Digital transformation indeveloping countries
Promotion and adoption should be the main actions
for companies and government

October, 2017

Content
Executive summary3

1. Digital needs are not the same in developing or developed economies

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2. How should the approach differ?

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3. Approach for government and regulators

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4. Digital approach for companies

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5. Conclusions

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Authors:

Alejandro Gonzalez

Guillem Casahuga

Partner Operations Management,
Houstongonzalez.alejandro@adlittle.com

Partner, Telecommunication, Information,Media & Electronics, Houston
casahuga.guillem@adlittle.com

Ansgar Schlautmann

Mauricio Romero

Partner, Telecommunication,
Information, Media & Electronics,
Frankfurtschlautmann.ansgar@adlittle.com

Manager, Telecommunication,
Information, Media & Electronics,
Bogotá
romero.mauricio@adlittle.com

Executive summary
We believe it is a mistake to equate the digital-economy development needs andimplications of Latin America (and other developing countries) with those ofdeveloped economies. These differences are not only based on the purchasepower gaps that every businessperson is aware of, but also how all market forcesdiffer in the two regions.
In Figure 2 of this paper, we state how the populations in developing economies(taking Latin America as the example) differ in most of the key attributes neededto drive the development of the digital economy. These include:nn Lower internet access and connectivity
nn Mobile services usage being driven to voice instead of data consumption
nn Millennials’ limited access to and contact with technology
nn Less access to banking and electronic payment services
Considering these important demographic, connectivity and requirement gaps
between the economies, we explain how companies and governments indeveloping economies need to pursue a specific approach to ensure developmentof adequate digital economies.
Governments have an important challenge to promote acceptance of newtechnologies and ease of digital adoption by populations and companies. Some of
the recommended actions are energizing digital acceptance with holistic digitalpublic policies, measuring the digital impact in economies and promoting digitaltelecommunications infrastructure, redefining traditional regulatory framework andinstitutions, fostering digital and banking penetration, and understanding theimplications of each new business model in order to quickly react.
Management should engage the organization with a digital culture and vision that
integrates market and operational advantages, continuously push better digitalinteraction tools with customers and stakeholders, ensure digital trust, andaccelerate the adoption of new and mature technologies. Closing the digital gap
will require effective coordination between regulators and companies, which today
seems to be a major challenge.

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1. Digital needs are not the same indeveloping or developed economies
From both a personal and a business perspective, digitalization
has common ground across different geographies. Millennials,
considered the first global generation, have a broader rangeof commonalities than previous generations – access tosimilar hardware and media or usage of similar apps and tools.
Furthermore, digital disruptors and competitive dynamics
influencing the economy are very similar across geographies.
We might assume that all millennials have similar digital
expectations regardless of their country or culture, andthe approach to marketing to them should be the same
globally. However, as we go deeper with infrastructure,sociodemographic traits, requirements by users and businessand competitive dynamics, there are considerable differencesin the needs for digital transformation among developing
economies in Latin America versus developed nations. The
applicability of these digital trends varies by industry and thedigital maturity of the country.

In terms of the mobile industry as the driver for service
anywhere and anytime, specific gaps between Latin America
and developed countries have to be considered. As regards
mobile subscription penetration, there are similar behaviors,with 110–113 subscriptions per 100 inhabitants, but typologies
differ heavily. Voice is still the value driver for Latin American
mobile users, representing 60 percent of their subscription
costs and leaving the remaining 40 percent for data packages.
Comparing this data share to the 55 percent average spend per
subscription in developed countries, it is reasonable to assume
that there are major differences between mobile phone users inthese markets.
This situation becomes even more evident when we take
into account that Latin America has average revenue per user
(ARPU) of USD 11.20 per month, versus USD 29.40 in developed
markets. This triggers lower affordability of mobile services
in Latin America, given that the GDP per capita is less thanFigure 1: Digital disruptors and competitive dynamics
Yesterday’s realities

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Individual

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Vertical integration

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Localized usage and service

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Economies of scale

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Low-frequency releases and waterfall

Source: Arthur D. Little4
Power of information and data

DisconnectedPower of human digital talent2Power of digital trust

Physical productPower of technology

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Digital disruptors

Digital competitive dynamics

Product-as-a-service

Development of a modular digital ecosystem
Multi-sided platforms and network effects
Industry convergence
Service and usage anywhere & anytime
Personalization and active creation(information and data power)
Agile continuous improvement

one-fifth compared to developed regions. In terms of internetusage penetration, Latin America ranks far lower than developed
countries. According to the World Bank, only 54.5 percent of
Latin American citizens use the internet on a regular basis,compared to 84 percent in developed economies. Furthermore,this gap is more dramatic if we take into account the segmentof the 60+-year-old population, for which Internet adoption is
only 11 percent in Latin America, versus 25 percent in developed
countries. Additionally, the quality of connectivity differs fromone market to another. Despite the mass-market deployment
of 4G mobile technologies, fixed broadband, as the main option
to ensure high-quality and unrestricted traffic connectivity, hasdifferent penetration. As an example, there are 39 connections
per inhabitant in developed countries, versus only 10.5 in Latin
America. This is forcing a major share of the Latin American
population to connect via mobile broadband with coverage,
spectrum saturation and traffic restrictions.
In terms of sociodemographic traits and user requirements,
millennials (accounting for 41 percent of the population in Latin
America, versus 31 percent in developed countries) are not thatsimilar. The main differences are due to less access to digitalelectronics – which are considered a luxury product and more

vulnerable to theft – less trust in digital transactions, and lower
internet penetration. Low digital trust affects the developmentof the sharing economy and digital financial services. Based onthese demand requirements, the digital supply is lacking themainstream presence of online consumer advocacy groups,
price-comparison platforms and brand investigative sites seen indeveloped economies.
Regarding digital penetration in the small and medium-sizedenterprises (SME) segment, the perspectives are also very
different, as developed economies have increased usage andadoption compared to developing ones. In Mexico, for instance,
only 10 percent of SMEs have online sales, even though they
represent 72 percent of employment and above 50 percent of
GDP2. This is small penetration compared to the 20 percent of
EU-28 SMEs with online presence.
Lastly, public opinion’s main areas of concern are different.
According to the European Commission’s Eurobarometer,
the main areas of concern for Europeans are immigration,
unemployment, public finance of member states, and terrorism,
while Latin Americans are concerned about labor and economic
stability, social and gender inequality, corruption and crime.

Figure 2: Comparing the situations 2

Criteria

Emerging economies in LATAM

Developed economies

Internet penetration

54.5%

84%

Digital confidence

Weak confidence in digital transactions and trust

Strong confidence in digital

SME digital adoption

Reduced SME digital adoption

Increasing SME digital adoption

Labor productivity impact

Low labor productivity

High labor productivity

Implications of digital

Strongly skewed by industry

More holistic approach and adoption

Banking products coverage (age 15+) 51.4%

96.6%

Credit card users (age 15+)

21.6%

52.2%

Debit card users (age 15+)

40.4%

85%

Digital start-up activity (Top 10)

40% in top 10 for emerging and only Brazil included 60% in top 10

Telecom infrastructure investment

Lower investment levels

Telefónica Index on Digital Life 2016 – Chile (#11 – 70.4), Colombia (#14 – 67.4),
34 countries scored over 100
Perú (#26 – 57.3) and Nicaragua (#33 – 70.4)

Higher investment levels
US (#1 – 96.3), UK (#4 – 88.7),
Germany (#5 – 81.0) andSpain (#14 – 70.1)

Source: Arthur D. Little

2

According to CEPAL, in Latam and Caribbean it represents 61% of employment and almost 30% of GDP

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2. How should the approach differ?
Considering such differences, should there be a different
approach to digital in emerging markets? The dilemma
immediately comes out: should companies and regulatorsin emerging markets build digital from the experiences ofother countries, or should they leapfrog to innovation basedon smart adoption of new technologies? Our opinion is that,while some mature economies focus on innovation to push thetechnological frontier and attain further productivity growth, themain concerns in developing markets should be broadening
access to digitalization and adopting mature technologies as

quickly as possible to improve productivity and, consequently,
competitiveness.
These different sets of concerns imply that management at
both companies and governments/regulators should work on
digitalization from another perspective, promoting the basics– improving the digital infrastructure, fostering digital inclusionand digital human capital, and ensuring rapid adoption of proven,mature technologies.

Promoting usage by SME,
infrastructure renewal
and security
Promote digital data
usage, infrastructuresand digital trust

Developing Latam

Developing

In Transition

Digital ease and adoption

Digital innovation

Developed

Technological frontier

Digital adoption

Figure 3: Positioning in Digital and technology adoption

Productivity improvement and digital innovation
Technology adoption
Promoting rapid adoption of
mature technologies toincrease productivity

Technology innovation
Promote innovation in leadingindustries that push thetechnological frontier

Source: Arthur D. Little

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3

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Telefónica index based on three pillars: digital openness, confidence and entrepreneurship. Full report at http://indexdigitallife.telefonica.com

3. Approach for government and regulators
Governments and regulators in developing economies should
focus on promoting adoption and realizing the advantages ofthe digital economy, encouraging digital inclusion and trust
across different segments of the population that digitalization
often leaves behind. According to Arthur D. Little’s recent projectexperience in outlining digital-economy agendas for developing
countries, the main challenges and the recommended actions,ranked by importance, are:nn Energize digital acceptance and culture through a holistic
public policy in ICT that integrates different government
bodies from two angles:–– Demand side: Facilitate and increase knowledge,
confidence and volume of transactions on digitalplatforms, and build digital trust among users byimplementing consumer protection initiatives (e.g.,
privacy) to make up for the current absence of consumer
advocacy groups. Colombia launched “Plan Viva Digital
2010–2014” with notorious connectivity success acrosshouseholds and SMEs. It is not continuing this with
“Plan Vive Digital 2014–2018” to increase penetration in
unfavored segments and usage in currently connected
ones.
–– Supply side: First, promote the development ofdigital talent to reduce the large deficit of qualified
professionals, which inhibits the adoption of technologies
and disruptive change. Second, facilitate thedevelopment of digital companies through promotion of
new technologies and regulatory sandboxes4.
nn Measure the impact of digital in the economy to determine
and track what is the impact on GDP and employment
creation with a clear dashboard that can be followed bydifferent stakeholders.
nn Accelerate and promote investment in digital infrastructure.
Current telecommunications infrastructure cannot ensure
coverage and quality of connectivity for adequate evolutionof the digital economy, and investment is not promoted,
as distribution between the required investment and thebeneficiaries is not equal.

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nn Confront slow and restrictive digital regulation: regulation
designed from an “analogue” or traditional economy
standpoint, which delays the entrance of a digital era (e.g.,laws aimed at strengthening traditional channels or face-toface requirements).
nn Integrate externally: as digital has no frontiers, it is relevant
to integrate countries in the same regions by promoting
common digital integration and understanding. Latin
America should take advantage of being “one step behind”
developed regions, and learn from their experiences to bebetter prepared for digital disruption.
nn Integrate internally: conflicts among different regulatory
bodies demand the integration of multi-stakeholder
committees that assure approaches are consistent withindustry convergence promoted by digitalization. As an
example, Singapore merged its media and infocomm
regulators into “IMDA” to promote the country as a “Smart
Nation” in 2025.
nn Seek balanced regulatory requirements between digitaland traditional: Balanced regulation needs to be promoted.
This should, first, not place a burden on companies due totheir technology, which would hinder free competition, and,second, seek equal conditions based on consumer usage
and transferability of services.
nn Promote E-government capabilities: according to the United
Nations’ latest worldwide e-government report, out of the
top 30 e-government countries, only five were developing
nations. This fact reflects the need for governments toencourage digital adoption and transactions from theircitizens and improve government efficiencies. Uruguay is
the first country in Latin America on e-government, and theDominican Republic is recognized for its 911 emergency andsafety system.
nn Increase banking penetration: there is urgency to increase
digital financial transactions. Digital means of payment have
had very low penetration and, if there is no push to promote
digital money transfer or payment, the transition to digitalmodels will be more expensive and difficult.

Rules that allow innovators to test their products/business models in live environments without following some or all legal requirements

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4. Digital approach for companies
As for the management of companies in developing economies,
the emphasis should be placed on promoting technology
to underline specific competitive dynamics that ensure therapid adoption of mature technologies, with major impact on
productivity increases. Thus, recommendations to accelerate
digital evolution for companies in developing economies are:nn Align and engage the organization with a digital vision tosecure a holistic approach. In a recent survey of 30 CDOs
at corporations operating in Latin America, 78 percent
declared an understanding of the impact of digital, but lacked
a holistic view. (Fifty-three percent considered operationalmodels, 47 percent business models and 38 percent
customer interactions.)
nn From the competitive dynamics mentioned, companies indeveloping markets focus on service and usage anywhere,anytime, and improved operations. Thus, some actions
recommended are:–– Develop tools to better interact with customers andother stakeholders, but ensure adoption and usage arepromoted and incentivized, as user ramp-up is slower for
developing economies.
–– Promote digital inclusion of customers with digitalofferings, ensuring digital trust.

–– Improve system architecture for increased third-party
and data integration, cloud capabilities and agile
development.
–– Seek to adopt mature technologies that boost
productivity by defining a new digital operating modelaligned with Industry 4.0 requirements of flexibility,
customer proximity, product personalization and reduced
time to market.
–– Select mature technologies that can easily deliverproductivity improvements, and define a futuretechnology roadmap to promote a disruptive digitalbusiness model.
nn Seek new business models and ecosystems to innovate thedigital value offering, but integrate with the operating model
to ensure a consistent digital transformation pathway.
nn Encourage quantification of digital initiatives based on thebottom line and define a digital dashboard.
nn Ensure acceleration of digital culture and capabilities withpromotion and education of digital talent. Work on closing
the capabilities gap so companies have access to skilled
resources.
nn Integrate companies in industry groups to facilitatecommunication with the government and other related
entities.

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Conclusions
Beyond recommendations for players - government andcompanies -, increased coordination is required among them.
We have observed that there is no agreement among main
regulators and companies on how digitalization is transforming
current market ecosystems in Latin America, and on how thistransformation should be addressed. In our interactions with key
players (public and private), we have seen a broad spectrum ofpriorities and concerns, which suggests a lack of coordination on
this topic. Hence, a holistic and integrated approach to promote
digital transformation is key to accelerate digital transformation
on developing countries.
Thus, considering the differences between Latin America´sdeveloping economies and developed ones in the rest of
the world, the approach for the former should focus not on
becoming an innovation hub and pushing the technology
frontier, as many major economies are aiming to do. Our
recommendation for developing economies is to increase
adoption, foster digital trust and develop tools to boost overall
productivity, social inclusion and upgraded living standards. If
this is achieved, digital transformation benefits can be realized
and shared among consumers, companies and governments.

9Notes10

Contacts
If you would like more information or to arrange an informal discussion on the issues raised here andhow they affect your business, please contact:

Argentina
Daniel Monzon
monzon.daniel@adlittle.com

India
Srini Srinivasansrinivasan.srini@adlittle.com

NorwayDiego MacKee
mackee.diego@adlittle.com

Belgium
Francois-Joseph VanAudenhove
vanaudenhove.f@adlittle.com

Italy
Francesco Marcellamarcella.francesco@adlittle.com

Spain
Jesus Portal
portal.jesus@adlittle.com

Central Europe
Volker Pfirschingpfirsching.volker@adlittle.com

Japan / Singapore
Yonoshin Morimori.yonoshin@adlittle.com

SwedenNiklas Brundinbrundin.niklas@adlittle.com

China
Russell Pellpell.russell@adlittle.com

Korea
Kevin Lee
lee.kevin@adlittle.com

TurkeyCoskun Baban
baban.coskun@adlittle.com

Colombia
Mauricio Romero
romero.mauricio@adlittle.com

MexicoCesar Brena
brena.cesar@adlittle.com

UK
Phil Webster
webster.phil@adlittle.com

FranceMathieu Blondel
blondel.mathieu@adlittle.com

Middle East
Morsi Berguiga
berguiga.morsi@adlittle.com

USA
Alejandro Gonzalez
gonzalez.alejandro@adlittle.com

Hong Kong
Andrew Smith
smith.andrew@adlittle.com

The Netherlands
Martijn Eikelenboom
eikelenboom.martijn@adlittle.com

Developing economies must take a differentiateddigital transformation approach

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