Latin American Companies Recognize Internet Potential, Poised for Investment

August 15, 2003

Despite the economic challenges that have faced Latin America, a majority of businesses in the region have enjoyed substantial business benefits from their investments in Internet and Web-based technologies. This and other key findings are part of an unprecedented survey of how Latin American businesses view and use the Internet and its related business communications technologies. The Cisco-sponsored survey, "Attitudes of Latin American Business Leaders Regarding the Internet," shows that although Latin America has trailed many other parts of the world in Internet technology adoption and use, companies in the region generally view the Internet and Web applications as offering significant productivity and profitability gains. Independent New York firm Kaagan Research Associates conducted this first-of-its-kind survey, which included interviews with 500 executives from medium-sized and large companies in Brazil, Mexico, Argentina, Chile, Colombia, and Peru. Only local companies, rather than branch offices of multinational companies, were interviewed. News@Cisco recently spoke with Keith Goodwin, president Americas International at Cisco, about the survey and its implications for his company and the region.

What were the key findings from the survey of Internet use in Latin America?

Keith Goodwin: From our perspective, we are encouraged by the key results of the survey on two counts. First, the survey shows that there is significant opportunity for Cisco in Latin America. It is clear that business executives in the region consider the Internet to be a strategic tool that has significantly improved their productivity and that they will continue to turn to the Internet to help do that. The survey, for example, shows that 83 percent of Latin American business executives believe the Internet and Web technologies have helped improve the productivity of their companies, while over half will likely make significant information technology investments over the next two years.

Second, the survey is positive news for Latin America and the potential for Internet technologies to help the region emerge from its economic challenges of the past several years. Certainly, Latin America has struggled economically more so than other regions. The survey, however, indicates that not only have companies in the region adopted Internet technologies during this period, but, more importantly, they view the Internet as a significant business tool to drive productivity, lower costs, raise profits and increase competitiveness against global competitors. Latin America currently is under-invested in technology; its spending only represents 1.7 percent of the region's gross domestic product, compared to the United States at 5.2 percent, Europe at 3.5 percent, and Asia at 2.4 percent of GDP. So we see a case of pent up demand, where, if Latin American executives had their druthers, they would be investing even more in Internet technologies. In turn, we feel such investments will help spur growth in the region.

These factors, coupled with the fact that during the last few quarters Cisco has been gaining market share in all segments where we have a presence, makes us feel well positioned to take advantage of any general economic recovery in the region, as well as any up-ticks in information technology spending. Of course, our job will be to demonstrate that investments in Internet-based networking technologies will provide the greatest return-on-investment compared to other capital spending.

What findings from the survey most surprised you?

Keith Goodwin: I was most surprised by the high percentage of Latin American executives that "get it". The survey results highlighted that executives understand the value Internet technologies can bring to their companies. I thought we would see that there wasn't a strong understanding or appreciation of Internet technologies since technology investment is so low in the region compared to other areas, but that wasn't the case at all. It seems more of a situation that Latin America has been a slow starter. For example, 55 percent of all companies surveyed said their Internet use has "greatly increased" over the past year. And 47 percent of executives "strongly agreed" that the Internet has "significantly improved" productivity in their companies. Also, a majority of Latin American companies expect revenues spurred by Internet technologies to increase significantly over the next five years. So, again, these findings are encouraging since they indicate there is a very promising upside for Cisco in Latin America.

Which countries are most bullish about the Internet?

Keith Goodwin: Brazil and Mexico tend to have more adoption of, and more positive attitudes about, Internet technologies, with Colombia, Peru, Chile, and Argentina following. In Brazil, for example, 74 percent of executives "strongly agreed" that the Internet has allowed them to be personally more productive in their work. In Mexico it was 53 percent, while Colombia was 48 percent, Peru 46 percent, Chile 44 percent and Argentina 36 percent. Generally the numbers tracked like this, though depending on the question, Colombia or Peru would fluctuate. Argentina and, surprisingly, Chile, were consistent laggards. Obviously, the region is extremely economically diverse, so our work down there is certainly a country-by-country process.

What types of Internet technologies and Web applications have been most popular for Latin American companies and what are the likely areas of future growth?

Keith Goodwin: As with companies in other regions, Latin American concerns are centered on how to realize the benefits of the wide-variety of operational business tools offered by Internet technologies. Seventy-one percent of the region's companies use the Internet and Web-applications to make and receive online orders, 59 percent use the Internet to carry out customer service, 48 percent use Web-applications for supply chain management, and 38 percent use the Internet to conduct e-learning. So most are on their way with applications, though areas such as supply chain management and e-learning certainly have some upside potential. One area of Internet technology Latin American has not yet tapped is IP telephony. These days North American and European companies are embracing IP telephony and recognize it is a dependable and mature business tool for lowering costs and increasing profitability. Though Latin America lags in adopting this technology, we expect use to ramp up in 2004. Also, Latin American companies lag in use of advanced networking technologies such as IP-based VPNs and security, though, again, we are starting to see increased adoption.

Most Internet technologies rely on quality networking infrastructure, including broadband connections and dependable backbone networks. What is the current state of Latin American networking infrastructure and how is it evolving?

Keith Goodwin: As is the case with adoption and attitudes towards Internet technologies in Latin America, data networking infrastructure development varies greatly from country to country. Some countries are making do with what they have and don't have any focused infrastructure policies, while, others, such as Mexico, for example, has its countrywide eMexico infrastructure investment initiative. Also, Chile and Brazil have various broadband deployment endeavors. And Costa Rica, which wasn't in the survey, recently made a massive investment to deploy a high-speed data network across the country. These countries recognize that their economies depend on good data networks, just as they depend on other infrastructure, such as road or utilities.

And to this point, Latin American countries are much more actively deploying wireless networking technologies compared to other regions, much as they have been in rapidly adopting mobile phone technologies. Just as has been the case with their wireline phone infrastructure, the terrestrial, or wired, data networking infrastructure in Latin America still lags many other regions, despite the current efforts I mentioned above. They don't have a lot of fiber in the ground. Several factors have contributed to this situation. First, general economics and politics have inhibited such infrastructure build outs. The region has been relatively politically stable for only the last 20 years or so. But also-and this explains the appeal of wireless-is the geographic and demographic layout of Latin America. Most of the countries have a few, big, dense cities with huge areas of sparsely populated land in between. And that land tends to be particularly challenging for fiber deployments-lots of mountains, roadless forests, and extreme environments. So wireless offers a great solution to these challenges. In the dense cities, wireless networks can reach many users in a relatively small area, then the networks of each metro area can be linked by some type of long-distance wireless networking technology, such as microwave or satellite. This provides a far less expensive means to "build-out" a network than trying to lay fiber in vast wilderness areas or extremely dense urban areas.