ATTITUDES OF LATIN AMERICA BUSINESS LEADERS REGARDING THE INTERNET Internet Survey Cisco Systems

ATTITUDES OF LATIN AMERICA BUSINESS LEADERS REGARDING THE INTERNET 2003 Internet Survey Cisco Systems July 2003

2003 Internet Survey, Cisco Systems Attitudes of Latin American Business Leaders Regarding the Internet Table of Contents Introduction Presentation, Keith Goodwin 2 Objective of the Survey 4 How the Survey was designed and carried out 5 Who responded 6 Use of the Internet by Latin American companies 7 Results Key findings 8 Productivity gains 9 Internet and company performance 12 Internet-based Business Applications 15 Internet contribution to Revenue/ Profitability 17 New investments in technology 18 Comparison with Competitors (Internet) 19 Encuesta Internet 2003, Cisco Systems 1

ATTITUDES OF LATIN AMERICAN BUSINESS LEADERS REGARDING THE INTERNET Introduction As a contribution to the Internet culture in Latin America, which is a determining factor for the future economy and competitivity of the region, we submit this first large- scale survey regarding the Attitudes of Latin American Business Leaders Regarding the Internet. We undertook the task of finding out how Latin American executives use the Internet in their work and in their companies, what Internet-based business applications they use, and whether or not the Internet is considered to be a factor in productivity and competitiveness, as well as their future plans to broaden their Intenet-based activities. KEITH GOODWIN President Americas International and Vicepresident Cisco Systems And, although this Survey is the first of its kind in Latin America, (which is why we do not have anything to compare it to), the study offers very valuable information regarding the stage of development of the Internet as a corporate tool in the region. Little by little, the Latin American business community has been incorporating technology into its basic scope of knowledge. Technology, and the Internet, have thus become a factor of competitiveness and, in many cases, of survival. The groundwork has been laid for new technologies to be a topic of interest for business leaders, particularly those technologies that represent a direct effect on the profitability of their companies. We refer to the convergence of voice and data networks, or the use of data networks to transport voice, with dramatic savings for the organization; security technologies that safeguard an organization s main asset: its information; technologies like Virtual Private Networks (VPNs) that work both on the Internet and on private IP networks and which will redefine the way in which companies and clients will access the Internet in a much more profitable manner; wireless Internet, which will deliver the wealth of Internet contact to the users of mobile telephones and devices; storage technologies and this, just to mention a few examples. Cisco is committed to the development of Latin America in the long term. During the last few quarters, we have been gaining market share in all segments where we have a presence in the region, despite the difficult economic situation that Latin America is experiencing. Clients look to Cisco for routing and switching technologies, but also for the so-called advanced technologies, such as IP communications, security, wireless and storage, which redefine business performance, increase productivity, reduce costs and enhance communications, among others. Hundreds of companies in the 2 2003 Internet Survey Cisco Systems

ATTITUDES OF LATIN AMERICAN BUSINESS LEADERS REGARDING THE INTERNET region are betting on technology as a fundamental tool for the achievement of their objectives. Despite these facts, there is still a great unexplored potential in the region, as evidenced by the results of this study. Our clients in the region are concerned about the same issues and factors as business leaders in other areas of the world: productivity, profitability of their operations, cash flow, customer satisfaction, new markets, etc. Investments in IT and in Internet technologies are key to help Latin America to get out of the recession and to make the region more competitive on a global level. And Latin America has a long way to go. Latin American investments in Information Technology represented 1.7% of Gross Domestic Product last year, while the United States invested 5.2%, Europe 3.5% and Asia 2.4% of their respective GDP. Conscious of this great potential, we will continue working hand in hand with our existing and future clients, including business clients, service providers, and small and medium sized enterprises, with the aim of becoming their trustworthy advisors for technology and connectivity. Investments in IT and in Internet technologies are key to help Latin America to get out of the recession and to make the region more competitive on a global level A key aspect of Cisco s corporate culture is to remain close to our clients, hear about their plans and concerns. This survey, which we deliver to the entrepreneurial community in the region, allows us to better understand the needs of business leaders in the region and gives evidence of our determination to listen to our clients and to know them. Keith Goodwin President Americas International and Vicepresident Cisco Systems 2003 Internet Survey Cisco Systems 3

ATTITUDES OF LATIN AMERICAN BUSINESS LEADERS REGARDING THE INTERNET Objective of the Survey The core objective for the survey on Attitudes of Latin American Business Leaders Regarding the Internet was to ascertain the perception that business leaders in the region have about Internet and connectivity technologies, and the impact of those technologies on the business and productivity of their companies. This information is of particular relevance in Latin America, where Internet has begun to exert a power of transformation in the way companies operate and work, and in the way business is conducted. Companies in the region find themselves with an increasing need to expand their businesses, reduce their costs, increase productivity, improve their relationships with their clients, and automate their supply chains. They are increasingly resorting to the use of information technology to achieve this, in order to generate a competitive advantage, attain productivity increases and improve the profitability of their companies. This survey, the first of its kind in the region, provides important information for entrepreneurs and business leaders on the way their peers in the entrepreneurial world think and act with respect to Internet and information technologies. The study provides relevant information on: The survey provides important information for entrepreneurs and business leaders on the way their peers in the entrepreneurial world think and act with respect to Internet and information technologies How the Internet is being used by companies in the region The effects of Internet on communications, productivity and profitability The most widely used Internet-based business applications Differences with respect to attitudes, behavior and opinions regarding Internet in the various countries in the region Attitudes with respect to investment in technology in forthcoming years. 4 2003 Internet Survey Cisco Systems

ATTITUDES OF LATIN AMERICAN BUSINESS LEADERS REGARDING THE INTERNET How the survey was designed and carried out The survey on Attitudes of Latin American Business Leaders Regarding the Internet was carried out by polling 500 business leaders in medium-sized and large companies in the region. The executives of all companies who were polled work with local companies; that is to say, the study did not consider branch offices of multinational companies whose headquarters are outside of Latin America. The reason for this was that the perception and decisions of the latter regarding technology are, in most cases, influenced by global corporate criteria, independently of the country or the region. Neither were State organizations or companies nor government-owned entities considered for inclusion in the survey sample. The survey was designed, supervised and analyzed by Kaagan Research Associates, Inc., a New York-based research firm. Interviews were conducted between April and June via telephone and, at the option of respondents, inperson conversation. The survey was sponsored by Cisco Systems, althoug to reduce the possibility of bias, respodents were not informed of this sponsorship at the time of the interview. Kaagan Research Associates Kaagan Research Associates, Inc. (KRA) is experienced in the design, execution and analysis of sophisticated measurements of public and elite opinion for clients who seek strategy insight and tools-for-change and not merely data collection. Among KRA s clients are the Boards of Directors and Executive departments of some of the largest companies in the world, as well as educational institutions, NGOs and non-profit organizations, for which the firm performs research and consulting on changes in social trends and helps formulate strategies that are required to adapt to new demographic and social forces. In 2001, KRA performed a widely-cited study on the Attitudes of Latin American Journalists with respect to Internet, sponsored by Cisco Systems, to ascertain the various uses that journalists in the region make of the Internet, both for their work and in their personal lives. 2003 Internet Survey Cisco Systems 5

ATTITUDES OF LATIN AMERICAN BUSINESS LEADERS REGARDING THE INTERNET Who responded In this study, Presidents, Vice Presidents, Directors, Managers and Division Heads at large and mediumsized companies in Latin America were interviewed. Of the grand total of 500 interviews conducted, 150 were made in Brazil, 150 in Mexico, 100 in Argentina and Chile, and 100 in Colombia and Peru. Given the tumultuous political situation being experienced by Venezuela during the survey period, this country was excluded from the sample. On average, the executives interviewed have worked for their companies for over a decade. Almost all participants in the survey are college graduates, and 40% hold a Masters Degree. Total Number of Company Employees All Respondents Over 2.000 34% Under 500 32% The company officials interviewed belong to the most important and representative corporate sectors in economic activities in the region and in their own countries, including manufacturing, services, banking and insurance, distribution and retail sales, energy, mining, telecommunications, agriculture and communications media/ entertainment. Ages of Survey Participants All Respondents 35-44 40% Under 35 29% 500 y 2.000 34% Respondent Tenure with Current Employer All Respondents 21 years or more 16% 4 years or less 28% 45 and older 31% 11-20 years 29% Average Tenure: 10.1 years 5-10 years 27% Gender of Survey Participants All Respondents Respondent s Highest Education Level All Respondents Female 20% Doctorate 3% Less than ollege graduate 4% Male 80% Masters degree 40% College gradua 53% 6 2003 Internet Survey Cisco Systems

ATTITUDES OF LATIN AMERICAN BUSINESS LEADERS REGARDING THE INTERNET Use of the Internet by Latin American companies Almost half of the companies that participated in the study have been connected to the Internet for five years or more. Larger companies tended to be the ones that have used the Internet for a longer time. Brazil is the country with the largest number of companies connected to the Internet for the longest period of time. The vast majority of persons interviewed use the Internet at the workplace, but it is only in Brazil that it has been a tool used by senior executives for a long time. 53% of Brazilian executives surveyed have been using the Internet in their work for over five years, while only 21% of Mexican business leaders make the same claim for themselves. How Long Internet has Been Part of Respondent s Workplace? All Respondents Not sure 2% 5 years or more 42% Past 2 years or less 12% Between 2 and 5 years 44% How Respondent s Internet Use Has Changed In Past 12 Months All respondents Neither increased nor decreased 18% Greatly / somewhat decreased 25% How Respondent s Internet Use Has Changed In Past 12 Months By County 40% 63% Increased somewhat 2% 47% Greatly increased 55% 64% Argentina Chile Brazil Colombia Peru Mexico Greatly Increased 2003 Internet Survey Cisco Systems 7

ATTITUDES OF LATIN AMERICAN BUSINESS LEADERS REGARDING THE INTERNET Key Findings Following is a summary of the main findings in the study: Latin American entrepreneurs consider that the Internet has been a determining factor for the improvement of productivity in their companies. For 47 % of the interviewed executives, the Internet has significantly improved productivity in their companies, while for 36%, it has improved productivity at least somewhat. In the long run, Internet is not considered to be just a simple communications tool or a site to maintain a corporate presence on the Web, although these functionalities are, in fact, used extensively by most of the companies. Executives in the region consider the Internet as a strategic tool that has improved their productivity and will continue to do so in the future. Latin American executives also consider that the Internet has had a very positive impact on their personal productivity at work. For 56 % of respondents in the survey, the Internet has allowed them to be more productive in their work. But this statement exhibits wide regional differences. In Brazil, 74% of entrepreneurs say that the Internet has allowed them to be personally more productive in their work, in Argentina and Chile, only 40% of them consider this to be the case. One of every 3 executives in Latin American enterprises considers that the Internet has a significant effect on the generation of new revenue and on the profitability of their companies. The biggest effects of the Internet in companies are perceived in the area of internal and external communications. 82 % of executives interviewed say that the Internet has had very positive effects on their external communications. 72% of those polled consider the Internet s effects on internal communications as very positive. Most of the companies in the region have some sort of functionality to receive orders and to order on line. 71 % of the companies have functionality to receive or place orders on line, or e- commerce systems. Six out of every 10 companies in the region have on line customer service systems. 59 % of the companies in the region have on-line customer service systems. Two thirds of the companies that do not provide on-line customer service at present expect to add this functionality within the next few years. E-learning is one of the business applications that is used the least by Latin American companies, with only 38 % of the companies in the region using e-learning systems to train their employees. One of every two companies surveyed have some type of functionality through the Internet to manage and handle their supply chain. Manufacturing companies and companies headquartered in Mexico are in the lead. Over half of the companies interviewed stated that the probability of making significant investments in Informaiton Technology in the next two years is very high. 54% of the 8 2003 Internet Survey Cisco Systems

ATTITUDES OF LATIN AMERICAN BUSINESS LEADERS REGARDING THE INTERNET companies surveyed stated that it is highly probable that they will make significant investments in Information Technology over the next two years. Larger companies are more certain to do so, as well as companies headquartered in Brazil. Productivity Gains 47 % of executives interviewed say that the use of the Internet has significantly improved the productivity of their companies, and 36% consider that it has improved productivity at least somewhat. Only 5% feel that the Internet has not contributed to productivity gains. From a regional perspective, the increasing role of the Internet in the enhancement of company productivity is particularly evident in Brazil and Mexico. 53 % of those interviewed in Brazil, and 50% of those polled in Mexico are in full agreement that the use of the Internet has significantly improved their company s productivity, while the percentage in the other countries is lower: Colombia and Peru (45%) and Argentina and Chile (33%). When asked if their company could operate just as well without any use of the Internet, region-wide 65% of executives interviewed stated that they were in complete disagreement, which bears witness to the increasing use that Latin American companies have of the Internet for the operation of their business. In Brazil, an overwhelming 83 % of those interviewed disagreed with this statement. The increasing importance that Latin American businessmen attribute to the Internet, together with its importance for productivity achievements, help 2003 Internet Survey Cisco Systems 9

ATTITUDES OF LATIN AMERICAN BUSINESS LEADERS REGARDING THE INTERNET to fuel their desire for enhanced computer equipment in their companies. Thus, 42 % of executives would like for the technologies and capabilities that they have at present to be more advanced, both in hardware and knowledge. 10 2003 Internet Survey Cisco Systems

ATTITUDES OF LATIN AMERICAN BUSINESS LEADERS REGARDING THE INTERNET From an individual, as well as a company, point of view, Latin American executives also feel that the Internet has had a very positive impact on their own personal productivity in their work. For 56 % of those surveyed, Internet has permitted them to be more effective in their work. But this statement has wide regional variations. While 74% of business leaders in Brazil consider that the Internet has permitted them to be more productive, in Argentina only 40% of executives surveyed consider this to be true. 47 % of executives interviewed say that the use of the Internet has significantly improved the productivity of their companies, and 36% consider that it has improved productivity at least somewhat. 2003 Internet Survey Cisco Systems 11

ATTITUDES OF LATIN AMERICAN BUSINESS LEADERS REGARDING THE INTERNET Internet and company performance For 75 % of the business leaders in Latin America, the use of the Internet has represented a positive contribution to corporate performance. Companies in Brazil and Mexico, the largest economies in the region, perceive the greatest impact. Executives interviewed perceive the major advantages of Internet deployment to be the improved speed and enhanced possibilities in terms of communications, and the improved ability to seek and find information. Company profitability: 36 % of the Latin American executives are in strong agreement that the Internet has had a positive impact on their company s profitability, and 38% say that it has influenced profitability somewhat. Companies in Mexico(52%) and in Brazil (45%), perceive the effects of the Internet on the profitability of the company more than companies in Colombia and Peru (19%) and Argentina and Chile (16%). For 75 % of the business leaders in Latin America, the use of the Internet has represented a positive contribution to corporate performance 12 2003 Internet Survey Cisco Systems

ATTITUDES OF LATIN AMERICAN BUSINESS LEADERS REGARDING THE INTERNET Company productivity: For 55 % of those polled, the Internet has had a very positive effect on the productivity of their companies. An additional 35% of those interviewed indicate that the Internet has had at least a somewhat positive effect on productivity. The strongest effects on company productivity are cited in Brazil (69%) and Mexico (61%), while in Colombia and Peru (40%) and Argentina and Chile (38%), the contributions to profitability have been less dramatic. The size of an enterprise also seems to matter: The larger the company, the greater the perception of positive effects from the Internet on productivity. Internet Effects: Company Productivity By Company Size 61% 51% 52% Under 500 500-2.000 Over 2.000 Very positive 2003 Internet Survey Cisco Systems 13

ACTITUDES DE LOS EMPRESARIOS LATINOAMERICANOS CON RESPECTO A INTERNET Internal and External Communications. The Internet has a beneficial effect on internal communications in Latin American companies: 72 % of executives surveyed describe the effects of the Internet as very positive for their internal company communications. In national markets, 83% of executives in Brazil consider that the Internet has had a very positive effect on internal communications in their company, while 73 % take the same position in Mexico, 64 % in Colombia and Perú, and 62 % in Argentina & Chile region. In external communications, the Internet is also a key element for Latin American executives. 82 % of business leaders surveyed say that Internet has had very positive effects on their companies external communications. In national and sub-regional markets, the consensus is sustained: in Brazil, 89 % of executives surveyed say that the effects of the Internet on external communications have been very positive. In Mexico, 81% feel that way, 80% in Colombia and Peru, and 71% in Argentina and Chile. Internet Effects: Internal Comunications All Respondents Neither positive nor negative Somewhat 9% positive 17% Very / somewhat negative 1% Not sure 1% Interner Effects: External Comunications All Respondents Positive 15% Neither positive nor negative 3% Very positive 72% Very positive 82% Internet Effects: Internal Comunications By County 62% 83% 64% 73% Argentina Chile Brazil Colombia Peru Mexico Very Positive 14 Encuesta Internet 2003 Cisco Systems

ACTITUDES DE LOS EMPRESARIOS LATINOAMERICANOS CON RESPECTO A INTERNET Internet-based Business Applications e-commerce. Most of the companies in the region, 71%, have some type of functionality to receive or process orders on line. Among the companies that do not have any type of functionality of this type, manufacturing companies in particular are more prone to say they will add this functionality in the next few years. Among the companies that do not have this functionality, 29% state that there is a high probability that they will add it in the next few years. Features Of Respondent s Primary Workplace: Customer Service / Follow-Up Care By County 59% Total 50% Argentina Chile 65% Brazil 55% Colombia Peru 63% Mexico Features Of Respondent s Primary Workplace: Placing / Receiving Internet Orders By County 71% Total 62% Argentina Chile 75% Brazil 68% Colombia Peru 74% Mexico Supply Chain Management. Slightly less than half of the companies that were surveyed (48%) possess some type of functionality on the Internet to manage and administer their supply chain. Manufacturing companies and Mexican-headquarted companies are at the forefront of this process. Among those companies that do not have this functionality now (41%), 22 % say they are very likely to acquire it in the next few years, while 29 % are less inclined to do so. Customer care and service. Throughout the region, 6 in 10 companies (59%) have on- line customer service systems. Furthermore, two thirds of the companies that do not now provide on line customer care expect to be doing so in the next few years. Manufacturing companies are more prone than service companies to announce these plans. Features Of Respondent s Primary Workplace: Vendor / Supplier Supply Chain Management By County 48% Total 44% 46% Argentina Chile Brazil 40% Colombia Peru 58% Mexico Encuesta Internet 2003 Cisco Systems 15

ATTITUDES OF LATIN AMERICAN BUSINESS LEADERS REGARDING THE INTERNET e-learning: At present, somewhat more than one-third of companies in the region (38%), use e-learning systems to train their employees through the Internet in the areas of corporate communications and marketing, technical documentaiton, customer support, quality control, manufacturing, engineering and public relations. Among the 58% of companies that do not have e-learning at present, 24% are very likely to add the capability in the near future, and 32% are somewhat likely to do so. Among the companies that do not possess this functionality, companies in non- manufacturing sectors are the ones most inclined to add it in the next few years. Features Of Respondent s Primary Workplace: E-Learning / Training Programs By County 38% 30% 41% 39% 41% Among the 58% of companies that do not have e-learning at present, 24% are very likely to add the capability in the near future, and 32% are somewhat likely to do so Total Argentina Chile Brazil Colombia Peru Mexico 16 2003 Internet Survey Cisco Systems

ATTITUDES OF LATIN AMERICAN BUSINESS LEADERS REGARDING THE INTERNET Internet contribution to Revenues/ Profitability It is quite clear that the Internet has had a positive impact on productivity in Latin American companies, and that many of these companies have Internetbased business applications and methods to receive and carry out orders on line (71%), provide customer service (59%), engage in supply chain management (48%) and conduct e-learning (38%). For most of the companies that do not have any type of Internet-based business application, and who do not foresee adding or acquiring any type of application in the near future, their directors and executives simply feel that these technologies do not apply to their business, product or work area. But, do these applications and systems significantly contribute to the generation of new income and profitability? More than one-third of executives (36 %) say that they do, while 45 % feel they do not, and 19% are not sure. Among the small number of companies that offered specific information estimating the percentage of revenues attributable to Internet-based business applications, 33 % said Internet-derived revenue represented between 5 % and 10 % of their total revenues; another 31 % of companies offered an estimate that up to 20% of their total revenues came from Internet activity. Nevertheless, it is interesting to note that for these companies, these Internet-credited revenue figures are expected to increase significantly over the next five years. For 55 % of companies, the percentage five years from now is expected to be at over 20 % of revenues; for 24 % of the companies it is expected to be between11 % and 20%. Does Internet Commerce Significantly Contribute To Revenue Or Profits? Respondents In Companies Where Order Or Payment Management Done Via The Internet (82%) No 45% Not sure 19% Yes 36% More than one-third of executives (36 %) say that these applications and systems significantly contribute to the generation of new income and profitability 2003 Internet Survey Cisco Systems 17

ATTITUDES OF LATIN AMERICAN BUSINESS LEADERS REGARDING THE INTERNET New investments in technology Over half of the executives who were interviewed in the survey (54%), stated that the possibility of making significant investments in Information Technology in the next two years was very high. Explaining why, they mentioned the need to keep up with their competitors (40%); to have access to new technological developments and services (30%); to recover lost ground from previous years (22%); to respond to an improved or improving economic and business outlook (14%) and pressure to stay abreast in advanced technologies (13%). Larger companies are the ones that are more certain that they will carry out these investments in next several years. The probability of undertaking significant investments in Information Technology during the next year or two is particularly evident among executives in Brazil (71%), followed by Mexico (50%), Colombia and Peru (48%) and Argentina and Chile (39%). The probability of undertaking large investments in Information Technology during the next year or two is also related to company size. In 63 % of large companies, or those that have more than 2,000 employees, there is the highest probability of investing near-term, whereas a smaller 52% of those companies with 500 to 2,000 employees feel certain of near-term IT investments, and only 45% of those companies with less than 500 employees have a strong probability of investing in IT in the next year or two. 18 2003 Internet Survey Cisco Systems

ATTITUDES OF LATIN AMERICAN BUSINESS LEADERS REGARDING THE INTERNET Likelihood Of Respondent s Company Making Significant IT Investments In Next Year Or Two By Company Size 46% 52% 63% Under 500 500-2.000 Over 2.000 Very likely Comparison with Competitors (Internet) When corporate executves compare their own companies Internet capabilities with those of their major competitors, one half (52%) say that they are at about the same level. Another 24% of executives say that their own companies are more advanced users of Internet technologies and applications than their major compeititors. Within the group that feels they have better functionality and features than their competitors (24% of the companies), 51% say that their advantage is due to the fact that they have good and technologically up- to- date equipment and that the competition does not have comparable. Respondent s Company s Internet Capabilities, Compared To Competitors All Respondents Less advanced 9% Not sure 15% More advanced 24% About the same 52% 2003 Internet Survey Cisco Systems 19

sm www.ciscolatam.com/encuesta2003 Cisco Systems, Inc. is the worldwide leader in networking for the Internet. Cisco's Internet Protocol-based (IP) networking solutions are the foundation of the Internet and most corporate, education, and government networks around the world. Cisco provides the broadest line of solutions for transporting data, voice and video within buildings, across campuses, or around the world. Today, the Internet and computer networking are an essential part of business, learning and personal communications and entertainment. Virtually all messages or transactions passing over the Internet are carried quickly and securely through Cisco equipment. Cisco solutions ensure that networks both public and private operate with maximum performance, security, and flexibility. In addition, Cisco solutions are the basis for most large, complex networks used by corporations, public institutions, telecommunication companies, and are found in a growing number of medium-sized commercial enterprises.