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Latin America 3.0

Written by  José María Álvarez Pallete López
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José María Álvarez Pallete López Issue: 2010
Article no.: 12
Topic: Latin America 3.0
Author: José María Álvarez Pallete López
Title: Chairman and CEO
Organisation: Telefónica Latinoamérica
PDF size: 608KB

About author

José María Álvarez - Pallete López is the Chairman and CEO of Telefónica Latinoamérica; he is the General Manager of Telefónica Latinoamérica as well as member of the Board of Telefónica, S.A. Mr Álvarez joined the Telefónica Group as a General Manager of Finance for Telefónica Internacional, S.A. and shortly thereafter was named General Manager of Corporate Finance for Telefónica, S.A. Prior to his current position, Mr Álvarez-Pallete was named Chairman and CEO of Telefónica Internacional in 2002. He began his professional career with Auditors Arthur Young. He later worked at Benito & Monjardín / Kidder, Peabody & Co. At Company of Cementos Portland (Cemex) he served as the as head of the Investor Relations and Studies Department, Financial Manager for Spain, General Manager for Administration and Finance of the Cemex Group´s interests in Indonesia and member of the Board of Cemex Asia, Ltd. He is, or has been, a member of the board at innumerable major companies throughout the world. Mr Álvarez-Pallete has a degree in Economics from the Complutense University of Madrid. He also studied Economics at the Université Libre in Belgium, holds an international Management Programme from IPADE and an Advance Research Degree from the Complutense University of Madrid.

 

Article abstract

Latin America is a leader in the rush towards ‘world 3.0’. Technological diffusion, especially in telecommunications, has been faster there than in other regions. Latin America has one of the world’s highest mobile penetration rates, Internet usage is taking off and mobile broadband is rapidly growing. Machine-to-machine technology has a huge potential in the region. Future products, processes, and applications, will increasingly be designed and scaled up from emerging markets, with Latin America, in many instances, leading the way.

 

Full Article

Telecommunication technologies have forever changed the way we live and work. In less than a quarter of a century our concepts of space and time have altered beyond even the wildest imaginations. And in this new world of communications, speed is now king. More than ever before, we live in a connected and fast-moving world. Small and unknown start-ups overtake established incumbents with increasing speed. In all sectors, business and product lifecycles keep shortening. Less than a decade ago, it would have been scarcely conceivable that, in 2010, three of the largest telecommunication companies by market capitalization would be from China, Mexico and India. Yet China Mobile, América Móvil, and Bharti Airtel have achieved just that. The 90 names listed in the Standard and Poor’s index of major US companies in the 1920s remained there for an average of 65 years. By 1998, a company listed in the S&P 500 could only expect, on average, less than 10 years stay. Speed is therefore at the very heart of the corporate universe and business is moving faster every day with no signs of slowing down. Ever-shortening timescales and speed of communication also impact our concepts of space and distance. Social networks are expanding on the Web, creating what political scientist Benedict Anderson called ‘imagined communities’ (at the time referring to nation states). By some measures, digital networks are becoming larger than countries. MySpace, for example, with 300 million registered users, or Facebook, with more than 500 million by mid-2010, already have a greater ‘population’ than Brazil, the largest Latin American country. Frontiers and boundaries are crossed every second on the Web and even the most remote corners of the planet are instantly connected with world events. Latin America has not escaped this great transformation. In many respects it leads this rush towards a ‘world 3.0’. Technological diffusion has been faster here than other regions, with telecommunications being a stellar example. In 2010, Latin America is a highly connected continent - in countries like Brazil or Mexico, 75 per cent of Web users are connected via social virtual networks, among the highest ratios worldwide. Latin America connected Worldwide there are now around 4.6 billion mobiles in an estimated global population of 6.4 billion people. The most striking statistic is that in 2010, two-thirds of those phones are located in developing countries. The benefits for developing economies are manifold. The World Bank has found that mobile adoption contributes massively to growth and development. An extra 10 mobile phones per 100 people tends to boost Gross Domestic Product (GDP) growth by 0.6 per cent. Mobile technologies are therefore becoming a major driver in reducing poverty and inequality while boosting productivity. Mobiles enable buyers and sellers to connect, and quickly identify and satisfy supply and demand regardless of time and location. Farmers in the pampas of Argentina or Peruvian fisherman in tiny ports benefit equally from this connected world. 1 More than 500 million of people are now connected to mobiles in Latin America. A region enjoying one of the highest mobile penetration rates in the world - almost 93 per cent of the population, compared to 55 per cent in Asia Pacific or 50 per cent in the Middle East and Africa. Latin America now has penetration rates similar to North America. The largest mobile markets in Latin America are Brazil, Mexico and Argentina, with subscriptions numbering 170 million, over 83 million and almost 50 million respectively. In 2010, the total number of Internet users in Latin America reached the threshold of 200 million, enjoying the largest penetration rate (31 per cent) of all emerging markets. In Chile, Argentina and Colombia, Internet penetration rates are already comparable to those of Italy, Poland or Greece; while Brazil’s are higher than those of China, Indonesia and India. The future also looks bright. Internet usage is taking off and mobile broadband is becoming a particularly fast-growing market. Mobile content services, in particular, are just beginning their expansion; they reached around US$2.4 billion in 2009 with about 63 million users across the region. In some countries like Brazil or Colombia, mobile content services markets are expected to grow by a double-digit rate, one of the main drivers being the acceleration of smartphone penetration. Globally, it is expected that mobile data traffic will double every year through 2014, increasing nearly 40 times between 2009 and 2014 and Latin America will have one the strongest growth of any region, beating Western Europe. Last but not least, machine-to-machine (M2M) technology is improving and will be used by more verticals sectors such as healthcare, education, security, logistics government, and banking2. Smart sensors, trackers and cameras interconnected by mobiles or other tech devices, for example, will help predict and ease traffic jams and congestions in cities. In Latin America, the potential is huge, as the pain of the daily commute from city to city is among the highest in the world with Mexico City topping the index of car commuter pain, just behind Beijing and two other cities of the continent, São Paulo and Buenos Aires3. In healthcare, new mobile technologies will reach many of the region’s previously unconnected rural areas and save valuable time for patients located in urban Latin American areas. Speed and technological diffusion Speed, as mentioned previously, is king in the connected world. We are experiencing an impressive acceleration in the adoption and diffusion of new technologies. The speed of convergence for technologies developed since 1925 has been three times higher than those developed before 1925. The median speed of convergence for technologies invented after 1950 has been about six per cent per year, while before 1925 it was about 2 per cent per year4. It took 89 years to reach 150 million fixed-line telephony users, while it took just 17 years for personal computers to reach this number and a mere 14 years for mobiles. Today’s metrics are a matter of days, minutes and seconds. Mind-boggling statistics from 2009 saw 600,000 new users connected to Facebook in one day; ten hours of videos uploaded onto You Tube in one minute; and an incredible 50 million blogs posted worldwide in just one second. In recent decades, the speed of technology adoption across countries declined dramatically. In some Latin American countries cell phone growth has been even faster than many OECD countries5. The adoption of technologies and applications in the 21st century is becoming nearly simultaneous. Facebook, You Tube or Twitter were adopted without time lags, at the same time, in the US, Mexico or Brazil. This summer, for example, Facebook reached 500 million users worldwide, of which 400 million were located outside the US (among them 60 million in Latin America, which accounts for 17 per cent of total users and boasts some of the highest penetration ratios worldwide). Mexico and Argentina, in 2010, already have as many users as Spain. Regarding Twitter, in June 2010, Brazil and Venezuela, have been, after Indonesia, the countries with the highest Twitter penetration in the world on a yearly basis, according to ComScore. Reverse innovation The spread of new technologies is clearly accelerating and Latin America is participating in this global trend more actively than many other emerging regions. In a world that is changing quickly, where speed and innovation are key strategic assets, we are convinced there is a lot to learn from emerging countries. Innovation is no longer produced in the ‘core countries’ and diffused towards the ‘periphery’. More and more reverse innovation will come from emerging countries and be adopted in OECD markets. In Peru we recently launched mobile payment services jointly with Visa, and a similar service in Colombia with the Federación de Cafeteros6. Emerging markets are becoming hotbeds of business innovation, coming up with new products and processes that are dramatically cheaper than their Western counterparts: US$3,000 cars, US$300 computers and US$30 mobile phones that provide nationwide service for as little as 2 cents a minute. Such reverse innovations are not only invented, adopted or adapted by emerging multinationals but also by leading OECD multinationals that are increasingly sourcing innovation from emerging countries7. Emerging economic regions represent a huge opportunity because they bring disruptive innovations into play that will be vital for Western multinationals. Latin America will undoubtedly make a growing contribution to these breakthrough innovations. In the future, products, processes, applications, will increasingly be designed and scaled up from emerging markets, with Latin America leading the way in many instances. In the 20th century, products and processes were produced in OECD countries and exported to emerging markets. Today, that traditional multinational business model is being turned upside down as emerging markets are increasingly supplying innovations and services for the entire world. This change is a blessing and another good reason to bet more than ever on this continent. l 1 See for more examples on Latin America, Raúl Katz. 2009. El papel de las TICs en América latina. Propuesta de América latina a los retos económicos actuales. Madrid: Ariel and Telefónica Foundation. Available at http://www.fundacion.telefonica.com/debateyconocimiento/media/publicaciones/papel_tic_desarrollo.pdf 2 Globally, according to ABI Research and Cisco, The mobile machine-to-machine (M2M) market is expected to grow from approximately 71 million cumulative connections globally in 2009 to roughly 225 million connections by 2014. See http://www.cisco.com/en/US/solutions/collateral/ns341/ns523/ABI-CISCO_M2M_Operator_Opportunity.pdf 3 See the index tracking the car commuter pain computed by IBM: http://www-03.ibm.com/press/us/en/pressrelease/32017.wss 4 See Diego Comin, Bart Hobijn, Emilie Roveto. January 2006. “Five Facts you need to know about technology diffusion”, NBER Working Paper, 11928. 5 Early 2000s, cell phone usage in 32 out of the 145 countries in fact exceeded that in the U.S. See Diego Comin, Bart Hobijn, Emilie Roveto. December 2008. “World Technology Usage Lags”, Journal of Economic Growth, 13 (4): 237-256. Available also at http://www.people.hbs.edu/dcomin/lags.pdf 6 See, on Latin America’s mobile banking experiences and potentials, the report and methodological note available at http://www.iadb.org/mif/forum/mbanking.cfm 7 See Immelt, Jeffrey, Vijay Govindarajan and Chris Trimble. October 2009. “How GE is disrupting itself”, Harvard Business Review: 1-12. Available at http://www.gereports.com/reverse-innovation-how-ge-is-disrupting-itself/

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