Latin American Governments Slow to Adopt New Technology, SAP Says

Miami — The sale of Qualtrics and SAP’s revenue growth from cloud services sales have driven an improvement in the company’s net income by more than 235% this year. But what role has Latin America played in this performance? In an exclusive interview with Bloomberg Linea, Cristina Palmaka, SAP’s president for Latin America and the Caribbean, said that cloud services sales are growing at “double digits”.

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While pushing automation and innovation to improve business efficiency, Palmaka also points to a shortfall on the part of Latin American governments in adopting new technologies, something that could reduce costs and, at the same time, inflationary pressures.

The region’s economic outlook, marked by high interest rates and budget constraints, poses both challenges and opportunities for SAP. In particular, the region’s retail sector has faced significant challenges, but SAP’s Palmaka believes that her company will not be hurt by a fall demand in 2024, as companies will continue to seek greater efficiency, savings and innovation.

Regarding the impact of artificial intelligence on employment, Palmaka argues that more jobs will be created than will be eliminated. However, she emphasizes the need to work on the shortcomings of the region’s education systems.

Bloomberg Línea: The sale of Qualtrics and the growth of its SAP revenue from cloud services led to higher profitability so far this year for SAP. How important was Latin America in this performance?

Cristina Palmaka: We cannot talk about the specific numbers for Latin America, but we are reporting 34 quarters, which is eight and a half years. We are growing at double digits in our cloud platforms in the region. At the beginning, double-digit growth is easy, because the base is small. But in the last few years, companies are looking more and more at the benefit of going to the cloud, not only new customers, but also customers that were on our old on-prem platform. The benefits are much more than just a technological change, but of growth, innovation, flexibility, security issues. The region had a spectacular performance, again in Q3, but it is already on a very, very accelerated growth. It is fantastic because we can bring the best of the world’s technology to our customers of all sizes in the region. It is important for us that not only the large customers are changing, but that we are also bringing a level of automation and innovation to SME customers, which are fundamental for Latin America.

This year we saw a consolidation of an environment of high interest rates, with the impact that this entails on credit, costs and budget adjustments. What trends and needs did you detect when selling in Latin America?

The economies of our region are not spectacular; in general, interest rates are in double digits, but we also see growth. Some segments are doing better than others. If we look at retail, for example, it has been hit very hard. But that’s the beauty of cloud solutions, because you can start small, but immediately have benefits and innovation. To give an example, our supply chain solutions bring a lot of efficiency, a lot of savings, and all companies are looking at how they can save in their entire chain, be it cash management, inventories, the information chain, or making all procurement processes more efficient, so that you have much more agility. In the past, technology was seen as a cost. Today, customers see it as a benefit for their business, so even in not-so-booming economies, they find success in these investments.

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And what are the main challenges and opportunities for the coming year in the region?

We are going to bring more and more components for industries, and some issues that are very important for our economies in the region. First of all, supply chain efficiency, which will continue to be very strong, but also issues such as sustainability and regulation. Colombia is very advanced on this point, requiring companies to present numbers. For this, SAP has invested a lot in bringing not only the control of financial information, inventory, procurement, but also everything related to sustainability issues. These are issues that will no longer be optional from the regulatory point of view.

There is a lot of discussion around the speed of AI advancement and its impact on employment. How do you deal with that tension at SAP, and how do you respond to customer inquiries about it?

For us it’s a big investment. We just launched our copilot, which we call Joule. For us, artificial intelligence is focused on our core. We have had many of these AI and machine learning components embedded in our technologies for many years to bring much more speed in decision making. But we are taking an additional step. The system itself will give recommendations of what is going well, what is not going well, and it will not depend so much on the human side to get the information and process it. The system will be pointing out points for improvement, points where the customer has to look at their needs or what their challenges are in their operations, everything will be increasingly automated.

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What impact will that have on the job market?

Yes, some positions are going to be eliminated, because if we had someone who was consolidating accounts, the system is going to be automatic. Anything that is very repetitive, yes, those positions are really going to cease to exist. But a lot of new jobs are going to appear. A study I saw recently pointed out that the positions that are going to be generated are many more than those that will be eliminated. But of course, there is an important point which is the qualifications of the people, and in Latin America we still have an issue with education, with the possibility of growth. Our focus is ensuring that the populations, that our countries, accelerate with digital knowledge, I think that is the very important part. We have programs with our partners and with universities to ensure that they are ready, because the opportunity will be there, but we need to ensure that people are prepared for this new world.

Other large technology companies such as Amazon and Meta restructured their workforces considerably during the pandemic. In the case of SAP, this year it affected 2.5% of the workforce, what else can we expect from SAP in that sense and how will it impact Latin America?

We made quite an organizational change, which we consider important because we are leaving the on-prem world and going to the cloud world, so even many of the people who were impacted by last year’s restructuring were placed in other positions. We had a very small impact. We have been growing at an accelerated rate and for us in the region, there is no impact of any restructuring. On the contrary, we believe that we will continue to generate jobs not only for SAP, but for this entire ecosystem.

How many people does SAP employ in Latin America?

Already almost 6,000. We have a lot of people in Brazil. We have a laboratory in the south, with almost 2,000 people, near Porto Alegre, we are growing and we have almost 2,000 people, and we opened it in the middle of last year, focused on co-innovation projects with our partners, with our customers. We continue to invest, because that is the basis of making the right use of innovation, of technology as part of companies’ processes. I think we still have a great, great opportunity to accelerate growth and the impact on our customers in the region and ensure that they can be much more relevant.

In an interview earlier this year, SAP’s CEO Christian Klein said that artificial intelligence and automation could reduce inflationary pressures. What is your view on this point in Latin America, specifically?

Some countries have a little bit more inflation. We had it in the past in Brazil, but now we are not so used to it. We are going to reach 4%-4.5% and Brazilians are already panicking. I think technology has a huge potential, because it can bring data for better decision making and ensure that companies can make the best profit. But we have not yet seen with much success, with rare exceptions, governments taking technology as their basis for definitions. There is a slowness to adopt these solutions. In the region we have some examples of success, Colombia is one, in how to manage technology. Christian talks about one billion euros in savings and efficiency opportunities. In Latin America we have super strong agriculture, fuels, water, renewable energy, we now have many green hydrogen projects. In other words, imagine if we had greater efficiency. Technology can bring much more productivity, better management of the region, from the point of view of governments. We could be unstoppable.