Advances in the Adoption of LLMs for SMEs in Latin America: From Exploration to Implementation

An update

Nov 22, 2024

Introduction

This article explores the potential of large language model (LLM) technologies, such as ChatGPT, for small and medium-sized enterprises (SMEs) in Latin America and the Caribbean (LAC). In May 2023, just at the time ChatGPT was starting to become widely available, I wrote about the subject in the IDB innovation blog Punto sobre la i (https://blogs.iadb.org/innovacion/es/chat-gpt-y-el-futuro-de-las-pyme-en-america-latina-y-el-caribe/). Over the past year and a half -the equivalent of a geological era in artificial intelligence-, advancements in AI and natural language processing (NLP) have revolutionized adoption and the opportunities these technologies offer to the business sector, allowing SMEs to implement scalable and customizable AI solutions at low costs. I took the opportunity provided by an invitation to deliver a conference on the subject at an event in Mexico City to update my exploration of the subject.1 I was surprised by the progress SMEs in Latin America have made in the adoption of LLMs and also by the numerous sources about this subject, an indication of the importance that it has recently gained.

Progress in Adoption of LLMs Among SMEs

The adoption of large language models (LLMs) by SMEs in Latin America has advanced considerably in recent months, moving many small businesses from initial exploration to increasingly deeper and more operational implementation. Recent studies indicate that familiarity with AI technologies has accelerated in the business sector, particularly in countries with advanced digital infrastructure and greater connectivity. The availability of accessible models and advancements in AI solutions tailored to the Latin American context have facilitated this transformation for the region's SMEs.

According to the study "Artificial Intelligence in Latin America" by the Internet Association MX (2024), more than 40% of SMEs in the region have begun integrating AI tools into key areas of their operations, such as customer service, marketing, and logistics, compared to just 12% in 2022.
A report by McKinsey (2023) reveals that the proportion of SMEs in Latin America using AI technologies to improve operational efficiency grew by 150% between 2022 and 2023, driven largely by the reduced cost and accessibility of AI models such as ChatGPT, Bard, and Claude. In fact, there has been a significant increase in SME investments in AI, with Mexico and Brazil leading adoption rates, seeing increases of 60% and 55%, respectively, in the past year, according to data from KPMG (2023). However, the report also notes that there is still a gap between Latin America and other regions, where the proportion of businesses adopting AI has grown even more rapidly during the same period.
A report by NTT DATA and MIT Technology Review in Spanish (2023) highlights that 80% of companies in Latin America have explored or are using AI solutions, a trend that would turn AI and LLMs in particular into the most rapidly spreading technology among the region’s business ever since the massive adoption of cell telephony. For SMEs, this trend translates into leveraging LLMs for functions such as customer service automation, personalized marketing campaigns, and internal process optimization. In fact, companies most committed to their digital transformation plan to allocate more than 15% of their technology budgets exclusively to AI in the coming years.

The Use of LLMs in SMEs

Regarding their use of AI, existing data reflects that SMEs in LAC are rapidly advancing in adopting LLMs to manage complex tasks, provide enhanced customer service, and facilitate informed decision-making. Back in 2023, ChatGPT was primarily utilized for automating customer service and personalized marketing. Today, SMEs have expanded its use to include trend analysis, commercial strategy generation, and customized applications integrating AI into multiple operational facets. These applications have opened up potential for SMEs to compete in an increasingly global market by reducing costs and increasing operational efficiency.

Multilingual AI has been particularly beneficial for LAC SMEs by breaking down language barriers and facilitating expansion into non-Spanish-speaking markets. Language models that understand local contexts and languages have enabled SMEs to target customers in multiple languages, including indigenous languages, enhancing customer satisfaction and loyalty. Furthermore, these models allow SMEs to access non-Spanish-speaking markets within and beyond the region, strengthening their competitive position.

The adoption of cloud services deserves special mention, since it has been a key factor in enabling SMEs in Latin America to access LLMs and other AI technologies. Advances in cloud-based AI offerings have allowed SMEs to access LLMs without the need for internal infrastructure or significant upfront investments. Subscription services, AI-as-a-service models, and specialized tools have reduced implementation costs, providing SMEs with advanced tools for process automation. Platforms from Microsoft, Google, and Amazon offer accessible LLMs that require limited technical expertise to implement, thus democratizing AI access.

According to a report by Boston Consulting Group (BCG) (2021), the cloud services market in Latin America is projected to grow at least 2.5 times over the next three years, driven by the adoption of AI solutions and the need for business digitization. This growth reflects a trend towards implementing cloud-based technologies, facilitating SME access to LLMs.

Limited Use in Advanced Applications

Specific evidence on the use of LLMs for advanced applications, such as analyzing large data volumes by SMEs in the region, suggests that adoption for such purposes remains limited. However, LLMs are beginning to be used in some sectors to detect behavioral patterns and forecast demands, achieving capabilities previously reserved for large companies. This has not only started optimizing commercial operations but has also helped reduce error margins and adapt business strategies in real-time.

In recent months, Latin American SMEs have started using customized LLMs to meet the specific demands of their industries. This has been made possible by training and customization tools that allow AI models to be adapted with local and sector-specific data. Sectors such as retail and education have experienced significant changes in how they conduct business and activities. In agriculture and tourism, SMEs have found practical applications for LLMs. For example, in agriculture, companies use AI models to analyze climate and soil data, optimizing farming practices. In tourism, SMEs employ LLMs to personalize recommendations and enhance customer experiences, adapting to individual traveler preferences.

Support Ecosystem for SMEs in LAC

The digital transformation of small and medium-sized enterprises (SMEs) in Latin America and the Caribbean (LAC) has been a priority for governments and private entities over the past decade. However, the specific promotion of AI adoption among SMEs is a more recent and still-developing phenomenon. Nonetheless, some countries in the region, such as Argentina, Chile, Colombia, and Mexico, have implemented programs to encourage AI use in this sector.

Although these programs represent initial steps, they mark significant progress. AI adoption among LAC SMEs still faces challenges such as the lack of specialized human capital, limited financial resources, and the need for adequate infrastructure. To accelerate AI adoption among the region's SMEs, it is essential for public policies to continue evolving to address these barriers and for greater collaboration between the public, private, and academic sectors to facilitate effective AI integration into SMEs.

Is It Worth It? Impact of AI Adoption on SMEs

The incorporation of artificial intelligence (AI) into small and medium-sized enterprises (SMEs) has sparked significant debate about its effects on productivity, employment, and cost-benefit. Evidence is still limited due to the recent emergence of this technology, especially in its LLM variety, which makes it accessible to SMEs. And the limited existing literature does not always agree on the main findings. Considering these limitations, attention has been focused so far in the following issues:

Increase in Productivity: AI adoption has shown signs of having potential to improve SME operational efficiency. According to a Microsoft study (2023), 84% of surveyed SMEs reported a positive impact of AI on productivity, with an average increase of 40%. These improvements are attributed to the automation of repetitive tasks, process optimization, and more effective data analysis.
Effects on Employment: AI implementation in SMEs can have dual effects on employment. On one hand, automation may reduce the need for labor in routine tasks; on the other, it creates opportunities in roles requiring more specialized skills. A PwC report (2024) notes that while AI may decrease demand for certain jobs, it also drives the creation of new roles in areas such as data analysis and AI management.
Time Lag Between Adoption and Benefits: The benefits of AI adoption are not immediate. SMEs often experience an adaptation period that can vary depending on the complexity of the implemented technology and the company's capacity to integrate it. Studies suggest that positive effects on productivity and efficiency may start to be observed six months to a year after initial implementation.
Cost-Benefit Ratio: Initial investments in AI technologies can be significant, representing a challenge for SMEs with limited resources. However, long-term benefits, such as reduced operating costs and increased competitiveness, often outweigh the initial investments. A McKinsey analysis (2024) highlights that companies adopting AI strategically can achieve cost reductions and revenue increases in various business functions.

Conclusion: A Transformative Future for LAC SMEs

The recent adoption of AI by SMEs in Latin America and other developing regions has been faster and more widespread than I anticipated just 18 months ago. While barriers such as a lack of specialized knowledge and financial resources persist, the limited existing evidence suggests that the potential benefits in terms of productivity and competitiveness are significant. SMEs must carefully evaluate their capacities and needs before implementing AI solutions and seek support from government programs and strategic alliances to facilitate this transition.

There is considerable ongoing debate about how Latin American countries should move decisively to put together AI strategies and adoption plans. Issues such as database availability, connectivity and server infrastructure as well as human capital shortages2 occupy most of this debate on policy at the national or regional level. Our brief look at the technology adoption behavior of SMEs in Latin America points to a different yet often overlooked development: massive AI adoption seems to be taking hold of the SME landscape, in a bottom-up process that is not primarily driven by policy-making, but rather by the fact that, as LLMs continue to evolve, LAC SMEs seem to be well-positioned to capitalize on their benefits and address the challenges associated with their implementation.

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Advances in the Adoption of LLMs for SMEs in Latin America: From Exploration to Implementation

An update

Artificial Intelligence and the Future of Coding Bootcamps

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