GATHERING CLOUDS

Mexico 2020 | TELECOMS & IT | FOCUS

Mexico's SMEs could be the next big market for cloud service providers, given the country improves its broadband connectivity and companies can offer services at the right price.

While metaphorical storm clouds due to COVID-19 and changing manufacturing flows have buffeted the global market recently, clouds of the more technical kind have been quietly revolutionizing business as we know it. Indeed, no more apparent has the need for cloud access become apparent as in this pandemic. For countries like Mexico who are anxiously waiting to fulfill their economic potential, the cloud offers a way for companies to leapfrog traditional ICT, allowing for greater growth at a faster pace.

Cloud services, which are often considered to be a part of the SaaS market, are an integral part of companies, both young and old, in today's world. Because the cloud offers access to applications and ICT infrastructure that comes with high investment costs, cloud access is vital for smaller businesses, the type of business that the Mexican economy runs on. According to most recent statistics, 4.2 million SMEs generate 52% of the country's GDP and 78% of its employment. At the same time, there is a huge gap in productivity between SMEs and large firms (the widest gap out of all OECD countries, according to OECD data), with the labor productivity of micro, small, and medium companies measuring anywhere from 14% to 46% of larger companies. This, in part, has to do with the high productivity of large Mexican firms, which may in fact be contributed to internet access and ICT adoption by larger firms.
According to 2016 INEGI figures, 97.2% of large enterprises (those employing more than 250 people) had internet connectivity, compared to small businesses (those employing between 10-49 people), which stood at 77.1%. Medium-sized enterprises showed a much rosier picture: 94.4%. In terms of enterprises using cloud services, however, both large and small enterprises had surprisingly low numbers: according to the same survey, only 9.1% out of all Mexican enterprises surveyed in 2016 reported using cloud services. The highest numbers were obviously reported by larger firms, with 22.6% of large enterprises using cloud services. Meanwhile, only 7.5% of small businesses and 16.8% of medium businesses reported using cloud services.
Part of the issue is to do with broadband connectivity: according to the latest report in 2019 by INEGI, the country's broadband penetration was at 15.1%. Broadband infrastructure is vital for cloud service adoption as cloud services rely reliable internet connections to function. Luckily, the Mexican government is firmly committed to improving broadband connectivity in the country, through initiatives like Mexico Conectado, which aims to provide free broadband access in schools, hospitals, clinics, libraries, community centers, and other public spaces. Also encouraging for general ICT and cloud growth in the country is the government's move toward e-services, prompting the use of cloud by government agencies mostly at a federal level. But government is not the only thing driving the potential of cloud services in Mexico. In an ironic twist, the lack of inhouse ICT departments or employees in small businesses drives the attractiveness of subscription-type services, especially by cloud providers. With ICT increasingly recognized as a driver of profits, small companies have increasingly become interested in acquiring cloud subscription-based services, as they offer a cheaper way to create necessary ICT infrastructure for any businesses. In this regard, cloud services via subscription type are especially appealing to small businesses, as they allow companies to pick and choose the services their company particularly needs. By offering specialized offerings and excellent support, cloud service providers can offer exactly what SMEs in the Mexican economy need: a drive in productivity.
IT companies specializing in bringing ICT solutions to small businesses in Mexico are taking notice of the change. Red Hat is looking to offer ICT solutions through open source technology, and expand the ability of smaller businesses to take advantage of business innovations that rely on having accesses to the cloud. In terms of cloud service applications, Atos is looking to develop its Industry 4.0 capabilities in order to capture a bigger share of manufacturing companies in the Mexican market. Change is certainly on Mexico's horizon in the shape of the cloud.