If I told you that one of the video games your children play, one of the most acclaimed movies you’ve seen recently, and one of the most popular mobile digital apps in the world were created or co-created by Latin American and Caribbean (LAC) companies, would you believe it?
Well, you better believe it because it is true.
Globant, a software development company from Argentina, worked with Electronic Arts (EA) in the creation of the ultra-popular videogame series FIFA. Studio C of Guatemala was involved in the production of The Chronicles of Narnia, and a Colombian startup developed the delivery app Rappi, a unicorn now valued at $3.5 billion.
These types of digital services are often exported by startups and small and medium-sized enterprises (SMEs) in the region to markets in North America, Europe, and Asia. The export of services, also known as global services or global outsourcing, is a hot industry, expected to grow up to 10% worldwide in 2019.
While in recent years exporting services in LAC to global markets has grown faster than those of products, companies in the region are still lagging compared to those that export services from India, China, and other Asian countries. Moreover, the share of LAC’s exports of services accounts to only about 3.5% of exports of services worldwide.
Opportunities to export services
The opportunities to export services are immense in Business Process Outsourcing (BPO), such as marketing or financial services; Information Technology Outsourcing (ITO), including mobile app development and e-commerce solutions; and Knowledge Process Outsourcing (KPO), offering services like the production of animation or videogames, or even exporting architectural and engineering design.
Segments that hold special promise for LAC include augmented & virtual reality (AR/VR); animation & gaming; and social, mobile, analytics and cloud (SMAC). The Latin American VR market is expected to grow at an average annual rate of nearly 50% by 2022. Innovative projects include Poder Volar’s immersive app for treating phobias and Inamika Interactive’s VR school, teaching everything from CPR to driver’s ed, driving a forklift, and mine safety.
Thanks to the proliferation of mobile devices, Latin America has become a leading player in animation & gaming, registering higher growth than any other region in the world, with year-on-year revenue growth as high as 60% in mobile games (2014), compared to 21% in the same year in the Asia-Pacific region.
Latin American companies also serve as a laboratory for global Information Technology development. IT services typically grow at three times the rate of GDP in Latin America.
The early stages of the digital revolution were defined by the coming of age of technologies including blockchain and artificial intelligence (AI). Today, the trend in international trade in services is less about new technologies and more about their interconnectivity and human talent and creativity. For instance, the rise of virtual digital assistants is the result of combining developments in AI, deep learning and the cloud.
This level of sophistication is a boon to smaller players and emerging economies, as greater specialization, lower switching costs and greater price transparency offer new opportunities in global supply chains. For this reason, successful SME exporters of global services ought to be forward-looking and adaptable. They need to accept disruption as the new normal.
Taking advantage of the digital transformation
So, how can startups and SMEs in LAC take advantage of the digital transformation?
While the region has demonstrated its potential in key global services segments of the future, most LAC exporters of services are currently in lower value-added segments, including data and call centers, which are increasingly at risk of technological automation. Helping the region transition to offering complex digital services requires three critical supports:
- Effective trade and investment promotion agencies. IDB research demonstrates that export promotion agencies have a significant impact on national exports and that trade promotion favors particularly the exports of more sophisticated products and services. And a survey of executives responsible for site selection of foreign investments found that 65% of companies have worked closely with such agencies while deciding where to locate their businesses.
- Applied Training: Public and private sector collaboration is required to keep workforce skills up to date. It takes two to tango. It takes two to train the employable human capital. Entrepreneurs can develop the understanding and tools needed to adapt to the new economy through both formal training opportunities (coursework, conferences, workshops) but involving the clients and/or the employers in the design of the curricula. At the Integration and Trade Sector of the IDB, we offer such training and support through ConnectAmericas, the first social network for the internationalization of SMEs in the Americas.
- Networking. There is no better way to understand the demands of the market than by meeting, either in person or virtually, with actual buyers of global services.
Made in the Americas Global Digital Services Summit
Because of the importance of face-to-face networking for companies, we put together business forums such as the six previous Outsource2LAC series initiated in 2011 in Montevideo, Uruguay, and which last edition we have named “Made in the Americas Global Digital Services Summit (MITA GDS)”, taking place in Buenos Aires, Argentina on July 11-12, 2019.
These forums bring together all three of the key support mechanisms. Participants can interact with the trade promotion organizations from their own country as well as those of potential trade partners. They learn about available services while the agencies develop a deeper understanding of their sectors. Service providers conduct business matchmaking meetings, make deals, and establish networking connections that lead to future business. They deepen their understanding of market demands through the feedback in these meetings, while learning about bigger-picture trends from high-level CEO speakers.
The Made in the Americas Global Digital Services Summit, organized by the IDB, Argentina’s Ministry of Production and Labor, and the Argentina Investment and Trade Promotion Agency, offered governments, companies, and entrepreneurs a space to learn about the latest digital technologies, gain access to experts, vendors, and startups, and to enable business transactions by organizing B2B and B2G matchmaking meetings.