By Robert Albro
A year after Edward Snowden’s dramatic disclosures about NSA surveillance in Latin America, U.S. companies hoping to make inroads into the region’s fast-growing information and communication technology market are running into increasing obstacles. If the political costs were immediately forthcoming, especially in Brazil, the fallout for Silicon Valley’s tech giants has taken longer to assess. The biggest problem is the lingering lack of trust resulting from the revelation that the U.S. companies enabled the NSA’s eavesdropping by giving it direct access to their servers. A 2014 NTT Communications survey found that, in response to the Snowden affair, 88 percent of information and communication technology decision-makers around the world, including Latin America, have changed their buying behavior around large-scale data storage. In Brazil, Argentina, Mexico and Chile, “data sovereignty” has become a major issue, in the form of new data privacy and disclosure laws now shaping the direction of the region’s developing market.
According to the Information Technology & Innovation Foundation, U.S. software firms are expected to lose $35 billion in sales overseas through 2016. Forrester Research, an independent technology and market research company, puts potential losses as high as $180 billion. Latin American investors have been questioning the wisdom of using US data storage companies, and established U.S. dominance in the cloud computing sector has already taken a hit. Cisco’s last quarterly earnings, for example, were down 7 percent – 27 percent in Brazil – even as the cloud computing market in Latin America is predicted to grow at a 26 percent clip through 2018. The emergence of Miami as a major global tech hub and gateway to Latin America’s fast-growing information technology markets is threatened by a proposed EU-Brazil trans-Atlantic cable to circumvent the city as a key node for Latin American access to the global internet. As investor e-news service 4-Traders has reported, Chinese tech giants like Baidu, Alibaba and Tencent are establishing and expanding beachheads in Latin America, while China’s government pursues cooperative partnerships with Latin American counterparts to accelerate the development of the region’s information infrastructure. Meanwhile, US-based data mining and analytics firms like Choicepoint Inc., currently major players in the region’s business intelligence and online security markets, have become the subject of investigation by skeptical governments and privacy advocates in the region.
The U.S.-centric view of the internet as “free and open,” a basic feature of the business model of U.S. tech firms, is being challenged in Latin America, where the regulatory balance between free expression and privacy is increasingly tilting toward the latter. Despite the fact that the region’s online population is the world’s fastest growing and that it boasts a dynamic tech start-up movement, U.S. internet technology firms should expect more such challenges. Regional trends in internet governance are largely anti-American, focused on displacing U.S. commercial dominance of the internet, and promoting open-source software as alternatives to U.S. products and services. As Latin America builds out its cloud computing market, it is doing so in ways poised to compete and not collaborate with U.S. companies. Privacy controls and requirements to conform to local laws already create new and costly disincentives for U.S. companies, which might opt to pull up stakes. Meanwhile, business models for Latin American start-ups are not copycatting U.S. models as frequently as in the past. If Latin American entrepreneurs have maintained close ties with U.S. centers of innovation and investors, they are now more focused on developing their own intellectual property, instead of technology transfer, to meet specific demands of their local and regional markets. What just yesterday seemed wildly improbable – that U.S. tech giants might lose their edge in Latin America – has become a credible scenario.
October 23, 2014