Digital Transformation of Latin American SMEs, a Pending Task

This article was also published in Uruguay’s El País

Digitalization has spread throughout the business world and in the economy at large as a silver bullet for all problems arising from the COVID-19 crisis. In fact, the near-total shutdown of productive activity accelerated the technological trends that had been evolving for years, thus making digitalization, automation, blockchain, the Internet of Things and process virtualization more visible than ever before.

For the business world, and in particular for SMEs, digitalization arose as an instrument to stay afloat and overcome the crisis. But what does it mean to digitalize companies? Although there are many approaches to this concept, we need to understand it as a broad notion, beyond the simple acquisition of digital products and services. The digitalization (or digital transformation) of a company consists of incorporating digital products, services and solutions into all operational and strategic processes, in an attempt to boost productivity, competitiveness and add value rapidly, transforming even the business model and relationships with all other economic agents.

In Latin America, however, large gaps persist that prevent digital transformation from consolidating as an instrument of business and economic survival and success. First, do we have access to the necessary technologies? While the region has significantly improved its digital ecosystem over the past three decades, infrastructure, regulation and practice limitations remain, which stunt its potential as an instrument of productivity and competitiveness for enterprises. For example, the International Telecommunication Union estimates that average internet penetration in the region by 2020 will reach 79%, with wide dispersion by country (OECD averages 88.3%). However, in the Ookla Speedtest Global Index on internet download speed, only Chile (with 97.7 Mbps, ranking 30th) and Panama (84.4 Mbps, ranking 35th) are listed above the world average (74.7 Mbps). Brazil, the next Latin American country, ranks 56th with 54.2 Mbps.

But perhaps rather than access, the critical gap is the use of technologies, closely related to the difference in capabilities of companies in the region to integrate digital technology into their productive work. In the Latin American business world, very small units predominate, which face great difficulties in efficiently managing the different aspects of productive activity, and technology is no exception. In many countries in the region, micro-enterprises account for 90% of total production units and, due to their characteristics and weaknesses, face more barriers to the adoption, incorporation and appropriation of technologies.

We can classify companies based on the way they use technology. In low-use companies this relationship is limited to simple consumer actions, such as searching for information, using email and messaging applications, basic use of social media and, in general, one-way uses. High use refer to the management of active e-banking operations, filing official procedures, communication with suppliers and customers, marketing and e-commerce, sales processes and electronic payments and, in general, all uses that give an active role to companies by incorporating added value into their activity.

A recent publication by CAF helps us illustrate the difference between access and use. In a sample of 8 countries (Argentina, Brazil, Chile, Colombia, Ecuador, Mexico, Peru and Uruguay), internet penetration in companies was greater than 90% in almost all cases (2018 figures), but the percentage is dispersed when we analyze the use of electronic banking: 34.2% in the case of Peru and up to 95.4% in the case of Colombia as the outliers. But the percentage of companies that have developed digital sales channels does not exceed 40% in none of the cases, and across the middle of the sample is under 10%.

A strategy based exclusively on the development of an offer of digital infrastructures and services to promote digital transformation will leave behind countless producers and entrepreneurs that face difficulties in dealing with true integration into the digital ecosystem and new technologies, and will end up creating greater inequality in the productive activity and society of the region.

In addition to the region’s efforts to improve coverage of the major core technologies of Revolution 4.0, governments must include policies to build digital capacities for businesses, in order to train them for proper and efficient use. But we must also double our efforts in the training of human capital, with skills and specialties that support the digitalization efforts of companies, as an opportunity for job recovery after the pandemic.