Latin American governments are slow to adopt new technology, SAP says

MIAMI — SAP’s revenue growth from the sale of Qualtrics and cloud services led to a more than 235% jump in the company’s net income this year. But what role did Latin America play in this performance? In an exclusive interview with Bloomberg LineaCristina Palmaka, SAP’s president for Latin America and the Caribbean, said cloud services sales are growing in „double digits.”

While driving automation and innovation to improve business efficiency, Palmaca also points to a lack of Latin American governments in adopting new technologies that would lower costs and at the same time reduce inflationary pressures.

The region’s economic outlook, marked by high interest rates and fiscal constraints, presents both challenges and opportunities for SAP. In particular, the region’s retail sector faces significant challenges, but SAP’s Palmaca believes his company will not be affected by falling demand in 2024 as companies continue to seek greater efficiency, savings and innovation.

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

Bloomberg Línea: Sales of Qualtrics and growth in its SAP revenue from cloud services have led to SAP’s biggest profits so far this year. How important is Latin America in this performance?

Cristina Palmaca: We can’t talk about specific numbers for Latin America, but we’re reporting 34 quarters, which is eight and a half years. We are growing in double digits in our cloud platforms in the region. For starters, double-digit growth is easier because the base is smaller. But over the past few years, companies have increasingly seen the benefits of moving to the cloud, not only with new customers, but also with existing customers on our old on-prem platform. The benefits are more than a technological change, but growth, innovation, flexibility, security issues. The region again had a fantastic performance in Q3, but it is already growing very, very quickly. It’s fantastic because we can bring the world’s best technology to customers of all sizes in the region. It’s important to us that we bring a level of automation and innovation to our core SME customers for Latin America, not just large customers switching.

This year, we’ve seen a compounding environment of high interest rates, impacting debt, spending and budget adjustments. What trends and needs have you found while selling in Latin America?

Our region’s economies are not spectacular; Typically, interest rates stay in the double digits, but we also see growth. Some categories perform better than others. If you look at retail, for example, it has been hit hard. But that’s the beauty of cloud solutions, because you can start small, but reap the benefits and innovations immediately. For example, our supply chain solutions bring more efficiency and a lot of savings, and all companies look at how they can save in their entire chain, whether it’s cash management, inventory, information chain or all procurement processes are more efficient, so that you have more agility. In the past, technology was viewed as an expense. Today, customers see this as an advantage for their business, so even in underdeveloped countries, they see success in these investments.

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

We are going to bring more elements for industries and some issues that are very important to our economies in the region. First, supply chain performance, which will continue to be very strong, but also issues such as sustainability and regulation. Colombia is so advanced at this point that companies have to provide numbers. For this, SAP has invested a lot in bringing not only control of financial information, inventory, procurement, etc., but also everything related to sustainability issues. These are no longer desirable from a regulatory perspective.

There is much debate about the pace of AI progress and its impact on employment. How do you deal with that tension at SAP and how do you respond to customer inquiries about it?

It is a big investment for us. We just launched our copilot called Joule. For us, artificial intelligence is focused at our core. Over the years we have embedded many of these AI and machine learning elements into our technologies to bring greater speed to decision making. But we are taking extra steps. The computer itself will provide recommendations on what is going well and what is not going well, and will not depend on humans to receive and process information. This system will point out points for improvement, points where the customer needs to look at their needs or what their challenges are in their operations, all increasingly automated.

What impact will this have on the job market?

Yes, some positions are going to be eliminated because if we have someone consolidating the accounts, the system will be automated. Anything that’s too repetitive, yes, those levels will literally go away. But many new jobs will appear. A study I recently saw indicated that there are more positions being created than positions being eliminated. But of course, there is an important thing, which is the qualifications of the people, and in Latin America we still have a problem with education, the possibility of development. Our focus is to ensure that the population, our countries, are up to speed with digital literacy, and that is the most important part. We have plans in place with our partners and universities to make sure they are ready, because the opportunity will be there, but we have to make sure people are ready for this new world.

Other big tech companies like Amazon and Meta have significantly restructured their workforces during the pandemic. For SAP, it affected 2.5% of the workforce this year, so what else can we expect from SAP in that respect and how will that affect Latin America?

We’ve made a very significant organizational change because we’re moving out of the on-prem world and into the cloud world, so a lot of people who were affected by the restructuring last year were also put in other positions. We made very little impact. We are growing at a faster rate and for us in the region, there is no impact of any restructuring. Instead, we hope to continue to create jobs not just for SAP, but for this entire ecosystem.

How many people does SAP employ in Latin America?

Already nearly 6,000. We have a lot of people in Brazil. We have a laboratory in the south, almost 2,000 people, close to Porto Alegre, we are growing, we have almost 2,000 people, we opened it in the middle of last year, we focused on innovation projects with our partners. customers. We continue to invest because it is the basis of innovation, the right use of technology as part of the processes of companies. I think we have an even better, better opportunity to accelerate the growth and impact of our clients in the region and ensure they’re highly relevant.

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

Inflation is slightly higher in some countries. We have been to Brazil in the past, but not so much now. We are going to reach 4%-4.5% and Brazilians are already panicking. I think technology has a huge potential as it can bring data for better decision making and ensure companies can make better profits. But, with rare exceptions, we have yet to see much success with governments basing technology on benchmarks. There is a delay in adopting these solutions. We have some examples of success in the region, and Colombia is one in how to manage technology. Christian talks about a billion euros in savings and efficiency opportunities. In Latin America we have strong agriculture, fuels, water, renewable energy, and now many green hydrogen projects. In other words, imagine if we had more efficiency. From the point of view of governments, technology can bring about greater productivity and better governance of the region. We can be unstoppable.