Q&A: Digital Divide Will Remain Without Increased Infrastructure Investments

One of Latin America’s biggest challenges is increasing connectivity and digital inclusion for all. Ernesto Piedras and Carlos Hernández from the CIU provide a snapshot on the region's progress toward this goal.

Telecommunications and information technology are inherently linked; without the digital networks we rely on for connectivity, today’s equipment and devices would most likely be useless. While the region is finding a level of success in nearshore IT services, this is still one of Latin America’s biggest challenges: increasing connectivity and digital inclusion for all.

Ernesto Piedras, CEO and Director General of The Competitive Intelligence Unit (CIU), has extensive knowledge of both the telecom and IT sectors, particularly in Mexico and the rest of Latin America. Having co-authored a number of national digital agendas, Piedras has witnessed connectivity trends first hand as the region works to bridge the digital divide.

We sat down with both Piedras and Carlos Hernández, ICT Analysis Coordinator at CIU, to find out if this lack of connectivity is holding the region back from its full potential in nearshore IT services, and whether the ongoing rise of entrepreneurs might be able to change that.

Nearshore Americas: Nearshore demand for IT services is increasing due to Latin America’s ability to provide low- to mid-complexity digital services, but how do you see the region developing its capacity to deliver more higher-value services?

ernesto piedrasErnesto Piedras: We have witnessed striking differences across all of Latin America. We are used to talking about Latin America as a region, but the truth is there are at least three or four versions of the region. One is the more advanced and developed countries in adoptions, for instance Argentina’s software industry, Brazil, which has always been advanced, and Mexico. Colombia is making an effort but I would place it in the second group in terms of development with Chile and Peru, while the rest of Latin America and Central America are at the bottom. These bottom-tier nations have much less of a degree of penetration and adoption, and are not yet convinced of the need to improve processes in the entire production chain. This mindset needs to change. It will be necessary to convince them of the convenience and the need to get more ICT services in general, because not all of them are sure about it.

The other problem that all countries face is connectivity. Some cities are more connected than distant locales, so integrating the whole chain of IT and telecoms services is vital. It makes no sense if you are very well equipped but the rest of your productive chain is not, so it’s important to have it for everyone.

Carlos Hernández: In the last few years, we have found an increasing adoption of software as a service (SaaS) and cloud computing. This is because companies just don’t have the money to afford some IT infrastructure. With these services, they can now be involved in the IT ecosystem.

Many of these services were at first hosted outside of Mexico, but nowadays we see companies like IBM and Megacable incorporating local services and servers, so the services are consumed in Mexico from a local server. A lot of other companies have their servers in other countries, but there is definitely more being consumed from Mexican servers.

What is the evolution of this entrepreneurial ecosystem telling you? How might this affect economies in Latin America?

Ernesto Piedras: This trend of being your own boss will continue to expand across, not just Latin America, but the entire world. In Mexico, we have identified what we call “high-powered micro companies”, which account for almost 300,000 companies in the country. Around 94% of the companies in Mexico are small businesses with around 1-15 employees. The number of economic units are growing very fast. Almost a decade ago there were 4.3 million, but now there are around 5.1 million. Out of that figure, these 300,000 high-powered micros behave as if they were corporate firms; they are very intensive in their approach to connectivity, equipment and devices.

The structure is also changing. Most of this growth has been taking place in the high-powered micro companies because their entrepreneurial strengths come from people who would have traditionally worked for a big company, but are now embarking on their own projects. This also means that the micro and small companies will gain a larger share in the economy because of their sheer numbers.

Many times in this innovative sector, economic units tend to be smaller, because they get inserted into a productive chain with very specialized, specific services or goods. These trendsetters are highly educated, very well-specialized and highly connected, but it’s not driven by government efforts, it’s very much the market creating its own supply of professional services. These guys certainly rely on internet connectivity to succeed.

There doesn’t seem to be an end to the world’s technological progress, besides a few developmental limitations. We’re in a phase in the world where technology and creativity is being multiplied exponentially and touching every point of our lives. Connectivity is still difficult for many people in the region, particularly in rural areas, but we are on the right path to changing that.

What level of foreign investment is coming in to increase that digital connectivity? Where are foreign companies looking to improve it?

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carlos hernandez ciuCarlos Hernández: In Mexico we see a lot of investment, particularly in the telecom sector, which will definitely lead to better connectivity and better penetration of services, particularly in IT services. These investments are going into new and more servers to increase IT capabilities, and also on a lower scale, we see in other Latin American countries that global companies are becoming more interested in the markets. Brazil, Chile, and Mexico are more interesting because of their faster growth in this segment.

What have been your observations on the talent crisis in the IT sector, and how can the region sustain that growth without the people to support it?

Ernesto Piedras: Mexico is producing lots of engineers. The government launched a very aggressive program for scholarships under CONACYT. We have plenty of scholarships from the British and U.S. governments, which is preparing Mexicans in high-ranked universities. Although there is a small risk of them not returning to Mexico, most of them come back and are leading good efforts in economic growth and development.

The problem here is to focus more and more on these education efforts, not just to have regular engineers but engineers in aeronautics, mechatronics, and telecommunications, because the industries involved in this are so big that they now need to be segmented, not just rely on the general knowledge of regular engineers.

Many universities are specializing in this, such as Tec de Monterrey and ITAM, which is playing an important role in IT and telecommunications. The national universities are more traditional in their approach. The University of Guadalajara and Anahuac also has a very strong area for engineering, so it is growing, there is demand, but many times the complaint is that demand runs behind the supply of these professionals.

In your opinion, how prepared is the region for the next stages of connectivity and the rise of Internet of Things (IoT)?

Ernesto Piedras: Once again we have to look at all the links in the chan. We’ve seen IoT penetrating the primary sectors, such as health and agriculture, using things like drones and sensors. A few months ago, we found a milk farm in Guanajuato with hundreds of thousands of cows using chips in each cow to monitor their health and climate. With this solution, their productivity increased 40% in terms of quantity of dairy products, but also in terms of quality.

The weak link that we continue to find for IoT is connectivity. Network demand is increasing, so investments must also increase if we are to make progress. Some of the technology is already there for innovative IoT solutions, but without affordable, stable connectivity and complete coverage, we’re going nowhere.

Historically, every time there is investment into infrastructure, economies can grow much faster. Nowadays, the return of investment will also be bigger if you invest in infrastructure, rather than machinery and equipment. The development of richer networks and optic fibers will make you more competitive, more productive, and bring in more ROI.

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