Case study 2

For this section, please first read chapter 8 of your textbook. Then read the following case study about a Brazilian firm that is considering expanding abroad: 

Case Study – Compsis at a Crossroads

When you have finished reading the case study, answer the accompanying case questions:

Questions to Compsis at a Crossroads x

Deliverables

In 2-3 pages (1.5 spaced lines), make a recommendation for Compsis. That is, should they go abroad or not? Use the exhibits and information presented in the case study to justify your answer. If you believe Compsis should go abroad, be as specific as possible about which markets they should enter and why. 

Submit your response as a file upload to this assignment by Sunday.

07-044
Rev

.

December 15, 2009

This case was prepared by lecturer M. Jonathan Lehrich and MIT Sloan students Paul John Paredes and Ramesh Ravikumar
(MBA Class of 2005).

Copyright © 2007, M. Jonathan Lehrich, Paul John Paredes and Ramesh Ravikumar. This work is licensed under the Creative
Commons Attribution-Noncommercial-No Derivative Works 3.0 Unported License. To view a copy of this license visit
http://creativecommons.org/licenses/by-nc-nd/3.0/ or send a letter to Creative Commons, 171 Second Street, Suite 300, San
Francisco, California, 94105, USA

.

Compsis at a Crossroads
M. Jonathan Lehrich, Paul John Paredes, Ramesh Ravikumar

2004 had not been a good year for Compsis. Founded in 1989 in the Brazilian industrial city of São
José dos Campos, Compsis had grown steadily and successfully. In its largest service line, systems
integration for electronic toll collection (ETC), the company had gained the dominant share of the
Brazilian market and had even managed projects in Australia and India. Compsis had developed
strong relationships with the Brazilian government and toll road operators, as well as an international
reputation among industry competitors for quality and technological expertise. By 2003, the
company’s founders could take pride in reaching a height of 165 employees and US$4.2 million
(R$11.1 million) in revenue.

In 2004, however, it appeared that Compsis’s success might be in jeopardy. Revenue fell to US$3.3
million, primarily due to the Brazilian government’s prolonged delay in awarding new toll road
construction rights to concessionaires (road operators). Despite considerable efforts by the business
development team, Compsis had been unable to win new ETC projects outside Brazil, not only in
Latin America but in Europe and India as well. True, Compsis was making progress in turning its
ETC software –

SICAT

– into a simpler, more flexible product, but the senior managers knew that
even after the new version was completed in April 2005 it would not be easy to convince existing
customers to upgrade.

Therefore Compsis stood at a crossroads. CEO Ailton de Assis Queiroga and his fellow Compsis
leaders anticipated that 2005 would be a better year: the Brazilian government was expected to award
more concessions, the new SICAT version would be completed, and Compsis would be ready to test
new products ranging from traffic management systems to magnetically guided buses. On the other
hand, Compsis could ill afford to depend solely on the vagaries of the Brazilian market for its long-
term financial future. The company could continue to pursue expansion elsewhere in Latin America

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Rev. December 15, 2009 2

and other developing ETC markets, recognizing however that the highly price-sensitive buyers might
not be willing to pay for Compsis’s technologically sophisticated services. Or Compsis could turn to
a mature market, a country where experienced toll system buyers demanded and paid for cutting-edge
technology from industry leaders. Among all such countries, one stood out for its sheer size: the
United States.

The Electronic Toll Industry

Transportation tolls date from at least the fifth century B.C., when the Greeks told stories of Charon,
the ferryman who charged a toll to convey the dead across the river Acheron. The earliest recorded
U.S. toll road was the Lancaster Turnpike, built in the 1790s to link the Pennsylvanian cities of
Philadelphia and Lancaster. As automobiles became popular in the 1920s, tolls were often instituted
to obtain government revenue and to manage high traffic volumes by creating limited-access
highways. By 2004 drivers were paying tolls on the majority of expressways and major inter-city
roads in the U.S., China, Singapore, and Western and Central Europe. These governments used tolls
to pay for the road maintenance, supplement their coffers, or reduce congestion by discouraging
traffic.1

A modern toll plaza often featured multiple lane types, broadly classified into three categories:
manual, semi-automatic, and fully automatic. A manual toll collection booth accepted either coins or
cash. A semi-automatic toll lane allowed cash collection, credit cards, coupons, and drive-through
using RFID transponders. A fully automatic, unmanned toll booth only permitted vehicles that were
RFID-equipped. Linking the various lanes was a complex and integrated system of wires, detection
devices, and software, both to monitor drivers and employees and to audit the receipts.

These receipts were collected by the toll road operator, the company or agency that usually paid for
the detection and auditing technology. In some countries, including Brazil, most operators were
private concessionaires, companies who won a contract from the government to manage (and
frequently build) a toll road. In return for paying annual fees or revenue percentages and for
maintaining certain price and service standards, the concessionaire operated the road for its own
profit. In other countries, such as the United States, the operator and the government were one and
the same; perceiving the road as a public good, the government managed the road either through a
transportation department or ministry or through a quasi-independent toll agency.

Serving these public and private operators was a multi-billion-dollar international toll industry. In
ETC alone, companies based in the U.S., France, Spain, and elsewhere competed for contracts
throughout the world with local suppliers of tags (RFID transponders), hardware, integration and
software, maintenance, and back-office (customer support) services. Some firms offered one area of
service, others a suite; some positioned themselves based on price, others on quality, technical know-
how, or local knowledge. It was not uncommon for a major international player to manage a contract

1 http://www.answers.com/topic/toll-road, reviewed February 28, 2005.

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Rev. December 15, 2009 3

in a new country, then lose its foothold to international or local competitors who won more of the
available projects. Depending on the number of operators in the market, there might not be enough
roads and contracts to go around.

Compsis: Company History

Compsis was founded in 1989 by engineers from the Brazilian aircraft firm Embraer, also based in
São José dos Campos (see Exhibit 1 for the founders’ biographies). Initially the founders planned to
develop and integrate aircraft embedded systems for the Brazilian Air Force, but when these efforts
proved fruitless Compsis shifted to new applications for its technologies. In 1991 Compsis found its
launching customer, General Motors Brazil, and from then on devoted its systems integration
expertise primarily to the broad field of automotive products. (See Exhibit 2 for revenue by business
division.)

In 1996 Compsis decided to expand its technology strategy into a new area: intelligent transportation
systems (ITS). Rather than manufacture transponders or run customer service centers, Compsis stuck
to its core skills: integrating complex hardware and software systems. As system integrators, Compsis
sought contracts for a range of Brazilian ITS projects, including:

• Advanced Traffic Management (ATMS). These systems would enable efficient operational
management of highways or public transport corridors in cities. Numerous subsystems
connected to an Operational Control Center would monitor and control traffic conditions.

• Vehicle Monitoring System (SMV). Using GPS positioning integrated with a data center,
SMV would enable officials to efficiently manage and deploy the public fleets: buses,
garbage transport, police vehicles, fire engines, and ambulances.

• Magnetic Guidance System (SGM). To increase the efficiency and safety of mass transport,
SGM would use a computer-controlled system to automatically guide a city bus on
exclusive lanes or corridors.

• Electronic Toll Audit (SICAT). The product would provide integrated real-time
management of all the processes of automation, accounting, and auditing of revenues at
highway toll plazas.

Of these four concepts, SICAT proved the most attractive to buyers. By the close of 2004, Compsis
was deriving the majority of its revenue from SICAT implementation and maintenance. SICAT was
entering its sixth major revision and had consolidated the market’s greatest needs. Compsis did expect
ATMS solutions to play an increasing role in its ITS strategy, and it looked forward to rolling out its
first SMV and SGM solutions in São Paulo in 2005. Nonetheless, SICAT remained the company’s
flagship and cornerstone.

SICAT

Compsis designed its own SICAT software in-house and sub-contracted the hardware manufacturing
to local suppliers, who provided vehicle sensors, high resolution cameras, toll gates, signaling

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Rev. December 15, 2009 4

elements, RFID sensors, etc. Compsis would install both the hardware and software, then integrate
the two at the level of the booth, plaza, and multi-plaza auditing system (see Exhibit 3).

In 1996 Compsis developed the first version of the toll collection system – SICAT 4 – specifically for
the Brazilian toll collection market. Over the next six years Compsis’s C++ developers responded to
customers’ requests and expectations by gradually improving on SICAT 4 and developing four levels
of functionality.

• Level 1: Lane Level. As a vehicle drove into a toll collection lane, the SICAT system read
the tag or sensed the axles, sent the information to the individual toll collector, printed the
receipt, and did some basic security (e.g., whether the car had a tag at all). It could even
detect any suspended axles, although no client had yet taken advantage of the feature.2 The
current system offered exceptionally high accuracy (99.4%) in detecting the vehicle’s
category based on number of axles. Compsis considered the Level 1 application a
commodity product, not significantly better than competitors’ software.

• Level 2: Plaza Supervision. SICAT separated the collection processing from the Automatic
Vehicle Classification (AVC) algorithm, putting the algorithm on a central computer where
it was easy to audit. The supervisor could give permission or instructions to collectors in
the booths to obtain information, recognize hardware breakdowns, correct mistakes in
reading the vehicle type, and see a graphic depicting traffic flow through the plaza (“Fluxo
Horario”). With the exception of the hardware fault messaging feature, Level 2 too did not
distinguish SICAT from the competition.

• Level 3: Auditing. Level 3, on the other hand, Compsis considered a major breakthrough,
the first real accounting system for ETC. Level 3 could audit the amounts declared by the
toll collector at the end of the shift – the cash-up – by comparing data from Levels 1 and 2.
In a human-operated or manual lane, Level 3 could determine whether an operator was
over- or under-counting, either by error, hurry, or deliberate violation; in an automatic lane,
Level 3 would spot violator drivers (for example, those who used a small-car transponder in
an eighteen-wheeler truck). As late as 2004 Compsis found that few competitors offered
these accounting and auditing services, for one or many plazas.

• Level 4: Overall Financial Supervision. As Level 3 tracked the moneybag, Level 4
provided the auditing tracks. By rolling up information from multiple plazas that had
different systems (including non-Compsis systems), Level 4 gave the finance and
accounting departments direct access to all the revenues being generated at different toll
lanes at one or more toll plazas. This deep management of operations was not possible on
most competitors’ systems.

In the fall of 2001, Compsis began to upgrade SICAT 4. For a large toll road project in New Delhi,
Compsis used early Java tolls to develop SICAT India, which introduced business intelligence tools

2 In an effort to evade a toll based on the number of axles per vehicle, some truck drivers temporarily suspended an axle or two, drove through the tollbooth
and paid a lower toll, then dropped the axles down again at the other side.

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Rev. December 15, 2009 5

to ease the operator’s tasks. SICAT India would be succeeded by SICAT XP, which was scheduled
for release in April 2005 and which promised to incorporate all the lessons learned from developing
toll collection systems. To be sold both as a stand-alone product and as an upgrade for current
SICAT 4 customers, SICAT XP would be Web-based, layered on an inexpensive SQL or MySQL
database, and most importantly flexible enough to be sold in modules. Compsis envisioned selling
each customer a full SICAT XP package, installing the software with a minimum of front-end
interface customization, and then switching on or off whichever functions and levels the buyer had
chosen to license or forgo. For the first time Compsis could sell SICAT not as a project that required
building and customization, but as a product that would approach the convenience of plug-and-play.

The Expansion of the Compsis ETC Business

Compsis developed its first version of SICAT in 1996 to capture the growing Brazilian market for
ETC systems integration. Eight years later, Compsis had done precisely that: 39% of Brazilian toll
concessionaires had contracted with Compsis for installation and software (see Exhibit 4).
Moreover, since 2002 Compsis had aggressively pursued and won contracts for ongoing updates and
maintenance (U&M), contracts that had become a profitable and rapidly growing segment of the
firm’s business. Compsis also expected to gain additional market share after the launch of SICAT
XP, as it intended to persuade toll operators nearing their system license renewal date to switch to the
more powerful, flexible, user-friendly SICAT XP product.

Yet Compsis refused to rely solely on its Brazilian SICAT business. Ailton and the other founders
strongly believed that any technology-based company in Brazil would be vulnerable if it were to
depend solely on a single product line. A European competitor might be able to succeed with just one
product, since the European market was much more stable, but Compsis had to allow for significant
variation in demand (see Exhibit 5). Therefore for the last four years Compsis had invested
significantly in new product lines, largely using SICAT profits. The strategy was to broaden both the
product and geographical ranges of Compsis: even as it developed new offerings for the Brazilian
market (particularly ATMS), Compsis strove to expand into new markets throughout the world. In
each new country Compsis would lead with its most mature product, SICAT; then, once its brand was
established, Compsis could introduce its other products as well.

Indeed, Compsis had adopted this SICAT-first approach in both its projects outside Brazil thus far. In
1999 Compsis collaborated with Philips, an American technology firm, to implement SICAT 4
systems for a toll plaza in Australia. This partnership worked extremely well. Philips handled the
hardware, Compsis the software, and Philips had both the local commercial contacts and the technical
sophistication to win the business and quickly learn to install the SICAT system. True, Compsis had
had to send an employee to Australia for several months to train the operator to use the software, and
subsequently Philips was purchased by Tyco and lost interest in the toll business, but Compsis could
point to Australia as a successful model of international expansion.

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Rev. December 15, 2009 6

In India, however, the technological advances of the project were overshadowed by the financial
losses. After Compsis was called into the project by Intertoll, a respected South African construction
consulting firm, Compsis had sought to reduce its costs by searching for a local contractor to install
and test the hardware and SICAT system. Unfortunately, the Indian contractor Compsis selected
proved unable to do the job competently, necessitating four complete re-installations. Moreover,
unlike the Australian customers who could afford high-cost systems, the Indian toll highway
authorities were so sensitive to price that they would probably have been satisfied with a system far
less sophisticated than the one they received (SICAT India). Lacking the experience of working in a
developing economy so different from their own, Compsis ultimately completed the project having
written a new iteration of software, but also having overrun the engineering segment of the budget by
100 percent. Instead of the comfortable margin Compsis customarily achieved on its other ETC
implementations, the India project was a wash – no losses, but no profits either.

Latin American Markets for Compsis

As Ailton and his fellow Compsis leaders considered possible markets for expansion, they knew that
Brazil would continue to be fertile ground for their services. As Exhibits 5 and 6 indicate, research
conducted and purchased by Compsis showed that whenever the Brazilian government began
awarding toll highway concessions again, the concessionaires – all of them well-known to Compsis
and its business development team – would generate systems integration projects that could keep
Compsis extremely busy. Typically Compsis would be alerted to an upcoming project and possibly
consulted on its design, then submit a technical proposal to prove that it could meet the minimum
performance standard. Once the small number of qualified vendors received notice that their
technical proposals had been approved, Compsis would submit its cost proposal and prepare for a
lengthy negotiation to find the right price. Although no contract was ever a sure thing, Compsis could
count on its past performance, strong relationships with key decision-makers in the operator firms,
and reasonable balance of price and quality to help it win a reasonable segment of the available
business, both for new projects and for the follow-up U&M.

Outside Brazil, the Latin American market was projected to be small but growing rapidly. The six
countries Compsis considered targeting all had relatively little experience with toll roads, so they
would probably want simple, inexpensive solutions that would be easy for the systems integrator to
implement. Compsis executives had visited Bolivia, Peru, and other key countries and had returned
advising that Compsis identify a local commercial partner, someone who knew the right people, could
maneuver around the complex and corrupt procurement systems, and would obtain information about
upcoming projects before they were openly announced. Similar partnerships were also being
considered, although in different political and commercial climates, in such countries as Great Britain,
India, and Pakistan.

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Rev. December 15, 2009 7

The United States ETC Market

Meanwhile Compsis was also turning its eyes north to the United States, an ETC market larger than
all of Spanish-speaking Latin America put together (see Exhibit 6). The ETC industry in the United
States was mature, growing steadily, and dominated by several well-established providers. (See
Table 1 below.) Potential vendors seeking to enter the ETC market found themselves competing for
the favor of experienced buyers, not merely on price but on credibility, competence, and proven
expertise.

The ETC customer base in the US was comprised mostly of transit agencies and transit authorities.
Transit agencies, such as Departments of Transportation (DOT), were line agencies of the federal or
state government, such as USDOT (Federal) and TxDOT (Texas). Transit authorities, such as the
Massachusetts Turnpike Authority, were quasi-governmental bodies that worked alongside transit
agencies but had independent boards of directors and the authority to issue bonds. As of 2004, a total
of 64 toll agencies were distributed among 26 states, of which the largest toll road builders were
Florida, New York, Texas, and Illinois. (See Exhibit 7.) Though there were a few private companies
who operated toll roads and bought ETC products and services, the majority of the ETC projects in
the US were handled by public organizations that also constructed and operated the roads.

Table 1 Major Competitors in Electronic Toll Collection

ETC Contracts* Significant Players Comments

Tags MarkIV, TransCore These two firms shared 92% of the
market.

Hardware TransCore, MarkIV, Raytheon,
SIRIT

Raytheon was particularly big in Canada,
SIRIT in California.

Integration and Software TransCore, ACS State and
Local Solutions, VES Systems,
CASETA Technologies, ETC
Inc., Iteris

TransCore and ACS each earned over
$100 million in revenue on ETC. The
others were far smaller: $10 million or
less.

Maintenance

ACS State and Local Solutions,
Transcore

Back-office (Customer
Service Center)

ACS State and Local Solutions,
Transcore

ACS was perceived as dominant in this
area.

* Each ETC project customarily required all of these contracts, although some might be combined.

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Rev. December 15, 2009 8

The ETC Sales Process in the United States

Throughout the 1980s and early 1990s, public agencies had tremendous difficulty procuring ETC
products and services, as government officials had neither sufficient knowledge of the product and
service offerings nor previous experience procuring them. Several trade organizations therefore
emerged in order to promote procurement of ITS technologies by creating a network of vendors and
providing them the necessary exposure to potential customers. For ETC specifically, the
International Bridge, Tunnel and Toll Association (IBTTA) served as the primary trade organization.
The IBTTA included among its members virtually every toll authority and the most significant
vendors, and organized the industry’s most prominent conferences, seminars, advocacy initiatives,
and list of current open Requests for Proposals (RFPs).

Membership in a trade organization might help a firm ensure that it heard about a project, but the firm
then still needed to win the bid in an open process that evaluated multiple criteria. Although a firm
might encounter a number of methods of awarding ETC projects – sealed bid, a 2-step sealed bid,
competitive negotiation (RFP/RFQ), sole source, or unsolicited proposal – since the majority of
customers in the U.S. were public agencies, the majority of projects were procured through public
RFPs.

The RFP was a competitive, well-regulated bidding process with clear guidelines and procedures,
designed to ensure fair competition among vendors. Typically the entire RFP process involved a few
months, from the day the RFP was published in a trade journal or online source to the day a vendor
was awarded a specific project. Once an RFP was announced to the public, vendors would respond to
the announcement and obtain a copy, typically including the background on the agency and the
project, project description, scope of required services, proposal requirements, submission
requirements, and selection process. It also specified the evaluation criteria, such as:

• The quality of the employees who would work on the project.
• The ability of the vendor to maintain high-quality human resources for the duration of the

project.
• The past performance on similar tasks.
• A demonstration that the task was well-understood and the needs could be met (the

technical proposal).
• The cost of the solution.

Typically the issuing agency predefined the evaluation criteria and assigned a weight to factor into
the decision-making process. For example, experience in providing similar services might be
weighted 25%, approach to deliver quality technical resources 40%, management approach 10%,
maintenance approach 10%, and cost 15%.

Within a few days after the RFP was issued, a pre-proposal, in-person conference, open to all
respondents, would be held to address the questions of the vendors. All of the questions and answers

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Rev. December 15, 2009 9

would be published to make all relevant information public. The deadline for vendors to submit
multiple printed copies of their proposals fell four to eight weeks after the pre-proposal conference.
The agency would then evaluate the proposals according to the announced scoring system. It was not
uncommon for the vendor(s) that seemed most qualified to be given an oral interview before the
project was finally awarded. Throughout the process the agency would devote great care to
demonstrating the objectivity and defensibility of its decision, recognizing not only its public duty but
also the risk that an unsuccessful bidder might file a public protest.

Entering the U.S. Market

In light of the size and complexity of the market, the Compsis directors knew that it would be no
trivial matter to find and obtain ETC projects in the United States. Despite its strong quality
reputation among industry competitors, as a market entrant Compsis would be virtually unknown
among the transportation agency and authority buyers in the U.S. Sales resources too could pose an
issue; at the close of 2004, the Compsis sales team consisted of five people, all with engineering
backgrounds. The head of the sales group managed three salespeople as well as a person covering
commercial applications, who was in charge of linking the engineering and sales teams in
commercialization efforts. The sales office sat in the same building in São José dos Campos that
housed the developers, the finance officers, and all of Compsis management, and did not add
significant office costs compared to the rest of the organization.

In contrast to the work with Philips and Intertoll, in Brazil Compsis had not formed commercial
partnerships, although it did have strong relationships as a supplier to highway construction and
maintenance companies. Additionally, the company had strong ties to such leading Brazilian
engineering universities as the Instituto Tecnologico de Aeronautica (ITA) and the Universidade do
Vale do Paraiba (UNIVAP). To enter the U.S., however, Compsis was considering a broad range of
approaches, including opening its own sales office in the U.S., partnering with a U.S. firm, pursuing a
preferred vendor status with a construction company, or selling through a value-added reseller
(VAR).

Sales Office. Compsis had no physical presence in the U.S. market, and indeed most of the
executives had not visited the U.S. more than once. In order to open a U.S. office, Compsis would
need to invest in hiring both sales staff and engineers, leasing office space, and maintaining the office
itself. Through 2004, the company had not had any offices outside its headquarters in São José dos
Campos.

Partnerships. Compsis could look for a partnership with different types of participants in the
transportation industry, ranging from pure-play toll collection providers to vertically integrated
transportation infrastructure companies.

• Dominant ETC players. Some of the companies that competed in ETC and ITS specialized
solely in systems integration or software development, while others competed in all areas,

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Rev. December 15, 2009 10

including toll collection, advanced traffic management, and GPS technology. Several
competing companies even operated in segments of the same system, such as the E-ZPass
toll collection program. The single largest player, Transcore, had an established name in all
major important markets, and all of Compsis’s products overlapped with Transcore
products. Another key player, Affiliated Computer Services (ACS), was a large provider of
business process and information technology outsourcing solutions, offering customer
service centers related to the E-ZPass electronic toll collection system. (See Table 1 above.)

• Smaller toll industry players. Numerous smaller ETC providers specialized in either
product or geographic niches. International Road Dynamics (IRD), for example, was a
small Canadian company that sold primarily in the United States. IRD had established
relationships with DOTs for ITS products in selling weight motion systems, but had had
limited success in entering the ETC industry with a strong collection systems offering.

• Equipment manufacturers. A different segment of the market manufactured the equipment
used in toll collections systems and ITS, but stayed away from systems integrations. Mark
IV, for example, as the largest toll transponder manufacturer in the U.S., had developed
strong relationships with government buyers and all levels of toll suppliers in the industry.

• Large technology firms. Big players in the technology sectors – Cisco, Raytheon, Aecom,
and others – were developing offerings in ITS and to a lesser extent in toll collection. Cisco
had already teamed up with Transcore, resorting to partnerships to extend its product
offerings and achieve efficiencies in the selling process.

• Highway suppliers. Many firms had established relationships with DOTs by providing
equipment and systems unrelated to toll collection. A U.S. firm like Daktronics might have
developed strong engineering expertise and ties to transportation authorities by selling its
display systems (variable message signs) for highways and cities – not products for which
Compsis had any intention of competing.

• Large non-U.S. competitors. Several European ETC leaders, close competitors to Compsis
in Brazil and abroad, had no presence in the U.S. market. Although companies like GEA
and CS Route (France) and SICE (Spain) had product overlap with Compsis and little or no
experience in the U.S., they did have extensive experience competing for public RFPs
outside their home market and possible interest in entering the United States.

Preferred Vendor for a Construction Firm. In some cases, it was not the DOT or toll authority
that made purchasing decisions for ETC, but the construction company that had won the contract to
build a toll road. Moreover, even when decisions were made directly by the public agency, the
construction companies could influence the purchasing process. Rather than set up a partnership,
such companies would treat Compsis as a preferred vendor, to be used at their convenience whenever
an ETC project arose.

VAR (Value-added Reseller). If Compsis formed a commercial partnership with a VAR, it would
obtain contacts and local business development expertise but no technical expertise or complementary
services. In Pakistan, for example, in order to obtain vital personal contacts with government

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Rev. December 15, 2009 11

officials, Compsis was exploring a relationship with a well-connected VAR who would receive a
commission for all sales. In the U.S., former state Department of Transportation employees, highway
construction company officers, or other government-connected individuals could potentially act as
VARs for Compsis.

The Crossroads

As 2004 drew to a close, Ailton knew that Compsis had several months of operating cash in the bank.
Perhaps the best option was to wait out the current drought, expecting that the Brazilian government’s
funding for toll concessions would rebound as predicted. On the other hand, once the government
announced the reopening of concession grants, Compsis would have to wait for those contracts to be
awarded, then delay while proposals were solicited by the concessionaires, then negotiate the prices
and start the projects – assuming that Compsis won the bids at all.

It might be that Compsis had focused too intensely on electronic toll collection. Were Compsis to
widen its product suite by focusing more on ATMS, SMV, or SGM, it could broaden its portfolio and
spread the risk, albeit among much the same government and concessionaire buyers as for ETC.
Compsis could even get away from its traditional higher-quality, higher-price strategy and
aggressively pursue contracts for less expensive projects, such as setting up a series of emergency call
boxes along a major highway.

But if Compsis really wanted to grow, then Brazil was ultimately a limited market. True, Compsis
hadn’t been perfectly successful in its earliest international projects, but the team had learned crucial
lessons about project management, cultural differences, and the complexities of finding a local
partner. Yet Compsis had a small sales team, relatively inexperienced with international, public RFP
processes. Was Compsis ready to expand to the United States, where it could probably match the
quality and beat the price of its competitors? If so, how should it enter? If not, should it go
elsewhere instead – Latin America, Pakistan, Western Europe – or stay at home? Standing at this
crossroads in the company’s history, Ailton evaluated the options. Which road should Compsis
choose?

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Study Questions

1. Imagine that you’re Ailton and you’re applying to host a team in MIT Global Entre-
preneurship Lab (G-Lab). What should be the team’s project scope?

2. Now imagine you’re on the G-Lab team. How will you set out to complete the project?

• What will you do, in both October-December and January?

• What will be the components of your project workplan?

• What challenges do you anticipate and how will you prepare for them?

• How will you organize your team?

• What do you want to accomplish in your first conversation with your sponsor (Ailton)?

Case Write-up Questions

What do you recommend that Ailton do? Should Compsis expand? If so, where and how? If not, what
should Compsis do instead?

COMPSIS AT A CROSSROADS
M. Jonathan Lehrich, Paul John Paredes, Ramesh Ravikumar

Exhibit 1 Biographies of the Compsis Founders

Ailton de Assis Queiroga, electronic engineer, M.Sc., has been the CEO of Compsis since its
foundation in 1989. He has wide experience in systems engineering and real-time software
development. Some of Eng. Queiroga’s main involvements have included: design of universal
Programmable Logic Controllers – PLC (Philips, Holland, 1980-81); design of a MIL-STD-1553B
remote terminal, AM-X Aircraft Avionic Integration and Validation Test Facility System (Aeritalia,
Italy, 1982-85); conception and early design of the AM-X aircraft Operational Flight Program-OFP
Maintenance and Test Support System, according to DOD-STD-2167A; and design of the EMB-120
Brasilia aircraft Mechanical and Pneumatic Systems testing facility (Embraer, 1985-1989).

Hélio Ikedo, electronic engineer, graduated from ITA (Instituto Tecnologico de Aeronautica). He
did his post-graduate work on control systems for real-time systems, with large experience in projects
and development of industrial and aerospace systems, and an emphasis on system engineering, special
equipment, and software. Eng. Ikedo has worked with system and software development for on-
board computing, MIL-STD 1553B bus controller network, equipment test and control and
supervisory system based on mini and microcomputers. He has also participated in a joint program
with MBB Aerospace Division München (Germany) and AMX Program with AERITALIA – Turin
(Italy). Eng. Ikedo is one of the founding members of Compsis, developing the first Brazilian Toll
Collection System.

Exhibit 2 Revenues by Division, 2002-2004

2002 2003 200

4

Revenues (Total; US$ millions) 3.21 4.171 3.32

Division (%)
SICAT 44.2 18.0 10.4
ATMS 0.0 6.0 0.

0

SMV 0.1 2.0 0.0
SGM 0.0 26.0 0.3
Automotive 23.1 9.0 23.

7

Aerospace 0.0 0.0 0.0
Updates & Maintenance (U&M) 32.6 38.0 65.7

.

Source: Compsis.

Rev. December 15, 2009 13

COMPSIS AT A CROSSROADS
M. Jonathan Lehrich, Paul John Paredes, Ramesh Ravikumar

Exhibit 3 The Compsis ETC and ITS Product Lines

Toll Plaza near São Paulo, Brazil, operated by Compsis client Viao Este

The Compsis SICAT software

Control Center equipped with Compsis
ATMS (Advanced Traffic Management)

Rev. December 15, 2009 14

COMPSIS AT A CROSSROADS
M. Jonathan Lehrich, Paul John Paredes, Ramesh Ravikumar

Exhibit 4 Shares of ETC Integration Market in Brazil (2004)

Concessions (36) Lanes (1,698)
Compsis 39% 31%
CSRoute 17% 20%
GEA 6% 14%
TESC 14% 9%
Sainco 8% 8%
Servotron 8% 6%
Telectronica 3% 6%
Tecsidel 3% 4%
DM 3% 2%

Sources: Compsis, ABCR (2004).

Exhibit 5 Highway Concessions Awarded in Brazil (1994-2007)

1

3
2

7

1

8

0
4
1
8

14

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Source: Compsis, ABCR (2004). 1994-2004 actual; 2005-2007 projected.

Rev. December 15, 2009 15

COMPSIS AT A CROSSROADS
M. Jonathan Lehrich, Paul John Paredes, Ramesh Ravikumar

Rev. December 15, 2009 16

Exhibit 6 Projected ETC Revenues in Latin America and the U.S., 2004-2008
in US$ Millions

2004 2005 2006 2007 2008
Brazil
New Projects 0 52 42 41 0
Upgrade & Maintenance 18 18 23 25 28
Total 18 70 65 66 28

Latin America (outside Brazil)
New Projects 18 6 0 20 21
Upgrade & Maintenance 1 1 1 2 3
Total 19 7 1 22 24

United States
New Projects and U&M 49 54 60 66 73

Notes: Latin American projects are projected to be divided as follows: Chile 31%, Bolivia 20%,
Argentina 19%, Peru 16%, Ecuador 8%, Colombia 6%. Other Latin American countries are projected
to have virtually no ETC expenditures.

Source: Compsis, ABCR, Entrevistas Itelogy, IBTTA, FHWA (2004).

COMPSIS AT A CROSSROADS
M. Jonathan Lehrich, Paul John Paredes, Ramesh Ravikumar

Rev. December 15, 2009 17

Exhibit 7 Toll Road Projects in the United States, by State (2001-2004)
Toll Road

State Mileage (2003) 2001 2002 2003 (proj.) 2004 (proj.)
Alabama 6.0 – – – –
Alaska 0.0 – – – –
Arizona 0.0 – – – –
Arkansas 0.0 – – – –
California 95.8 126.5 92.7 224.3 69.0
Colorado 48.0 152.4 223.3 115.3 47.6
Connecticut 0.0 – – – –
Delaware 49.3 193.4 51.2 54.7 20.0
District of Columbia 0.0 – – – –
Florida 657.0 262.4 574.0 513.5 773.7
Georgia 6.2 – – – –
Hawaii 0.0 – – – –
Idaho 0.0 – – – –
Illinois 282.1 153.3 104.6 257.0 358.0
Indiana 156.8 26.0 – – –
Iowa 0.0 – – – –
Kansas 236.1 28.8 26.3 23.3 21.9
Kentucky 248.5 – – – –
Louisiana 1.5 2.4 9.6 12.8 10.9
Maine 106.2 53.2 39.5 44.5 19.1
Maryland 0.0 53.1 129.6 167.8 –
Massachusetts 135.6 38.8 44.2 32.0 –
Michigan 0.0 39.2 37.0 35.1 –
Minnesota 0.0 – – – –
Mississippi 0.0 – – – –
Missouri 0.0 – – – –
Montana 0.0 – – – –
Nebraska 0.0 – – – –
Nevada 6.4 – – – –
New Hampshire 97.1 10.1 11.7 38.2 –
New Jersey 356.0 187.4 289.8 318.3 61.0
New Mexico 0.0 – – – –
New York 574.6 574.1 627.2 587.0 699.7
North Carolina 0.0 – – – –
North Dakota 0.0 – – – –
Ohio 392.2 152.1 74.0 76.0 60.8
Oklahoma 596.7 44.7 45.3 43.5 48.8
Oregon 0.0 – – – –
Pennsylvania 508.2 267.3 231.0 221.0 –
Puerto Rico N/A 24.5 57.4 54.0 –
Rhode Island 0.0 6.5 3.0 3.5 –
South Carolina 23.5 – – – –
South Dakota 0.0 – – – –
Tennessee 0.0 – – – –
Texas 145.6 198.4 556.6 1,095.8 686.3
Utah 1.0 – – – –
Vermont 11.9 – – – –
Virginia 65.1 6.2 3.7 14.6 11.4
Washington 0.0 – – – –
West Virginia 86.8 – – – –
Wisconsin 0.0 – – – –
Wyoming 0.0 – – – –
United States, total 4,894.2 2,601.0 3,231.5 3,932.3 2,888.1

Source: Survey by the International Bridge, Toll and Tunnel Association (2003).
http://www.ibtta.org/website/article.asp?id=206

Total Toll Road Projects (US$ millions)

The Electronic Toll Industry
Compsis: Company History
SICAT
The Expansion of the Compsis ETC Business
Latin American Markets for Compsis
The United States ETC Market
The ETC Sales Process in the United States
Entering the U.S. Market
The Crossroads
Study Questions
Case Write-up Questions
.
• Control Center equipped with Compsis ATMS (Advanced Traffic Management)

Carefully read the case study “Compsis at a Crossroads” (posted in this module). In 2-3 pages (1.5 spaced lines), make a recommendation for Compsis. That is, should they go abroad or not? Use the exhibits and information presented in the case study to justify your answer. If you believe Compsis should go abroad, be as specific as possible about which markets they should enter and why.