Mexico leads Latin America in robotization, followed by Brazil and Argentina

01 June 2018 Consultancy.lat

The number of robots installed in workplaces has been rising steadily for the past decade or so. It began with simple automated processing in manufacturing and agriculture and has been on a sharp incline since AI moved out of its applicability infancy. Whilst what has been dubbed as the Fourth Industrial Revolution has barely begun, robots and automation are having an increasing presence in our workplaces. 

The number of industrial robots installed in the workplace globally has risen from 116,000 to 350,000 since the beginning of the decade. By 2020, that number is predicted to be as high as 521,000 according to the International Federation of Robotics, a growth rate of 349%. The increase in number has been due to the giant leap forwards in AI technologies and machine learning.  

The majority of Latin America has struggled to adopt the digital infrastructure necessary to facilitate the Industry 4.0 technological transition within their economies. Latin America did not see the rapid transitions that occurred throughout Asia during the first digital revolution and missed out on the fruitful rewards of a digitalising economy. 

However, Mexico, Argentina and Brazil have laid their digital foundations and are beginning to adopt the new technologies. The three powerhouses have the largest economies of Latin America and are outstripping their Latin peers in terms of digital maturity. The two are directly correlated and it signifies that the three countries are setting themselves up for future growth.

Number of industrial robots installed globally by year

Together, they represent three of the four heaviest users of social networks measured by hours per day. This indicates a certain level of digital infrastructure is in place and that these countries are no foreigners to digital technologies.  

There are two ways to analyse a country’s uptake of robots which perform automated tasks in the workplace, the first being sheer quantity, and the second, robots per 10,000 workers. Looking at the uptake of robots globally, South Korea leads with 631 robots per 10,000 workers, followed by Singapore and Germany. Quantity-wise, China has the most industrial robots, but in comparison to the workforce, sits at 68 per 10,000 – roughly the same as the United Kingdom.

Albeit at a marginally lower rate than its northern neighbours, Mexico leads the pack when looking specifically at the number of robots per 100,00 employees. The country has 32 robots per 10,000 employees which is on par with Poland, another country heavily focused on manufacturing. In real terms, the country has 6,000 robots installed across the country performing tasks from industrial manufacturing to agriculture. 

Number of industrial robots by country

Mexico’s economy thrives on manufacturing, driven by the country’s booming automotive industry. The auto industry is a hotspot for foreign direct investment with car companies investing billions of dollars each year. According to a Roland Berger report in 2016, Mexican vehicle production is predicted to double between 2010 and 2020 due to a dramatic industry expansion into new markets. Aided by robotics, the industry will only become more lucrative. 

Brazil trails Mexico in both quantity of robots as well as per 10,000 employees. The country has 1,800 robots installed across the country, just over a quarter of the number in Mexico, which translates to 10 per 10,000 workers. The gap between the two reflects the state of a more digitalised economy in the country, with less of a focus on manufacturing in general. That being said, Brazil is the world’s largest exporter of soy products, sugarcane and beef, three industries that will see increasing automation in the future. 

Argentina is reemerging as one of the region’s economic drivers after having spent the past decade in and out of recession. The country has struggled with the blue market exchange rate, making purchasing technological goods increasingly difficult. This has had a direct effect on businesses looking to digitalise, as buying products from abroad usually has to be done in dollars, which are sold at a higher rate of exchange and were impossible to get legally. 

Number of industrial robots installed – South America

However, Argentina is going through a period of economic reforms led by the new business-friendly Macri Government and the situation is improving overall. This slow uptake of new technologies across industries is reflected in the low numbers of robots overall. The country however has more robots per 10,000 workers than in Brazil, although that number reflects the lower population in general (43 million in comparison to Brazil’s 207 million).

When looking at these three countries, it is possible to identify a common trend towards the uptake of Industry 4.0 technologies and the opportunities that will arise with them. There is also a fear that these technologies will take away vital jobs for low-skilled workers throughout the formal workforce and potentially push people back into the informal economy.

Latin Americans however have the skills that will thrive in an age of automation, skills which cannot be taken away by new technology. Creativity, empathy, collaboration and resilience are common Latin traits that will allow the human capital of the region to retain and increase in value if and when the shift begins to occur. 

These social and behavioural traits are critical to innovation and entrepreneurship which could form the basis of Latin American economies in the digital age. However, one thing is certain, for Latin governments to prepare for the shift and better position their citizens it is necessary to build the foundations of digitally-literate workforce.

Digitization could add $240 billion to Mexico’s GDP by 2025

22 January 2019 Consultancy.lat

New in-depth analysis by McKinsey & Company ranks Mexico 55th in digital maturity out of 151 countries. When compared to countries with similar economic output, Mexico is in good shape, but the country has “yet to achieve the kind of world-class digital transformation that fuels productivity and economic growth.”

Countries that have adequately transformed, such as Estonia and Malaysia, have incomes close to Mexico, but punch “above their weight” when it comes to digital maturity. Mexico is about halfway there. Taking steps to improve its global digital position, however, could increase the country’s GDP by  7-15% (approximately $155-240 billion) by 2025. Such an increase would be powered by increased productivity and employment in existing industries, new digital businesses, a broadened expanded information-and-communication-technology (ICT) sector, as well as the successful labor force transition into the digital world.

Mexico is the second-largest economy in Latin America, meaning it is in the unique position to set the regional standard for a “digitally enabled” government.

For their analysis, McKinsey & Company researchers Alberto Chaia, Gonzalo Garcia-Muñoz, Philipp Haugwitz, Max Cesar, and Andre de Oliveira Vaz defined digital maturity using four categories: government, foundations, economy, and society. The study also laid out steps that Mexico could take to improve its digital maturity. Of these four factors, Mexico has the most work to do in digital economy and digital foundations, categories in which its scores are just below average – and which are highly correlated.

Digital maturity of Mexico according to McKiney

The bad news first

Digital foundations essentially encompass the ability of citizens to participate in a digital society. This means internet access, mobile networks, and so forth. “In 2016, Mexico had just 13 fixed-line broadband subscriptions for every 100 inhabitants” the analysis found. “The rate of subscription to mobile broadband is higher, at 61%, but this still leaves a sizeable portion of the population unconnected and thus spending additional time and money getting to physical centers to access government services.” This lack of access causes Mexico to rank 93rd overall in the digital foundations category. 

Mexico’s digital economy, in turn, is hindered by its “shaky” digital foundations. It sits in 92nd place of all countries surveyed. There is a lack of access to high-speed internet, as stated, as well as an unreliable postal service and a lack of bank accounts among the population, with just 40% of citizens aged over 15 having an account. These factors decrease the country’s potential to develop an e-commerce industry that is widely and conveniently used. Exports of ICT goods, as well, account for an astonishing less than 1% of all exported goods and services.

And now for the good news

Mexico’s digital government, which ranks 39th overall, has made great strides in recent years. The creation of gob.mx, for example, provides "a one-stop portal that consolidates 34,000 databases from 250 government institutions and 5,400 public services. The platform is described as the “centerpiece” of Mexico’s digitization efforts, allowing citizens easy access to important legal documents such as birth certificates, as well as automating internal processes, making workplaces tasks run more smoothly for government employees.

Despite this – and the appointment of a national digital strategy coordinator who sits on the president’s staff - Mexico “receives low scores from its citizens on their overall satisfaction with the convenience and accessibility of government services.” Citizen experience was the worst-rated of those group countries surveyed (Canada, France, Germany, Mexico, the United Kingdom and the United States). There was also a largest perception gap between the private and public sector.

How digital can boost Mexico’s GDP

A digital society, according to the report, “can improve the quality of life for citizens by fostering greater civic participation, providing access to information, and offering new tools for health and education.” As previously shown, Mexico is pushing such platforms, including several subsections of gob.mx, on which citizens can participate in public polls and discussions, and present potential digital solutions to serious societal problems such as earthquake detection systems.

Mexico is well on its way to achieving a “good” or “very good” digital maturity rating (right now, the country is “acceptable”). According to McKinsey, “There are three basic initiatives Mexican government leaders could consider putting on top of their priority lists [to speed the transition into the upper echelons of digitization].”

First, the Mexican government must define a digital vision and strategy. Second, it must link that vision to policymaking. Entwining the two ensures that digitization acts as a “lever” to a policy’s success. “To establish a clear link between its digital vision and public value, Mexico’s incoming administration may want to consider revisiting the country’s "National Digital Strategy" for 2013 and aligning it with Mexico’s current and future needs, as well as with the new government’s priorities,” the report states. A “test and learn” attitude toward linking digital vision and policy will also be necessary, as the only way to avoid repeated mistakes is by closely evaluating those that have been made, then planning accordingly. Adopting this attitude, according to the report, will necessitate more flexible budgetary strategies.   

The third suggested initiative is all about power to the people. Successful digital transformations are those that are centered around the citizens, rather than the institutions that serve and govern them. This means service delivery is key, and centralization of digitalization efforts – initially, perhaps, in the form of a council that would oversee governmental transformation – could greatly aid government agencies in getting the people what they desire. As Mexico transforms, so would the ways in which ideas are generated and put into action. For instance, the United States has the US Digital Service, which works with the White House, and Singapore relies greatly on the Government Technology Agency, which reports to the country’s president and implements digital strategies.

Digital maturity benchmark

Filling in the cracks

Because Mexico ranks on the low end of the “digital foundations” category, it is obvious that the other four categories, which by nature fall under the “foundations” umbrella, are potentially negatively affected. As such, McKinsey offers five steps that could be taken to strengthen the country’s digital infrastructure. 

Private companies, for one, could be offered incentives to provide broadband internet to “marginalized” communities, such as those in Oaxaca and Chiapas. The study points to India as an example, where the government-created National Optical Fibre Network (BharatNet) “successfully brought broadband services to approximately 115,000 villages, aiming to deliver broadband connectivity to 250,000 villages overall.” 

Talent is also an issue. “In recent years, Mexico has made significant strides to boost the number of college graduates with degrees in science, technology, engineering, and mathematics (STEM),” the report states. In 2016, 25% of university graduates with a STEM degree. 

But degrees aren’t so much the problem as education in general. “Only 17% of Mexicans graduate from college, making the talent pool small.” Programs that keep primary and secondary school teachers in the loop are a must – as are “reskilling” programs meant to train a percentage of the workforce that is soon to be displaced by technology such as automation. 

Rounding out the five suggestions are a system that easily and simply explains new regulations regarding technology - an invaluable resource for startups; the development of cybersecurity units required to monitor the security of such a large, overarching transformation; and a streamlined, interoperable model for data sharing across multiple government agencies. 

It’s an investment

The challenges and obstacles in Mexico’s path to digital transformation are not inconsiderable, but are neither without long-term reward. “Going digital will require an investment of financial resources, extensive coordination among the multiple stakeholders and levels of government, and new regulations governing the growing e-commerce and fintech sectors. It most likely would entail participation incentives for the private sector, since governments should not attempt to 'go it alone.' In the end, both sectors of society stand to reap the value digitization will sow.” 

Related: Mexico leads Latin America in robotization, followed by Brazil and Argentina.