Recent years have been characterized by a relentless global race toward digitalization, and the global uncertainties of 2020 have catalyzed this race. In fact, our research indicates that more than 80% of company leaders expect to accelerate digital transformation as a result.
Accelerated by these unexpected tailwinds, the LatAm cloud technology market has shown significant growth potential, with continued expansion across all segments as penetration of the solutions continues to be below that of developed markets.
In a post-pandemic scenario, cloud technology will reinforce its place as a core centerpiece of digitalization, allowing companies to:
Better cope with uncertainty
Optimize and seamlessly scale their storage
Obtain expansive and elastic computational power
Access customized tools transformative to their business processes.
The impact of 2020 on the cloud market
Although cloud technology has been exhibiting accelerated growth over the last decade, during the last few months the pace of growth has accelerated even more given forced changes in ways of working and customer behaviors. This has particularly affected how people work, engage and shop, translating into direct implications in business demand for cloud solutions.
The first major change came as a result of businesses shifting to remote ways of working almost overnight, sharply increasing the load on remote work infrastructure (e.g., virtual desktop solutions), and promoting the adoption of SaaS collaboration and communication tools (e.g., video conferencing solutions, asynchronous communication solutions, etc.). Demand for remote working solutions did not only include traditional corporate offices, but also permeated education, government and other sectors.
The second major change came as consumers shifted to purchase and consumption of goods and services online, accelerating the importance of digital channels for customer engagement. The higher load of users on digital channels drives the need for cloud infrastructure, on elastic compute power and data storage services. This increased load has been felt not only within e-commerce segments, but also across the board for different industries, as customers are increasingly engaging with companies through digital channels (e.g., customer care).
We expect this accelerated adoption to continue into the ‘new normal,’ as now companies are increasingly aware of the importance of developing resilient tech infrastructure that is able to meet quickly evolving demands from customers. Companies will be looking for future-proof technology that is able to accelerate business outcomes and react with agility to evolving market demands.
Dynamic growth of cloud market in LatAm
The cloud market in LatAm is defined across two dimensions: cloud solutions and service offerings. Across cloud solutions, the offering varies from Software-as-a-Service to Infrastructure-as-a-Service, differing in the spectrum of utilization, the cloud user and the control it has over its infrastructure. Across the service offering, the LatAm market is dominated by the indirect resellers, professional service providers, and those that offer managed services. Typically, both dimensions of the cloud market grow side-by-side, as both are required to truly unleash the value of cloud.
In the current state of the world we expect the market to grow by 2.5 times over the next three years, and likely to see even stronger growth given the recent push on digital transformation and distributed teaming. The market is expected to continue its upward trend, with each SaaS, PaaS, and IaaS, projected to reach a growth rate above 25% over the next four years. Along with growth across each technology, services will flourish in parallel to cloud solutions.
Enterprise – Race to full digital transformation
Large enterprises in LatAm are just around the corner of the digital race, most keeping up with the journey of their northern counterparts, with others acting as pioneers within the global digital game.
Their journey toward digitalization is sparked by an attempt to keep up with international competition, to optimize efficiency and financial performance, or increase competitiveness within the local market. The application of cloud technology has been an essential platform of digitalization, providing computing power, storage, and service applications as a key lever within the transformation. The industry is shifting from the traditional on-premises and lift-and-shift approaches, which limited the value of digital, towards full transformation, which includes process optimization, operative model design, infrastructure improvement, agile ways of working, and other levers that allow full exploration of the value of cloud.
The level of digital maturity in LatAm varies greatly across industries. Financial institutions have historically led the way in the region, with large transformational programs focused on digitalizing client relationships, allowing low cost operational efficiency aligned with better service offering and increased loyalty. Additionally, with abundant transactional data, banks have been able to take advantage of the data analytics and cloud computing tools, optimizing their offering through individual customization, while minimizing the product risk. With an increasing digitalization across the financial sector, gaining competitive advantage through innovation has been essential for both multinational and regional banks.
Competing with worldwide players, large retailers in LatAm are also heavily investing in digital journeys. In a scenario where digital commerce becomes the norm, regional leaders race to compete against global conglomerates, offering highly advanced CRM, targeted/highly customized marketing, and swift digital platforms. For many of these retailers in this new normal, digital is a survival platform that will allow them to compete against the new highly technologically mature entrants. Key retailers in LatAm have also complemented their digital capabilities through acquiring multiple digital startups, along with profoundly investing in their internal tech capabilities proceeding the expected entry of a core competitor in the region.
Other industries such as manufacturing, professional services, and government also show a significant push towards digitalization. In some instances, manufacturing companies in LatAm have been identified as leaders in the worldwide race.
For example, one of the largest forestry product producers has been the first within its market to use machine learning and advanced analytics to optimize its maintenance processes. Mining companies across the southern cone are globally pioneering innovative use of technology in their operations, through projects such as machine learning in natural resource processing, or autonomous operations.
Whether through advanced data analytics, machine learning, or collaboration tools, large companies in LatAm are heading along the winds of the worldwide digitalization trends. The application of cloud technology to support these ventures has been, and will be, critical to expanding and sustaining the competitive positioning of these players.
Small and medium businesses: On a journey to optimization of business applications
As cloud solutions have become more accessible, less costly, easier in implementation and usage, and more customized to each client need, there has been an important shift in customer base from solely large and mature global enterprises to the developing/transitioning small and medium market. These small and medium businesses are increasingly shifting to cloud for simple solutions to everyday business issues such as collaboration and workflow management. The small and medium market offers a dynamic client base, as it can realize quickly the benefits of cloud application, given the lack of technical debt from big legacy systems. This segment usually accesses cloud services through a local cloud partner, leveraging these relationships as a doorway to digitalization.
Today’s climate presents an opportunity for companies large and small to take the leap and jump onto the high-speed cloud train. This will inevitably translate into high growth rates in the cloud market, for both tech solutions and cloud services, and will also translate into new and more resilient infrastructure that will allow companies to adapt to a changing environment, optimize their operations and scale seamlessly as the pace of digitalization of industries across LatAm accelerates.
An already fast growth pace for Cloud Solutions in LatAm was even accelerated further in 2020 given the almost overnight shift to remote ways of working for many businesses, and the shift to purchase of goods through ecommerce by many consumers. We expect this acceleration to continue into the ‘new normal’, and translate into a minimum of 2.5x market growth in the next 3 years.
Large enterprises in LatAm are accelerating their digital journey, embarking in full digital transformations of their platforms. Financial Services firms have led the way so far, however other industries such as retail, manufacturing & professional services have been heavily investing lately into digital solutions.
Small and medium businesses are increasingly adopting cloud solutions to improve collaboration and workflow management, and, given lower technical debt, have experienced very quick adoption processes and realization of benefits.
Increased adoption of cloud technologies in both large enterprises and small and medium businesses has also increased demand for cloud professional services, as oftentimes companies prefer to go on the digital journey accompanied by someone that has walked the path before.
Thanks to everyone who contributed to this piece : Maria Szocinska, Matias Schlotfeldt and Nicolas Lopez Lecube
Julian HermanManaging Director
David MarínManaging Director and Partner
Stephen RobnettManaging Director and Partner