Regional channel executives and distribution leaders share their partnership perspectives

inLATAM 2017

GLOBAL TECHNOLOGY DISTRIBUTION COUNCILGTDC

About the Report LATAM in 2017 was developed as a supplement to a global study the GTDC commissioned to focus on worldwide trends related to distribution and the channel in 2017. Those findings, also available for download from the GTDC Research Center, are also correlated to the research conducted specifically for this report centered on Latin America trends. CommCentric Research, a division of CommCentric Solutions, a leading channel communications firm, based the conclusions and insight for LATAM in 2017 on a series of interviews with regional market analysts, distribution executives and top channel specialists from the vendor community.

www.commcentric.com(813) 876-0414info@commcentric.com

www.gtdc.org(813) 412-1148info@gtdc.org

GLOBAL TECHNOLOGY DISTRIBUTION COUNCILGTDC

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Latin America 2017– a Pivotal Year for Channel Leaders

Latin America is poised for economic growth and an upswing in IT spending in 2017—particularly in new-generation technologies—including mobility, cloud and security, with new vertical markets emerging, according to distribution, vendor and industry analyst executives. Anticipated growth will break a two-year stretch of declining sales in the region, with many companies now ready to invest heavily in technology after a prolonged delay in corresponding investments.

Still, executives say, there are a myriad of reasons for LATAM enterprises and small businesses to be cautious—including a wait-and-see approach toward possible trade actions U.S. President Donald Trump may make toward Mexico and beyond.

“There’s a backlog [of IT investments] that needs to spike. We see a lot of repressed demand, especially in Brazil and Argentina. Both households and businesses have postponed consumption decisions based on the overall weakness of the economy and the uncertainty of recovery,” said Marcos Casarin, head of Latin American Macro Investor Services, Oxford Economics. “Now that the prospects of recovery have become clearer and inventory levels are historically low, they have to invest more.”

Quick LinksSigns of Recovery and Resurgence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

The Mobile Factor and Other Game Changers . . . . . . . . . . . . . . . . . . . . . . . . . 5

Cloud Platforms Rising Across the Region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Opening New Vertical Market Doors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

A Wall of Uncertainty in Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Takeaways: As Economies Improve, the Real Work Begins . . . . . . . . . . . . . . 10

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Signs of Recovery and ResurgenceOverall, the LATAM region’s aggregate GDP is expected to grow more than 1% this year, according to Casarin. Led by Brazil and Argentina, as well as improving prospects in the Andean economies (Colombia, Chile and Peru), lower inflation and interest rates should boost household consumption and business investment.

Leonardo Gannio, executive director of advanced solutions, Latin America, at Ingram Micro, projects IT spending to outpace overall GDP growth in the region, with corporate spending through the IT channel to reap the benefits of the backlog.

“I’ve seen industry consultants expect IT spending to increase 2.5%, but that’s a tricky number by itself because it includes devices, corporate infrastructure, services, even telecommunications expenses,” Gannio said. “Devices and telecommunication account for about 60% of IT spending, but spending in those areas isn’t as suppressed as commercial and governmental IT infrastructure investments,” Gannio said.

“We expect growth from 2.5% to 4.8%, only considering infrastructure, software and IT services. Diving deeper, some areas could grow more than double digits. For example, legacy data center infrastructure is so big, it’s likely not going to grow as fast as cloud should,” Gannio said.

Global Channel Contrast

In a poll of 70+ channel execs worldwide, conducted by CommCentric Research in November/December 2016…

• Nearly 62% expect indirect to outpace direct sales • 13% indicated they are already 100% indirect • 7% expect direct to grow more rapidly than indirect • 55% anticipate double-digit growth through

distribution • Cloud, Security and Data Center ranked as Top 3

Solutions categories • 78% expect distributors to develop new business

around vertical market solutions

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The Mobile Factor and Other Game ChangersBy 2025, Frost & Sullivan projects that 5% of LATAM’s GDP will belong to the mobile economy. That’s going to require a significant investment in digital/mobile infrastructure, and companies are going to have to change the way they do business, according to Juan Manuel Gonzalez, research director, digital transformation, at Frost & Sullivan.

“By 2020, there will be in Latin America 520 million mobile internet users and over 390 million smartphone users,” Gonzalez said. “How mobility can make us more productive and what tools we’ll use to fulfill the demands of mobile workers will be a big focus for Latin America. The mobile economy creates a need, and IT providers have to fulfill those expectations. Those who embrace this reality will prosper and those who do not will struggle.”

“Distributors and solution providers are helping vendors create solutions that give employees access to corporate data anywhere and anytime,” said Ingram Micro’s Gannio.

“Mobility is the key to enhancing the customer experience. Banking, retail industries, governments themselves are working very hard to enable citizens,” Gannio said. “It’s also about building a mobile infrastructure within a company to support that trend. For example, the channel not only is looking at investments this year around the identity of the person requesting the data, but also how they interact with that data. It’s a big opportunity.”

Although the sales growth of mobile device sales is slowing, enterprises are looking to better manage and secure information flowing to and from those devices, according to Eduardo Barron, vice president of Latin America and the Caribbean for Avnet Technology Solutions.

“Many companies are not 100% ready to have different types of mobile devices on their network. They need consulting, implementation services, and a bunch of different products to solve this equation,” Barron said. “If we can enable our partners, the opportunity is going to be a good one for the next couple of years.”

By 2020 inLatin America:

520 MillionInternet Users

Smartphone Users390 Million

for infrastructure, software and IT services

2.5%-4.8%Projection in IT spending increases for Latin America

“Many companies are not 100% ready to have different types of mobile devices on their network. They need consulting, implementation services, and a bunch of different products to solve this equation.”

Eduardo BarronVice President of Latin America and the CaribbeanAvnet Technology Solutions

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problems, not simply add a new server or get email in the cloud for the sake of doing so. “They are requesting solutions for a very particular business need. Cloud will help increase IT solution penetration for two primary reasons—it’s affordable and it’s easy to adopt,” he said.

For their part, distributors have been building cloud platforms, marketplaces and programs for the last several years. Expect to see more complete offerings and suites of aggregation, provisioning, and billing tools in 2017 from distributors striving to provide more value-added services around cloud, according to Deena Piquion, vice president of sales and marketing for Tech Data’s Latin America Export division.

“We have the benefit of leveraging the scale, power and resources to invest in cloud tools, providing unprecedented business support in Latin America,” Piquion said. Cloud adoption in Latin America is more complicated than other regions because some countries have complex data privacy and tax compliance laws, she added. “It’s taken a little longer to get where we are, but I see adoption picking up,” she said.

Opening New Vertical Market DoorsLike cloud, Latin America has been slow to react to custom offerings designed for specific vertical markets, but that is changing now that those solutions have proven effective in other regions—and governments and businesses are poised to spend more on IT this year, executives said.

“Customers in many industries are starting to think they have to move into these new technologies. There’s no option for them not to do so anymore. So even though some traditional markets aren’t expected to grow, we believe there is opportunity within those markets through new technologies that can make them more efficient and productive,” Barron said. “We are helping our reseller base in Latin America specialize around specific verticals. The ones that are doing something different are the ones having the most success.”

For Cisco Systems, increased vertical market demand in Latin America is best illustrated by a large wireless project underway with InterContinental Hotels Group (IHG), which chose to standardize on Meraki solutions for all its franchises in the region, according to Nancy Thomas, global partner director at Cisco Systems.

“Clearly hospitality is a big vertical because they rely so heavily on tourism in some of those countries. In addition to wireless, we have launched global security initiatives with our distributors in many vertical markets,” Thomas said.

“We have launched global security initiatives with our distributors in many vertical markets.”

Nancy ThomasGlobal Partner Director Cisco Systems

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Cloud Platforms Rising Across the RegionDemand for cloud solutions in Latin America lags the pace of North America and EMEA, but enterprises are engaging in conversations and interest is increasing as IT budgets start to flow again, according to Gonzalez.

A Frost & Sullivan survey found that Latin America users believe that access to data, better features and capabilities, as well as flexibility and scalability will be the biggest drivers of cloud in the region.

“We already see companies becoming more agile because of easy-to-deploy solutions that allow them to focus on their core businesses,” Gonzalez said. “We do not expect any big moves in the short term, but it’s something that distributors will certainly face in the future.”

Avnet’s Barron notes that companies like Amazon, Google, Microsoft and IBM/SoftLayer are aggressively moving into the market with public cloud offerings and it’s incumbent upon the channel to complement them by creating hybrid solutions. “Even big companies you wouldn’t expect to are moving into public cloud. We will see more hybrid offerings with the expertise we have in-house and by getting more resellers into that space. We’ll have them ready to deliver hybrid cloud,” Barron said.

Cloud demand will accelerate in Latin America, said Ingram Micro’s Gannio, because the corporate market wants to address specific business

Source: Frost & Sullivan

Cloud Perception Among Companies in Latin America, 2016

Notes: Based on a scale of 1 to 5, 1 being Strongly Disagree, and 5 being Strongly Agree. Results based on survey of 450+ companies in Latin America that said they have moved applications to the cloud.

4.01

3.99

3.97

3.95

3.95

3.94

3.86

It helps us to store large amounts of data

It better �ts our budget which favors OPEX over CAPEX

It allows us to support our dispersed workforce

It eliminates hassle of integrating multi-vendor products and solutions

It supplements our limited in-house IT/telecom resources

It helps us reassign in-house IT/telecom sta� to more strategic tasks

It provides greater �exibility at times of rapid growth or downsizing

It provides us with access to advanced features/capabilities

3.60 4.204.003.80

4.18

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A Wall of Uncertainty in MexicoMeanwhile, prospective immigration and trade actions by the Trump administration in the U.S. make Mexico’s economic recovery and IT spending harder to predict than other Latin American countries, executives said.

“Much depends on external environments—particularly whether President Trump gets closer or further away from candidate Trump. We’ve seen a bit of both so far,” said Casarin. “It’s not the greatest environment for business expansion. Firms are in a wait-and-see mode to see what happens with U.S. policies, how they are carried out and what implications they might have for south of the border.”

Mexico is still experiencing consumer economic growth domestically, with real salaries and household purchasing power increasing, but that growth is slowing. It’s important for business spending to increase to offset any consumer slowdown to maintain economic stability, Casarin said.

“There’s a duality in the Mexico economy that we should see well into 2017,” he said.

In particular, concern is rising from both Mexico and the U.S. regarding the future of the North American Free Trade Agreement after President Trump indicated that he might seek to renegotiate the 1994 agreement.

“Mexico is by far the most exposed economy in Latin America to risks from any changes in U.S. trade policies from the incoming Trump administration,” Gonzalez said. “That being said, the updated forecasts for Mexico projects that the economy will grow 1.4 percent in 2017, compared with a previous estimation of 2 percent growth.”

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Meanwhile, Latin America governments continue to represent a large vertical opportunity for the channel, even though spending cycles depend on when elections may occur in individual countries, said Ingram’s Gannio.

“Next year, 2018, there are elections in Peru. Argentina has House elections this year. You need to know what part of the cycle you’re in to know whether to invest or not,” he said. “In addition, telecommunications and media companies represent big opportunities in Latin America, because they are especially focused on providing better customer experiences,” he said.

“Two rising stars are health care and natural resources like oil and mining, depending on the country. And retail is going to spend heavily to catch up with the economy. Retailers need new technology to better sell to customers,” Gannio said.

Tech Data’s Piquion adds that education and financial services industries will be key growth markets in 2017 for the channel.

“These vertical markets are deploying new IT solutions that are changing their classroom and customer experiences. Latin America is still benefiting from economic and population growth in secondary and tertiary cities in-country, which provides resellers with new customer opportunities outside of the densely populated and more mature capital cities,” she said.

The opportunity in Latin America led distributor Intcomex to make vertical solutions a big focus of its Intcomexpo event last fall—including solutions around education, tourism, retail, gaming and more. “We wanted to show our partners the wide range of opportunities available to them and to enable them to expand their reach through specialization in specific markets,” said Daniel Schachtel, chief commercial officer at Intcomex. “We held multiple training and technical sessions demonstrating how to best configure industry-specific solutions and increase your value proposition to customers.”

“Mexico is by far the most exposed economy in Latin America to risks from any changes in U.S. trade policies from the incoming Trump administration.”

Marcos CasarinHead of Latin American Macro Investor ServicesOxford Economics

The latest GTDC LinkedIn Pulse column touches on trade policy ramifications related to the global supply chain for IT solutions. It includes option to take a quick poll where you can share your views.

Global Supply Chain Shouldn’t Be Trumped by Politics

Checking the Pulse

“Latin America is still benefiting from economic and population growth in secondary and tertiary cities in-country, which provides resellers with new customer opportunities...”

Deena PiquionVice President, Sales and Marketing, Latin America Export Division Tech Data

“Next year, 2018, there are elections in Peru. Argentina has House elections this year. You need to know what part of the cycle you’re in to know whether to invest or not.”

Leonardo GannioExecutive Director, Advanced Solutions, Latin AmericaIngram Micro

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Takeaways for Latin America: As Economies Improve, the Real Work BeginsAlthough it’s been a tough couple of years for most Latin American countries, executives in the region see definitive signs of economic recovery, with positive GDP expected across the region. For IT vendors, distributors and solution providers, that spells opportunity. As businesses and government agencies start to grow, they are looking for new-generation technologies to help them be more productive and efficient. Cloud, mobility, security and vertical-market solutions will be in high demand, and distributors are ready with new enablement and sales programs that help vendors and VARs deliver these solutions to customers.

Among key expectations for 2017:

• Overall, economists expect GDP to increase across the region, driving enterprises and governments to invest in IT after a two-year decline

• IT growth is led by economic recoveries in Argentina and Brazil, while Mexico is more uncertain due to unknown impact that new U.S. administration could have on trade with Mexico

• The biggest opportunities lie in new-gen technologies that help customers be more efficient and more productive – particularly mobility, cloud and security

• Some opportunities, such as cloud, have been slower to develop in Latin America, but should accelerate in 2017 as IT budgets increase

• Mobile device growth is slowing, but spending on infrastructure and security are increasing to accommodate the number of devices seeking access to corporate networks

LATAM is a fractured market, with in-country conditions varying because of a number of circumstances. Nonetheless, much like the results in our global “Insights into 2017,” channel and industry executives believe that vendors will rely more heavily on distributors to help deliver full IT solutions to the market. There’s a lot of work to do—in volatile markets, no less—but the foundation is built, investments are underway and the opportunity is there.

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