Disruptive technologies like the Internet of things, cloud computing, Big Data, artificial intelligence, robotics, and mobile communications are imposing big challenges to companies and governments. In the case of manufacturing, this set of technologies can be found in concepts like Industry 4.0, intelligent manufacturing, or cyber-physical systems. Digitization implies a profound change that, in addition to the introduction to the appropriate digital technologies, entails substantial organizational modifications with the consequent increase in complexity at all levels1 and the emergence of new forms of competence. For many, joining the digital transformation wave is not an option, but mandatory.2 According to Schreckling, the motto is: “digitalize or drown.”3
This article aims to explore some traits of the digital escalation processes that knowledge-intensive SMEs follow in four metropolitan areas—Tijuana, Hermosillo, Ciudad Juarez and Nuevo Leon—based on the data obtained in the survey carried out in the project: Training and Escalation of Mexican Knowledge-Intensive SMEs in the Mexico-United States border region.
DIGITAL ECONOMY: BACKGROUND AND EVOLUTION
Attention given to the digitization phenomenon of economic processes has increased since the second half of the 20th century. However, until very recently, interest in these increased exponentially, driven primarily by business organizations,4 but also by academia, governments and multilateral organizations such as the OECD or ECLAC.
In fact, the current fascination for this topic often skips the oldest history. The revolution catalyzed by semiconductors and mainframes in the sixties, the development of personal computers a decade later, and the emergence of the Internet in the nineties, were milestones in this path.5 Pioneering work by Bell6 and Castells7 at the time gave account of these historical processes.
Its current omnipresence is due—to a great extent—to hardware, software, and network, while new technologies, becoming more sophisticated and integrated.8 On the whole, the capacity of these tools enables—for example—to detect and build markets from identifying potential and real consumers.9 To some extent, predictability abilities are being developed.
Among the founding principles that stand out in the digital economy, Valenduc and Vendramin mention:10 (1) information becomes a strategic resource for competitiveness in companies; (2) it relies on increasing returns and very low marginal costs; (3) they develop around the economy of platforms and markets in different aspects, some collaborative and others zero-sum competition; (4) borders between producers and salespersons/consumers are erased, and so we talk about the prosumer (the line between production and services is also increasingly blurry); and (5) profitability conditions of technological investments are shaken by the strongly decreasing costs of materials and software, and at the same time, by their increasing returns in terms of production efficiency. However, lower infrastructure costs contrast with the concentration of profits in a few winners.11
DIGITAL ECONOMY AND ITS ADOPTION BY COMPANIES
While the adoption of digital technologies is deemed necessary for survival in a globalized world, any abstract judgement on the dynamics of these processes in concrete situations, would constitute an excessive generalization because of the variety of sectors, markets and trajectories of existing companies.
Elements that mark a difference in this process are varied. One of these are restrictions imposed by the technologies introduced. Some analyses underline the differentiated advantages of each technology used. In this sense, for example, mobile technologies enable new business scenarios; cloud computing primarily assesses the agility with which it is incorporated into business; the use of Big Data, its contribution to the innovation of companies and the identification of consumers and markets; and social networks, its potential to transform the competitive core of business.12 Another element is potential advantages attributed to digital technologies. Thus, a survey placed the different valuations of companies regarding the areas where these technologies have the greatest impact in the following order: improvement in customer service (53%), increase in productivity (52%), development of new services (50%), business models (42%), products (41%) and increasing profits (40%).13 In third place come internal digitization strategies, since enjoying the advantages from this process requires a strategy that goes beyond merely technological changes14 and that creatively articulates all areas of the business15, which Tilson et al. classify as socio-technical transformation.16
And this determines that the capacities faced by these processes are also conditions for differences in digital escalations. A fourth element refers to the conditions imposed by the local support of innovation systems, the traction exerted by the global value chains derived and other factors that favor or hinder the incorporation of companies into broader structures.
In practice, digital escalation is a process that takes place “in a continuum—from mainly physical to mainly digital—mixing along the way digital and physical,”17 and that would reflect different digital paths depending on the specific way in which these processes are driven.
One could say that SMEs, in accordance with all the above, react differently18 to digitization requirements, or different degrees of digital maturity.19 Recent work carried out in Germany identified three types of digital reactions in SMEs:20 (1) strategic, which entails the systematic application of digital technologies with long-term vision; (2) selective, that uses digital applications like scheduling systems, the Internet and cloud computing—disproportionately represented among SMEs—and (3) skeptical, not particularly interested in digitization and only uses the Internet and basic scheduling systems in a very rudimentary way and mixed with traditional procedures.
For the specific case of Mexico, the digitization progress is limited despite the increasingly intense calls in this direction and the programs that agencies such as Prosoft and ProMéxico have instituted to support it. Portella —based on data provided by the US-Mexico Foundation for Science— argues that “Mexico suffers no lag, but rather, ignorance regarding the industrial revolution 4.0.”21 But how much is this applicable to knowledge-intensive SMEs?
Data from the aforementioned survey show a more complex panorama than that suggested by Portella. Generally, one could say that the digital escalation of knowledge-intensive SMEs in the four metropolitan areas studied certainly boasts progress, although in unequal degrees.
A question in the survey asked about the degree in which—according the interviewees—processes in their companies had automated in recent years and in five activity areas namely, administrative processes, links with suppliers, customer relations, production or service processes, analysis of the company operation and management. In addition to analyzing digitization separately in each of the five areas, a digitization/automation index was created, which summarized the information from the five areas and also enabled a comprehensive appreciation of digitization in each SME surveyed.
Regarding the features and the level of development achieved by SMEs surveyed in relation to their digitization processes, the data visibly shows the heterogeneities referred to above. The results can be synthesized as follows:
There was digital escalation in all areas, although the general trend in all areas could be classified as moderate (see Chart 1).
SMEs under study are on a solid path towards digital transformation. Evoking Hirsch-Kreinsen’s terminology, with a medium to high global digitization level, 75.6% of the sample would be considered selective or strategic. Some companies even claim to have high levels (see Chart 2).
Two thirds of the sample follow a comprehensive digital strategy in the sense that the escalation was instrumented simultaneously in all areas examined. But almost one third follow a fragmented model, where the escalation is limited to certain areas (see Chart 3).
The digital transformation of different areas can occur within the same company at different speeds. That is, in some areas progress is more intense than in others. This is the prevailing situation in 81% of knowledge-intensive SMEs (see Chart 4).
As can be seen from these results, digital escalation is not a phenomenon alien to knowledge-intensive SMEs in northern Mexico. It is not only seen in industrial manufacturing activities, but also among those that serve service niches. Only a few firms have stood out in this area. The vast majority has progressed to intermediate levels of digitization. Although it certainly means that together they have made progress, they have not yet reached their digital peaks. And, therefore, to overcome the challenges that digital transformation imposes in all its complexity, companies need support. The absence of financing policies and technological support at this juncture can disrupt the valuable escalation efforts of SMEs.
*The authors are professors and researchers at the Social Studies Department of El Colegio de la Frontera Norte.
1 Andreas Schumacher et al., “A Maturity Model for Assessing Industry 4.0 Readiness and Maturity of Manufacturing Enterprises,” Procedia CIRP, vol. 52, 2016, pp. 161-166, available in
2 Jacques R. Bughin et al., “The Case for Offensive Strategies in Response to Digital Disruption,” Social Science Research Network, Nueva York, 2017, available in , and Klaus Schwab, “The Fourth Industrial Revolution,” World Economic Forum, Geneva, 2016.
3 Edward Schreckling, “Digitalize or Drown,” in Gerhard Oswald, et al. (eds.) Shaping the Digital Enterprise, Springer International Publishing, Walldorf, 2017, p. 15.
4 João Reis et al., “Digital Transformation: A Literature Review and Guidelines for Future Research,” in Álvaro Rocha et al. (eds.), Trends and Advances in Information Systems and Technologies, vol. 745, Springer International Publishing, Cham, 2018, pp. 411-421.
5 Klaus Schwab, op. cit.
6 Daniel Bell, El advenimiento de la sociedad posindustrial: un intento de prognosis social, Alianza, Madrid, 2006.
7 Manuel Castells, La era de la información: Economía, sociedad y cultura.: I. La sociedad red. 2a ed, Alianza Editorial, Madrid, 2000.
8 Klaus Schwab, op. cit.
9 Erik Brynjolfsson et al., The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies, WW Norton & Company, Nueva York, 2014; Jordi López-Sintas et al., “Innovación digital y transformación de las organizaciones: implicaciones sociales y laborales,” in Fausto Miguélez (ed.), La revolución digital en España. Impacto y retos sobre el mercado de trabajo y el bienestar, Universitat Autónoma de Barcelona, Barcelona, 2018, pp. 47-81, and Klaus Schwab, op. cit.
10 Gérard Valenduc et al., “Work in the Digital Economy: Sorting the Old from the New,” ETUI Research Paper, Brussels, 2016, available in .
11 Luc Soete, op. cit.; Gérard Valenduc, et al., op. cit.
12 Harvard Business Review Analytic Services, “The Digital Transformation of Business,” Harvard Business Review/Microsoft, Cambridge, 2014.
14 Thomas Hess et al., “Options for Formulating a Digital Transformation Strategy,” MIS Quarterly Executive, vol. 15, no. 2, June, 2016, pp. 123-139; Oliver Kohnke, “It’s Not Just About Technology: The People Side of Digitization,” in Gerhard Oswald et al. (eds.), Shaping the Digital Enterprise, Springer International Publishing, Walldorf, 2017, pp. 69-92.
15 Edward Schreckling, op. cit.
16 David Tilson et al., “Digital Infrastructures: The Missing IS Research Agenda” Information Systems Research, vol. 21, no. 4, December, 2010, pp. 748-759, available in
17 Klaus Schwab, op. cit., p. 9.
18 Hartmut Hirsch-Kreinsen, Industry 4.0-A Path-Dependent Innovation, Technische Universität (Soziologisches Arbeitspapier), Dortmund, 2019, available in
19 451 Research, Enterprise Digital Transformation Strategies Turning Disruption into Differentiation, Nueva York, 2017, available in ; Gerald C. Kane et al., “Aligning the Organization for Its Digital Future,” MIT Sloan Management Review/Deloitte University Press, Cambridge, 2015, available in .
20 Hartmut Hirsch-Kreinsen, op. cit.
21 Anna Portella, “México no tiene rezago, sino ignorancia hacia la revolución industrial 4.0,” Forbes México, 2018, available in /www.forbes.com.mx/ mexico-no-tiene-rezago-sino-ignorancia-hacia-la-revolucion-industrial-4-0/>