The technology landscape in Latin America is changing as enterprises place greater emphasis on IT’s ability to deliver efficiency, flexibility and growth through customized services that are tuned to the specific objectives and priorities of the business. As broadband connectivity and access to Internet improves across the region, more and more businesses are realizing the benefits of using IT to drive down costs and improve efficiencies as they embark on new paths to becoming regionally and globally competitive.
Ovum’s survey of enterprise decision makers in Latin America as part of the ICT Enterprise Insights Survey 2014/2015 reveals that improving supplier relationships and enhancing customer satisfaction remain the top two challenges for businesses and there is an increasing tendency to turn to IT as a means for helping them address them (see figure 1).
Figure 1 Major Business Challenges for Latin American Enterprises for 2014/15
Enterprises are re-evaluating their value propositions to meet the expectations of their customers and are creating operating models that take advantage of the new possibilities opening up due to the digital revolution for competitive differentiation. Businesses have long seen IT as a means to improve productivity and efficiency, but customer expectations have seen a dramatic shift over the last couple of years. Improvement in Internet penetration combined with decreasing cost of access and the mushrooming of a myriad collection of social networking communities are changing the way customers interact with one another and with businesses and governments.
This is driving consumer behavior and purchasing trends in Latin America toward global standards as customers turn to online forums and databases for information and research before making the decision to purchase a product or service. The success of online retailers such as Dafiti and Amazon in the region is testament to the potential of digital channels in driving business growth. However, most of these businesses are owned by foreign nationals or business groups and though there is a rising crop of foreign educated Latin American entrepreneurs who want to leverage global best practices, traditional Latin American enterprises still are slower in responding to this shift and have not begun to leverage these platforms to innovate, differentiate and grow.
Latin American enterprises need to decide how fast and how far they want to go down the digital route and work around building a cohesive strategy for integrating the digital and physical elements of their business models to meet customer expectations.
LATAM Market Continues to Grow
Brazil continues its growth streak as domestic demand returns to healthier levels after having been affected by an economic slowdown that also impacted IT spending in 2012-13. Mexico continues to grow on the back of healthy domestic demand while the rest of Latin America sees marginal improvement in the enterprises’ ability to spend on IT (see figure 2).
Figure 2 Latin American IT Services Market Forecasts 2014-2015
While most large enterprises and governments in the region are leveraging IT across their portfolios, Latin American SMEs have been slower on the uptake because many are either unaware of the benefits for business, or because they find them to be expensive. Cloud computing holds great promise for businesses in Latin America because of its ability to greatly reduce capital expenditure. Cloud computing is the provision of computing, storage, software and data management services using a shared pool of physical and virtual resources through a standardized, configurable and utility-like model that can be ramped up or down based on seasonal fluctuations in demand. However, the reliability of the communications network, availability of uniform bandwidth and uninterrupted connectivity across individual countries remains a major hurdle in the widespread adoption of the Cloud model in the region.
But there is hope, as sustained attempts by Latin American countries to position themselves as viable outsourcing destinations continues to fuel investments in infrastructure, education, and business development by local and federal governments. Moreover, public sector organizations such as government departments, public health organizations and educational institutions across the region are turning to online channels to institute more efficient internal processes, reduce administrative costs and improve citizen access to the services they offer which will impact IT spending in the region.
The infrastructure outsourcing space leads the overall IT services spending in the region (as seen in the figure above) as enterprises and governments undertake large initiatives to build the necessary backbone for supporting larger and larger amounts of online transactions and interactions. These investments opens the door for Latin American vendors and enterprises to take advantage of emerging technology trends, such as mobility and the several as-a-service offerings spawned by the cloud model but more investment is needed before the true benefits of these technologies can be realized.
Impact of Preference for Local Vendors
More than half of all Latin American enterprises have outsourced their IT to a service provider, which is higher than the outsourcing levels in mature economies like the U.S. However, while U.S. businesses have become consummate users of the offshore model, Latin American enterprises are still very wary when it comes to moving work to locations beyond the South American continent. While this preference for domestic outsourcing has created a thriving IT industry which is adept at adapting itself to the localized requirements of the region this has also led to a situation where Latin American enterprises have a ‘limited world view’. The reluctance to offshore also limits the exposure of the enterprise buyer to global best practices and tried and tested processes which could make a huge amount of difference to the business. To become true global players Latin American businesses need to get greater exposure to the benefits of the technologies and technology management practices used by their counterparts in developed countries and adapt their sourcing strategies accordingly to be able to leverage IT as a driver of growth.
One of the major reasons behind this reluctance to explore beyond Latin America is the perception that offshoring will lead to loss of control over the process and this is why foreign vendors have found it so hard to gain a foothold in the region (although many are utilizing Latin America as a nearshore delivery location for their clients in North America). It is essential for businesses to realize that offshoring does not mean loss of control and that working with local and foreign vendors will expose them to myriad skills and expertise.
The subsequent knowledge sharing will bring greater maturity within the enterprises’ IT departments and also raise the level of competitiveness in the Latin American vendor ecosystem, pushing both local and foreign vendors to work harder for a share of the pie and ultimately drive down the cost of services. It will also push vendors focused on this region to invest in building a stronger portfolio of offerings around the digital enterprise to help customers stay relevant in a constantly evolving environment where markets, technologies and customer expectations rise and fall at a dizzying pace.