Increasing connectivity looms as a threat to consumer trust in Latin America

11 September 2018 Consultancy.lat

In a consumer trust survey covering six key sectors and conducted by Llorente y Cuenca in nine Latin American markets, the food & drinks sector has come out on top ahead of pharmaceuticals and retail, with consumers in the north of the continent generally more trusting than those in the south. Connectivity, however, may be having an impact.

Taking in the views of nearly 4,000 consumers across Brazil, Chile, Colombia, Ecuador, Mexico, Panama, Peru and the Dominican Republic, and exploring the consumer trust relationship with the key sectors of food & drink, automotive, pharmaceutical, financial services, retail and telecommunications, the survey by communication and public affairs consultancy Llorente y Cuenca has found that food & drinks businesses are on average the most trusted in Latin America.

Overall, the pharmaceutical and retail sectors were considered the equal second-most trustworthy (with a tally of 7.2 out of ten) following the food & drinks sector (7.5), while the telecommunications (6.8) and financial services (6.6) sectors received the lowest trust ratings in the region. The automotive sector meanwhile earned a trust grade of 7.1, which along with retail was above average when compared to other regions.

Average consumer trust per sector in Latin America

The results, however, highlighted some distinct divides between the countries surveyed per sector, with the more northern consumers in Mexico, Panama and the Dominican Republic expressing overall greater faith in big business than their more cynical southern counterparts in Argentina, Peru and Chile – the latter of which registered the lowest levels of trust across the region despite being considered the best location for business.

Chilean consumers, for example, assessed the food & drinks sector as a 6.6 for trustworthiness, compared to a 7.9 rating in Mexico, while consumers in Panama felt that financial service providers were worth a 7.3 on the trust scale against a 5.7 score in Argentina although this may not be surprising given the contribution of financial services to Panama’s GDP and the dire state of an Argentinian economy riddled by foreign debt and fiscal mismanagement, which continues to hamper the country’s overall business climate.

Consumer trust in Latin America by country

Still, despite the variances, consumers in Latin America are on the whole more trusting than those in Spain (the home market of Llorente y Cuenca), and by a fair margin – with the corresponding survey in Spain producing an average result of 5.8 and none of the sectors earning a score higher than 6.3, compared to the consolidated score of 7.1 across sectors in Latin America and a lowest score of 6.6 (although financial services wasn’t assessed in the Spanish survey).

In contemplating the differences between regions, the consulting firm forwards the idea that the internet may be playing a part; “when contact intensity (connectivity, e-commerce, transactions) is greater, there are more ‘moments of truth’ when more frustrating and also more satisfactory situations are or may be generated.” While the Latin American region as a whole has reached an internet penetration rate of 61 percent, some sources give the figure in Spain as having pushed above 90 percent, with the country one of absolute world leaders for mobile connectivity.

Interestingly, Chile, which is the least trusting of those surveyed, also leads Latin America for internet connectivity – last year ranked 25th worldwide in an index compiled by Chinese telecommunications giant Huawei. Chilean consumers also consistently ranked higher across each sector in the Llorente y Cuenca survey for the value they placed on communications (transparency) in assessing business trustworthiness, privileging this criterion as a ratio above business practices (integrity) and product/service (credibility) as compared to other countries.

According to Llorente y Cuenca, the growing online engagement trends in Latin America are granting consumers more power in their relations with businesses, and presenting greater potential for the erosion of trust; “Inevitably, the increased connectivity and boom of social networks have converted the relationship between brands and consumers into a glass box, which requires a more direct, transparent approach. The challenge of meeting expectations in an era of Fake News is not to be infallible, but to be honest when one makes a mistake.”

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.