Positivo Tecnologia: adapting to a new brave world

There are not favorable winds for the Brazilian manufacturer, and it's fighting to remain competitive.

Positivo Tecnologia, a leading PC manufacturer in Brazil, does not go through its best moment. People are buying fewer personal computers these days.

The downward trend in the PC market isn’t the only current problem of the company. The Bolsonaro’s government has plans to eliminate tariffs on some finished electronics and IT products without doing the same with components and parts.

The Positivo Tecnologia CEO Helio Rotenberg told BN Americas on July 25 that “It’s crazy [abolish the tax on finished products without considering the components]. It practically destroys the industry. “

To top it off, the WTO sanctioned the 1991 IT law in Brazil, which gives tax incentives to the country’s technology industry, taking one of its strengths from Positivo.

At this time, there are not favorable winds for the Brazilian manufacturer, and it requires maintaining a firm combat position to remain competitive. The panorama forces them to combine their skills for technological innovation with their capacity for political lobbying.

The problem of taxes on technological products

President Jair Bolsonaro announced the reduction of taxes on finished technology products on June 16 on Twitter. The objective of the measure is to stimulate competitiveness in Brazil with a 16% to 4% reduction in taxes on finished technological products.

Taxes on technological products provokes Brazil to have more expensive products, which hinders the path to digitalization and decreases the purchasing power of the population. To illustrate the impact of these taxes, an investigation by Deutsche Bank Research revealed that Brazil has the most expensive iPhone in the world.

As a first step to reducing taxes, the Brazilian Foreign Chamber of Commerce (Camex) has already presented a new classification for certain imported products. However, the national industry criticized the measure, so the government will suspend the reduction until August 31 to discuss it with local manufacturers.

The discussions held by the Abinee electrical-electronic association with the Ministry of Economy influenced this policy change. Abinee collectively represents Positive and has maintained a strong opposition against the Bolsonaro’s initiative.

“These changes cause substantial damage to the industry in Brazil,” Abinee President Humberto Barbato said last month.

Reform to the Information Technology Law in Brazil

Until now, the Brazilian technology industry has had the incentive of Computer Law, issued in 1991. This law offers tax incentives to electronic and IT companies that invest in research and development and use local components in production. However, these benefits are now under attack.

Last year, the WTO confirmed a decision against Brazil over the subsidies contained in the law and requested adjustments from the authorities. A new version of the law must be ready on January 1, 2020, to avoid reprisals by Japan and the European Union.

According to the executive, the new draft proposed by the government “is very good,” as it maintains the essence of the original text and aligns it with the WTO recommendations.

From PCs to IoT: Positive diversification

For years, Positivo has been the star of the Brazilian computer market, facing international giants such as the US Dell and HP and the Chinese Lenovo.

Positivo Tecnologia was founded in 1989 in Curitiba. The company entered into operations during an uncertain time for Brazil, but their beliefs in the future redeemed it. Between 2012 and 2013, the Brazilian market sold 15 to 17 million computers. However, there is now a slowdown in the Brazilian and global personal computer markets.

“Now sales represent a third of this,” says the CEO of Positivo Tecnologia. The panorama made the Brazilian manufacturer decide to look for new opportunities.

Sales of computers still have a high weight in the company’s balance sheet. Last year, Positive earned $ 2 billion in revenue from the sale of PCs. However, the manufacturer is less and less dependent on this product.

The diversification strategy began in 2012 when the company invested in mobile phones. Currently, smartphones represent 30% of Positivo’s revenues. At the beginning of 2019, Positivo’s diversification strategy intensified.

In January, Positive acquired 80% of Accept, a Brazilian manufacturer of servers and storage equipment. This movement allows you to have a product line as broad as Dell or HP, its main international competitors.

Positive has also tried new business models, such as renting computers for businesses, instead of selling them. This model now represents 23% of the company’s revenues.

The diversification of Positivo also implies seeking innovation outside its borders. The Curitiba company has been acquiring stakes in startups but accelerated this strategy thanks to the Information Investment Fund (FIP).

Brazilian legislation requires that companies that manufacture in Brazil invest approximately 5% of revenues in research and development (R&D). This percentage can now be used to buy business sectors.

Since then, Positive has acquired interests in two Agtechs. In March 2019, the company earned 12% of Agrosmart, which uses sensors to monitor the crop, and 20% of @tech, technological solutions for precision agriculture, located in Piracicaba, municipality of the state of São Paulo.

Before that, Positive had already bought stakes in Eleva, which manufactures drones for crop spraying, and Hi Technologies, a health technology startup with equipment that performs laboratory tests.

In Manaus, where the main Positivo’s factory is located, the company plans to create an incubator for new educational companies.

“We have between $ 15 million and $ 20 million a year to invest in new companies,” says Rotenberg.

“We like to invest in what we call jabuticaba technologies, where Brazil is different from the rest of the world.”

Helio Rotenberg, CEO of Positivo Tecnologia

Among the areas of diversification that the company explores, the most promising is its debut in the Internet of Things (IoT) market. The market estimated to reach a $ 1.5 billion value in Brazil in 2019, according to the IDC consultancy, and projects to reach $ 3.7 billion in 2022.

Positivo will enter this sector with a brand of products for the smart home, where objects are connected to the web. The brand includes security systems, LED Wi-Fi lamps, and sensors to open and close doors and windows. All products are organized in kits that are easy to install and competitively priced to reach the middle class.

The kit that includes smart alarm and wireless sensors sells for $ 499. The so-called Efficient Home, which comes with LED bulbs with Wi-Fi and smart plugs, which can be turned on or off remotely, costs $ 449. An application controls all devices directly from the smartphone.

Positivo’s idea is to replicate the same successful strategy with the Internet of things that marked its debut in PC retail. In 2004, the company launched a machine ready to connect to the Internet. The model was a success and catapulted Positive to the leadership of the PC in the Brazilian market, a position that they held for many years.

The new IoT line uses a similar tactic. Products will be sold in easy-to-install kits. “Positivo is good in retail. It’s in their DNA,” says an industry source.

These are not the only initiatives of Positive. Rotenberg confirms other plans to look for new sources of income, but it is laconic. “We are studying other projects,” says the executive.

According to a source consulted by NeoFeed, the company “is observing a lot the multilaser model.” Multilaser operates a range of more than 3,000 electronic and consumer technology products, most of them imported from China.

Three strengths of Positivo: Location, location, location

Positivo’s location in Brazil gives the company a competitive advantage in the technology industry. The company’s manufacturing operations are concentrated in a crucial free zone located in Manaus, capital of the state of Amazonas. More than 600 industrial companies, mainly in the electronics segment, are installed in this area.

Each year, the government allows tax exemptions worth close to $ 25 billion.

This week, in his first visit to the city as president, Bolsonaro said he would maintain tax exemptions for companies located in the industrial area in the government’s tax reform proposal, which contradicts his economic team’s strategy of reducing incentives tributaries.

The chief executive of Positivo praised the president’s opinion on the tax-free area of Manaus.

The free zone of Manaus was created in 1967 under a policy to boost the development of the region, located far from the main urban centers of the country and surrounded by the largest tropical forest in the world.

Under the bill that created the free zone, companies that opted to establish operations there obtained tax deductions, which include an 88% reduction in the import tax and exemption from the tax on industrialized products (IPI), PIS / Pasep social welfare taxes and interstate sales tax (ICMS), among others.

Brazil seeks to resurface in technology

Brazil is a leader in the region in innovation and technological development. However, specialists such as Raúl Zibechi point out that this development has stagnated in recent years. As proof, he mentions that in 1980, high-tech companies represented 10% of GDP, while in 2018, they represent only 5.8%.

The ability of Brazilian companies as Positivo to adapt to new technological trends will play a fundamental role in the country to maintain its competitiveness as an emerging nation. However, an essential role in achieving this objective is also up to the Brazilian government. Bolsonaro should seek to open the market without Brazilian companies ending up being absorbed by foreign technology giants.