Jorge Arbache
Vicepresidente de Sector Privado, CAF -banco de desarrollo de América Latina y el Caribe-
New technologies are transforming people’s day-to-day lives and creating new possibilities we had never imagined. But companies are also capitalizing on this trend. Consider simple digital technologies, such as spreadsheets and monitoring software for more advanced technologies, such as artificial intelligence, cloud computing, the Internet of Things, robots, 3D printers, and Industry 4.0. These technologies are transforming production and its management, and completely changing the notion of efficiency and time.
For Latin America, whose productivity is stagnant and is only a fraction of that in developed countries, and whose competitiveness indicators have receded in recent years, these technologies can be a blessing.
In fact, digital technologies can have significant impacts by increasing production per worker, rationalizing use of resources, and helping our companies tap into international markets. If shared, the benefits of increased productivity and competitiveness can impact not only wealth creation, but also the fight against poverty, a crucial issue for our region. Therefore, it seems reasonable that we should facilitate access to and promote the use of new technologies.
However, despite their importance, we should consider the scope of new technologies based on digital commoditization. Digital commoditization refers to the impact that popular access and use of standardized and commonly used digital technologies may have on competitiveness. While only a few companies have access to a certain new technology, its impact on competitiveness is increasing rapidly. But as access to and use of that technology spreads, its marginal impact diminishes and eventually disappears.
Think inventory monitoring software or even cloud computing. Thus, the use of commoditized technologies becomes a requisite for entry to and permanence in the market. Put differently, these technologies help put the company “in the game,” but not “win the game.”
Digital commoditization is the result of a change in business models in which sophisticated technologies are marketed at relatively low prices in favor of platform loyalty and technical standards combined with reduced lifespan of technologies and with the effect of the platform. Once loyalty is attained, users pay for variable cost services and the use of specific features and higher technology.
Having access to a professional technological platform, a robot, a state-of-the-art agricultural harvester or ecommerce and payment platforms, for example, has become now the initial—not the final—stage of a longer process of adoption of more sophisticated technologies, production processes and sales channels.
We are witnessing an increasingly visible distinction between companies that use digital commodities and companies that are developers, managers and distributors of those technologies, standards and platforms. In addition, the latter are capturing an increasing share of the private benefits of digital commodities.
But we are also learning that the use of digital commodities may have fewer positive impacts on emerging countries than we initially thought. This is because, although the level of productivity increases, technologies are not necessarily able to translate that gain into increased competitiveness.
In addition, digital commodities tend to impinge on the relevance of labor as part of production costs. In fact, there are already changes in the global geography of investments that are unfavorable to developing economies, as commoditized technologies are encouraging industrial production even in advanced countries, where labor is more expensive .
So, how can new technologies benefit from the competitiveness of emerging countries? Firstly, with intensive use, especially in activities where comparative and competitive advantages are already available and which can be enhanced by these technologies and, secondly, by the use of comparative and competitive advantages to encourage commitment to development, management and distribution of technologies.
What may seem a very ambitious goal is starting to become true. Uruguay has become a developer of cattle tracking technologies. In addition to benefiting farmers by giving their beef access to more demanding markets, the nation is also gaining from international marketing of that knowledge. Brazilian agritechs are developing sophisticated technologies that are boosting agricultural productivity while marketing their services globally. Chile is developing mining technologies that preserve lives and the environment, and are expanding the range and sources of wealth generation. In addition to generating more revenue, these technologies also diversify the economy and can help make industrial activities more sustainable.
Thus, in addition to facilitating access and promoting the use of new technologies, we must also encourage the development of state-of-the-art technologies. And this is possible. Recognizing the importance of knowledge as the primary source of value generation in the 21st century will be a fundamental step in fostering sustained growth and thus advancing solutions to many of our region’s economic and social problems.
