. However, their sales in the Brazilian market are not yet significant, and the technology is considered to be of inferior quality to that of U.S. and Japanese counterparts.