As we enter the second quarter of 2017, the global economy is experiencing its sixth year of stagnation, and the growth outlook does not indicate any improvement. Consumers and businesses share a sense of anxiety, uncertainty and reticence regarding both the economic and political environment across the globe.
A projected stabilization in energy and commodity prices may provide a small tailwind for resource rich economies in 2017, but the medium-term trend continues to reflect weaker growth in key inputs, notably investment and labor supply. The reality is that businesses have to prepare for more disruptions from geopolitical tensions, policy uncertainty, financial market volatility, and rapid changes in technology, but they also need to stay focused on leveraging the qualitative sources of growth with investment in technology and business productivity even—or especially—in times of stagnation.
In this environment, companies are increasing their reliance on cloud computing to give them a competitive edge. Simply put, cloud computing makes it possible for users to access data, applications, and services over the Internet. The cloud eliminates the need for costly hardware, such as hard drives and servers – and gives users the ability to work from anywhere. Over 90% of businesses are already using cloud technology in a public, private, or hybrid cloud environment.
The cloud business in Latin America is no different from the rest of the world; it continues to rise at an unprecedented speed. In 2016 the region grew approximately 3.3% in IT spending, investing $139 billion in this segment. By 2018, at least 40% of IT enterprise spending will be cloud based, and the cloud computing market in Latin America will grow at a compounded annual growth rate of 29% through 2020. Argentina, Mexico, Brazil and Colombia are furthest along in readiness for business services, and vendors are increasing their investments in developing customized cloud-based solutions, including Amazon Web Services, Microsoft, IBM, Google, Salesforce, and SAP.
For multinationals, cloud computing is indispensable as it accelerates time to value, drives higher adoption of new technologies, and connects value chains in real time. But local firms and SMEs can benefit from cloud computing just as much as any multinational or big firms. The cloud is a huge opportunity for small and medium enterprises as it is probably the fastest way to market for most of them. One of the advantages of cloud services is that a small business’s information is then not vulnerable to unforeseen events such as power outages, since cloud data centers have back-up generators. In Latin America, small and medium-size firms will be responsible for as much as 45% of cloud revenues in the medium term, with Brazil possessing an underserved small and medium firm market of over 440,000 companies.
One firm that illustrates the prowess of cloud computing in Latin America is SAP, the #1 business cloud as measured by the number of users with over 80 million users. In fact 84% of the América Economía Top 500 ranking run SAP while 80% of SAP customers around the world are small and medium size firms. Take the case of Stara, a leader in agricultural machinery headquartered in Brazil. They expanded their SAP footprint by choosing SAP HANA Cloud Platform (HCP) and Internet of Things (IoT) solutions to help farmers monitor crop activities through sensors in their equipment in real-time, using a simple interface. With SAP HCP and IoT capabilities, farmers have better insight and control over their operations by using innovative technology to avoid waste while achieving a greater level of efficiency and productivity than ever.
Recognizably there are constraints confronting cloud computing: limited access to and low quality of broadband internet; weak legal and regulatory frameworks (except for Mexico and Argentina); incomplete service level agreements (to cover service adaptability, systems security, compliance with existing laws)
Be that as it may, research shows that companies that have embraced the digital world and executed on their digital strategy are seeing real shareholder and stakeholder value—witness +9% revenue creation, +26% impact to profitability, and +12% market valuation.
Every business is now a technology business, and the cloud is a key aspect of the digital transformation.
Jerry Haar is a professor of business at Florida International University and a Global Policy Fellow at the Woodrow Wilson International Center for Scholars in Washington, D.C. His latest book is Innovation in Emerging Markets.