Hungry for more: in Brazil, selling to government--a big business--is getting easier to do.

Positivo Informatica, Brazil's largest personal computer maker since 2004, owes its growth--and success--to the Brazilian government. The 17-year-old company sold 90% of its products to the government in 2004. Today, it sells 20% of its annual production of 300,000 computers and products to the government. It's not that the government is buying less. Instead, the company has grown to the point that it can produce more.

On the contrary, government deals have risen year after year. The company participates in every auction, selling a total of 47,000 personal computers at the federal, state and local levels in 2004, and 60,000 in 2005. Positive has jacked up production over the last few years, cutting down the percentage of government in its overall business. In 2005, it invested US$5 million in a new manufacturing plant that tripled production. "We focus hard on the government," says Helio Rotenberg, Positive Informatica's general director. Education, too, is fueling government demand to the tune of $260 million in 2005. "Government purchases in this area continue to grow. There have been many big auctions," he says.

Just like Positive, thousands of Brazilian companies are fighting for government business. In 2005, the Brazilian public sector spent $26 billion buying goods and services from private companies, $7 billion of that at the federal level. At press time, the government was putting the finishing touches on the 2006 budget; the total spending package for this year is estimated to be $592 billion, slightly more than the 2005 budget.

The government estimates that 60% of the budget will pay down domestic and foreign debts. Once debt payments, salaries and other administrative fees are taken away, the Brazilian government will have $233 billion to spend in 2006, 10% more than the year before. Historically, the Brazilian public sector has invested in healthcare, education and social development. After that, governments in the past tended to favor defense.

The federal government alone will spend $8 billion purchasing goods and services this year, $1 billion more than in 2005, while the country's 23 state-level governments and 5,000 municipalities will spend as much as $100 million, according to some estimates. Large government purchases have become the bread and butter of many companies in Brazil. They have made their livelihood selling goods and services as varied as food, medicines, medical equipment, educational materials, computers, automobiles, elevators and security services to public bodies. In some sectors of the economy, such as information technology, government purchases account for half of the total business right now.

Sole purchaser. When it comes to complex and socially sensitive pharmaceuticals like AIDS cocktails or drugs such as Interferon, which treats hepatitis, the government acts as the sole purchaser, according to analysts. All of these drugs are purchased via auction, and over the last two years a good number of pharmaceutical companies have made sales online, which became a priority for President Luiz Inacio Lula da Silva. As of July 2005, the government requires 3,000 public bodies to conduct their government procurement online.

Positivo Informatica, for example, participates in 60 public auctions a month. "More than 90% of them are bid and paid for online," says Rotenberg, citing a bid to supply the Universidade de Sao Paulo with computers. "Bidding has become quicker this way, athough profit margins have eroded." Electronic bidding and payments allow for more auction participants, which pressures prices downward, says Rotenberg.

Thinner margins aside, Rotenberg sees advantages in large-volume sales to the government. In just one fell swoop, Positiva can sell up to 1,000 computers to the government, like it did in August 2005, when the Brazilian tax authority bought 14,000 computers from Positivo. A month later, it would sell another 12,000 to the Secretary of Education in Parana state. Rotenberg expects government demand for information-technology to increase over the coming years. PC para Todos, a government program designed to bring computer and Internet access to low-income families, will fuel demand. Furthermore, the government has created funds that are specifically designed to triple the number of schools connected to the Internet.

With 840 employees, Positivo is a monster compared with Flow Tecnica, a Sao Paulo hospital-furniture maker with just 10 employees. The five-year-old company builds products to Brazilian regulations. While the company makes goods bound for public hospitals, it doesn't participate in government auctions since being a small outfit leaves it without the economies of scale necessary to deal with the government. "The government only cares about price. It doesn't care at all about quality," says Marcelo Lucas, a partner in Flow Tecnica.

Flow is not the only company to feel left out. Many large and medium-sized suppliers say the government is too aggressive in its campaign to lower prices. According to some analysts, there are actually three factors behind this trend. The first is that state-level accounting laws allow for limited disclosure. Secondly, new laws designed to improve fiscal discipline pressures governments at all levels to spend less. Lastly, auctions themselves are designed to encourage participants to strive to be the lowest bidder.

While suppliers complain, government rejoices at cost cutting, music to the ears of any politician. According to Rogerio Santanna, logistics and technology undersecretary for the Planning Ministry, auctions have cut the prices of government purchases by 30%. Eighty percent of what the government needs to buy in public auction it can do so now electronically. "For 2006, the goal is to have 100% of all products and services bid out electronically," Santanna says. "Electronic bidding facilitates purchasing--it takes 12 days instead of 90 days to set a price, for example--and it makes the process more transparent."

For suppliers, transparency and openness have indeed been the best thing that electronic bidding has brought forth. In 2001, when Internet bidding began, 61,000 suppliers were registered. Today, there are more than 230,000 and they are all playing on the same, level playing field. Today, a company can log on to the government's online procurement site, Comprasnet, register for a password, choose an auction and offer products or services for sale. In Silo Paulo, the most industrialized state in the country, online procurement saved the state $800 million over 18 months ending September 2005. Minas Gerais state, meanwhile, saved itself $150 million in a year.

With profit margins shrinking, suppliers say the government makes up for lower prices with larger purchase volumes and timely payments; many companies have found that the public sector cannot be ignored due to those two factors. Primi provides forgery and document-protection services such as products that prevent passports from being copied as well as other products for tax collectors. Half of the company's sales go to the government, and Primi doesn't want to stop there. "We want our stake in this market to rise," says Jadilson Ferreira, a partner and director at the company. Between 2006 and 2007, the company will invest $5 million in technology to better cater to public-sector needs.

While profit margins associated with government deals are thin, economies of scale achieved are enough to bring suppliers to the government auction block. "These are big contracts that, depending on the sector of the economy they're in, can affect strategies that could mean life or death for companies," says Roberto Baungartner, director of public business at Ticket Services, the unit of France's Accor hotel group responsible for making reservations at hotels, restaurants and transportation. With a 42% market share, Ticket Services holds 2,500 contracts with state-owned entities such as the Petrobras oil company, as well as federal banks Banco do Brasil and Caixa Economica Federal, which account for 35% of Ticket Services' business, generating $580 million in reservations sold. "We always stay on top of any activity in the government to get the good contracts;' says Baungartner.

Waking up. Companies that had otherwise never paid such attention to the government are starting to wake up to the opportunity. That was the case for Microsiga, which makes management software for small and medium-sized businesses. In 2004, Microsiga began to target the public sector. "Today, our sales to the public sector represent 5% of our total, but our goal is to get to 40% in four years," says Marcos Lima, Microsiga's head of government relations. The company reported $100 million in revenue last year and is focusing its energies on governments in 4,000 small towns. "It's all about tapping unexplored markets and getting our system to adapt to outdated hardware in these towns" says Lima. The company offers solutions to big companies, such as Brasil Telecom, which need to do business with small companies or small towns.

Government purchases aren't always about money. U.S. automobile giant General Motors supplies the public sector with half of the 150,000 vehicles it buys a year. "We believe that having our brand on ambulances and police cars will generate results in other sales areas," says Frederico Themoteo Junior, head of sales at GM do Brasil. In Brazil, big automobile deliveries to the government are often public events that generate publicity for car manufacturers. Governors and even presidents often show up at such events. Of the country's 11,000 military police cars in Silo Paulo state, 85% are GM products, rolling off the assembly line painted and adapted to police standards, equipped with radios, sirens and grates to separate officers from detainees. On average, GM sells 10,000 vehicles to the government a year, 90% of them through online auctions. "In 2006, we expect growth of 40% to 50%, with auctions fueling that," Themoteo says.

Public-sector procurement will be uncharacteristically heavy earlier this year, says Roberto Baccarat, director of RHS Licitacoes, a Silo Paulo company consulting 5,000 companies on how to do business with the Brazilian government. "Suppliers must be aware of the concentration of purchases in the first half of the year, because of elections taking place during the second half," says Baccarat. "Historically, there are 25,000 auctions a month but in the first half of 2006 that figure could double to 50,000."