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Mercosur and the Adoption Of Industry 4.0 Technologies in LATAM Nations
Isaac Haney
Azusa Pacific University
Address: 901 E Alosta Ave
Azusa, CA 91702
Isaachaney21@apu.edu
15 December 2023
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Abstract
The Southern Common Market (Mercosur) is currently one of the world’s largest trade blocs.
The union has been credited for advancing Latin America’s (LATAM) trade through inter and
intra-regional rulings. For LATAM, countries have historically experienced difficulties
optimizing manufacturing and economic performance has struggled in conjunction. Industry 4.0
is a term referring to the adoption of technologies that optimize the manufacturing process:
automation, cloud computing, artificial intelligence (AI), etc.; it has been seen as a means for
nations to boost economies and competition on the global stage. Mercosur nations embracing
Industry 4.0 have been observed to have higher outputs and more robust economies than those
that have not. Past Mercosur actions such as relaxations on foreign tariffs and Multinational
Enterprises (MNEs) recruitment have led to increases in technology adoption as well as
efficiency-seeking behaviors in the economy. It's proposed that Mercosur repeat these practices
with a focus on Industry 4.0 integration for regional advancement. Potential barriers would be
lack of governmental support and Industry 4.0 exacerbating LATAM’s existing inequalities. This
research aims to provide insight on the impact of trade unions on developing nations concerning
the adoption of emerging technologies, a subject seldom addressed regarding LATAM.
Keywords: Mercosur, Industry 4.0, LATAM, emerging markets, technology adoption,
multinational enterprises
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Introduction
Manufacturing accounts for roughly 16% of global gross domestic product (GDP); of the
nations that contribute to this value, the majority come from Asia (World Bank Open Data,
2023). Given Asia’s longstanding reputation as a hub for the supply chains of multinational
enterprises (MNEs) all over the world, this comes as no surprise. However, the ability to
outproduce does not come from a hardworking culture or foreign investment alone: the region
leads the world in emerging technologies used in manufacturing (Diego, 2022). This means the
use of automation, artificial intelligence (AI), cloud computing, etc. in operations which enable
an increased output and greatly optimizes the production process (Raj et al., 2020). The use of
such technologies in manufacturing has been dubbed Industry 4.0 or the “Fourth Industrial
Revolution” (Yadav et al., 2020) and has been directly tied to improving the financial standing of
developing nations (Torres Jarrín & Daza Aramayo, 2023).
Juxtaposed by Asia’s success, a region that has historically lagged when it comes to
development of the manufacturing industry is Latin America (LATAM). Latin America is a term
referring to lands south of the United States in the Western hemisphere, also referred to as the
Spanish, Portuguese, and French-speaking Americas (Encyclopedia Britannica, n.d.). The
region’s manufacturing GDP is a fraction of those observed in Asia, Europe, and the United
States and this ratio has stayed relatively stable for decades (World Bank Open Data, 2023).
Additionally, LATAM trails these regions when it comes to the integration of technologies used
to aid manufacturing (Diego, 2022). While there are many factors that can be argued as to why
this may be, the integration of production technologies associated with Industry 4.0 may be able
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to compensate for the region’s historically trailing manufacturing performance and perhaps
stimulate the wider economies (Raj et al., 2020).
One of the more effective trade unions worldwide happens to be located in LATAM,
known as Mercosur. This trade bloc oversees intra-regional and inter-regional trade for member
nations and its’ ruling has led to economic growth for the region (Mukhametdinov, 2007); the
union has grown to be one of the largest in the world in terms of GDP (Council on Foreign
Relations, 2023). Mercosur has been shown to take action to encourage trends within its
manufacturing sector in the past (Ojomo, 2023), but has taken a lax approach to the subject for
the most part. Taking into account LATAM’s low adoption rate of Industry 4.0 and the resulting
loss of economic value (Alvarez et al., 2013), it would be in Mercosur’s best interest to begin
promoting the integration of such technologies; other trade blocs around the world have taken
actions in alignment with this belief, the European Union (EU) has taken direct measures to
expand Industry 4.0 due to observed financial success (Castelo-Branco et al., 2019).
While there has been past research conducted on the ways in which individual LATAM
nations can adopt Industry 4.0 technologies given past examples, there has yet to be research on
Mercosur’s role in technology adoption for the region as a whole. Additionally, trade is an area
of research seldom addressed regarding Industry 4.0: given LATAM’s dysfunctional trade
performance relative to the rest of the world (Moreau & Parente, 2023) the current research
hopes to provide insight on this subject as well. In a time where the world is becoming further
globalized through technology, research on emerging markets and adoption trends is incredibly
valuable.
State Of Manufacturing In Latin America
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A region rich in resources has shown mixed results in turning those materials into
products to send to the market. Manufacturing contributed to 15.7% of Latin American GDP in
2022, while it was the second-largest contributor for the region, it was far outweighed by the
service industry which created 57.5% of GDP (IDB Invest, 2023). Goods exports in LATAM
experienced double-digit growth in both 2021 and 2022, the primary reason for this increase has
been credited to global raw material shortages and supply chain issues forcing the shift; this
increase in exports does not indicate an increase in manufacturing ability, only an increase in
demand (Economic Commission for Latin America and the Caribbean, 2023).
While there are many variations between the nations of this region, the generality is that
it has a sizeable manufacturing industry but has historically not been able to capitalize on it in
the same way other regions have. This is further supported by statistics regarding the
development of the workforce in the region. Manufacturing accounts for 12.8% of LATAM’s
employment but the workforce has stagnated in comparison to other regions: from 2000 to 2019,
China’s workforce expanded by 96%, USA by 64%, whereas LATAM only grew by 24%
(Economic Commission for Latin America and the Caribbean, 2021). Industry 5.0, a recent
movement centered around human-centric, intuitive technologies to aid in manufacturing may
present as a potential solution for regions without a skilled workforce to utilize complex
technologies (Groumpos, 2021); but such a goal would difficult given that the Industry 4.0
adoption has been sparse in LATAM (Herrero-Solana & Piedra-Salomón, 2022). There are
infrastructure and wider political reasons that may account for this, but the fact is that the region
does not develop people in the same way that other, higher producing, areas have.
There is the intuition that the region would compensate for the lack of human capital to
support in manufacturing and there are mixed data to suggest that the region is evolving to meet
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this need. Currently, LATAM displays a 19% lower adoption of technologies to aid in
manufacturing than middle-income Asian countries (Diego, 2022); which nations with these
technologies outproduce LATAM. But technological adoption is on its way, albeit gradually.
Chile is the most digitalized country in the region with relevance to manufacturing, Brazil
showing up as second-most connected, and Argentina a few spots behind; Mexico is the country
that shows the most promise, ranking 22nd in the world for current technology adoption; this
integration is credited to account for a 40% increase in added value for the country’s
manufacturing (Economic Commission for Latin America and the Caribbean, 2021). It just so
happens that that the nations with the highest digital adoption in the region also have the highest
manufacturing output: Mexico, Brazil, and Argentina account for 80% of LATAM
manufacturing (Russell, 2021). The takeaway from these numbers is that advanced technology
integration into manufacturing is vital if the region is to be competitive on the global stage.
Industry 4.0 and the Developing World
Industry 4.0, otherwise known as the “fourth industrial revolution,” is an area of research
centered around the integration of artificial intelligence (AI), machine learning (ML), cloud
computing, and other advanced technologies into production processes and the impact that these
have on manufacturing (Raj et al., 2020). The transition that comes from introducing these
technologies is an increase in automation: benefits are believed to result from this such as
potential increases in output and compensation in the competitive sense for manufacturers, and
regions, who lack human capital (Yadav et al., 2020). With relevance to LATAM, manufacturing
is the region’s second-largest employer (Economic Commission for Latin America and the
Caribbean, 2021) yet only contributes nearly of third of what China does to global GDP, despite
having a similar amount of people employed in manufacturing (Álvarez, 2022).
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The advanced technologies are what enables the juxtaposition here as a place like China
is able to do more with the same amount of human capital. Asia leads the world in 4.0 adoption,
and there is clear data to show the monetary value it brings to the region (Figure 1). The value
added through manufacturing connects with regional GDP growth (World Bank Open Data,
2023. Africa and LATAM’s slow digital adoption has led to an obvious value deficit (Diego,
2022). While there are many factors that can be the reason behind this, the sentiment is that
overall value is increased due to these new advancements. Statistics like Industry 4.0
technologies has been shown to increase production efficiency by 40-55% (Raj et al., 2020) point
towards the fact that the technological stagnation shown in the region is only putting it farther
behind globally on the manufacturing stage.
Figure 1.
Added manufacturing value per region (Diego, 2022)
In theory, adopting Industry 4.0 technologies is an instinctive action to increase
manufacturing capabilities and to be more future-oriented; but practically, there is a great deal of
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infrastructure, capital, and other related requirements needed for this to occur. Only 14% of
CEOs worldwide believe that their business has the ability to integrate Industry 4.0 technologies
(Raj et al., 2020). It can be reasoned that the process of procuring, training, and ultimately using
these tools would require a substantial transformation for a business to undertake and one where
the outcome is ambiguous. Organizations within developing nations have been shown to be
reluctant to adopt technologies associated with Industry 4.0 due to “mistrust:” this belief is
understandable as roughly 60% of the current jobs in LATAM are currently able to be replaced
by automation (Atieh et al., 2022). This does give way for an argument to be made for Industry
5.0 adoption, as these technologies are seen as more intuitive and not as employee replacements
(Groumpos, 2021). Nonetheless, the feedback from leadership suggests that recruiting support
for integrating these technologies, aside from capital/infrastructure concerns, is a hurdle in itself.
Mexico As An Exemplar Nation
Mexico leads in 4.0 integration, mainly attributed to US investment (Economic
Commission for Latin America and the Caribbean, 2021) so this gesture cannot be credited as
solely coming from within the country. Still the ways in which the country has adopted these
technologies can serve as guidance for other LATAM nations: the working population has shown
to be less knowledgeable on industry 4.0 technologies than western workers, so engineering
efforts have focused on making such tools more intuitive and easier to use (Casalet, 2023). This
has also given way to an Industry 5.0 boom in the country in the form of applications and
sensors, tools that emphasize human interpretation and less of an understanding of how they
work (Medina et al., 2022). Only 8% of the Mexican manufacturing workforce is at high risk of
being replaced by automation as most of the 4.0 technologies currently used optimize/increase
production and are not worker substitutes (Ramos et al., 2022). In the agricultural and food
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processing industry, adoption and widespread practice of the technologies has been shown to be
regionally influenced: Mexico’s Northern population is more apt to utilize these technologies,
the believed reason being due to businesses in this region more often practicing international
business than Southern states (Vargas-Canales, 2023). Extrapolating to other LATAM countries,
regions with more foreign investment and more global interaction may be the initial adopters of
4.0 technologies, and the working population may have a higher aptitude to begin with.
MERCOSUR
The Southern Common Market (MERCOSUR) is a trade coalition of LATAM countries
created to promote economic and business cooperation across borders, with the intention to
increase the economic strength of the region overall (Mercosur, 2023). As of 2023, the nations
that comprise the Mercosur trade bloc are Argentina, Paraguay, Uruguay, Brazil, as well as six
other associated nations who are located within LATAM (Mercosur, 2023). It has been praised
for some years now due to the efficiency of the bloc when in comparison to other organizations
on the global stage, comparable to the EU and even superior to it in some aspects
(Mukhametdinov, 2007). What Mercosur does is establish common rules and practices regarding
trade between nations, as well as create a competitively integrate aspects of each nation’s
economy into the best interests of the trade bloc (Mercosur, 2023). The work of Mercosur has
attracted an influx of investment from MNEs seeking to get into business within the region:
MNE investment has increased since Mercosur’s inception and technology adoption has risen in
these nations with more MNE investment (Alvarez et al., 2013).
Mercosur has not historically dedicated efforts towards promoting the technology
industry and its development, the most attention on this subject has been sent towards
automotive manufacturing (Ojomo, 2023). As the research currently stands, there is not much
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that has been written about regarding Mercosur’s implications on the technology used in
manufacturing and in the production of technology itself, the focus of the existing research has
been on what has been observed in the individual nations but not the union as a whole. However,
there exists considerable research on other trade unions and the impact that advanced
technologies have on them: for the EU, countries that have integrated 4.0 technologies
outproduce nations that have not done so and trade deals have been implemented throughout the
union to promote the adoption of such technologies (Castelo-Branco et al., 2019). Given the
recent election of Javier Milei as Argentina’s leader at the end of 2023 and his proclamation in
achieving an EU-Mercosur trade agreement (Valero, 2023), research on Mercosur’s lack of
regard for this seldom-addressed subject is significant in that it may lead to a prompting of the
bloc to begin promoting 4.0 integration.
4.0 Technology Within Mercosur
The group is led by Brazil and Argentina, Brazil being the eleventh largest economy in in
the world and the largest in LATAM (Brazil economic outlook, October 2023, 2023). The
majority of tech products produced in the Mercosur bloc come from Brazil and Argentina, with
far more products being traded to foreign nations than intra-Mercosur trade, as the nations within
the bloc express little interest in the products (Alvarez et al., 2013); additionally, the point should
be made that Brazil and Argentina also bolster the majority of MNEs operating within South
America (Alvarez et al., 2013). Research examining the differences in the tariffs set by Mercosur
between industries found that industries with lower tariffs are to faster to adopt and integrate
more technologies in their production (Bustos, 2011); what was also observed were higher in
these industries than industries with higher tariffs. Of LATAM countries in total, the industry
where 4.0 adoption has been most prevalent is in the automotive sector (IDB Invest, 2023: one
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attributed reason for this advancement has been due to increased electronic vehicle (EV)
pressures in recent years and the need to produce more complex technologies.
Brazil has shown the highest amount of patent citations which showcases an intent to
adopt new technologies (Herrero-Solana & Piedra-Salomón, 2022), although following through
on this effort has been mixed. Brazil is the only Mercosur member to dedicate 1% of GDP to
technological research and development, dwarfing the budget of many LATAM nations by
nearly 3 times (Alvarez et al., 2013). It’s the country that leads the Mercosur pack when it comes
to 4.0 technology adoption, increasing by roughly 11% yearly (IndustryARC, n.d.). With this
said, past research concluded that the country is most accurately characterized by existing in a
transition phase between Industry 2.0 & 3.0 due to technology complexities, which has spurred
support for Industry 5.0 adoption due to its human-centric approach (Pereira & dos Santos,
2023). One reason for the high rate of technology adoption compared to peers may come due to
the different approach that the country takes when it comes to tariffs: Brazil began reducing trade
tariffs in different industries and directly observed 10% increases in technology adoption
(Bustos, 2011). Brazil has only recently emerged from “developing country” status and is still
some years behind from being a dominant producer on the global stage, but findings from
Tortorella et al. (2021) suggest that the country is fully able to implement automated production
in all manufacturing stages despite lower socioeconomic resources than more developed nations.
As for Argentina, the most 4.0 technology-integrated industry is Information
technologies, whereas manufacturing accounts for the least integrated industry within the country
(Salimbeni, 2021). It has been argued that manufacturers have been averse to adopt new
technologies here because of the new problems that can potentially be brought about through
them, as well as a lack of support infrastructure post-adoption (Ascúa, 2021). One potential
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reason for the lag in adoption is a lack of governmental interest, as reported by business leaders
from the country (Gutnisky et al., 2022). Javier Milie’s recent election has led many to infer that
Argentina will seek to recruit MNE investment to support its industries (Valero, 2023), attention
will likely be paid towards adopting emerging technolgies. Argentina’s automotive industry has
recently began integrating smart technologies into manufacturing following a relaxation on trade
tariffs that led to increased foreign consumption (Dulcich, 2023). Results such as this could serve
as a model for other fellow Mercosur countries, suggesting that relaxations on certain tariffs
would lead industries to modernization. The nation scores a 2.49 out of 5 on the Industry 4.0
scale, indicating a halfway stage of development (Salimbeni, 2021) so there is certainly room for
improvement.
Routes To Industry 4.0 Integration Within Mercosur
Because Mercosur was initially formed to create economic strength between the countries
involved (Mercosur, 2023), attention should be given towards the impact that economics has on
technology adoption. Work done by Lorne & Yang (2019) found that revenue-maximizing
import tariffs, enacted to promote consumption of domestic products, do little to stimulate
technological advancement in domestic manufacturing; progress stagnates due to a lack of
foreign pressure. It may seem counterintuitive to offer foreign products at lower prices to
stimulate domestic prosperity, but the increased trade has implications on technology adoption.
In the wake of the COVID-19 pandemic, relaxations of tariffs of industries in Asian countries
stimulated global demand prompted an increase in automation, attributed due to the workforce
not being able to support the demand (Seric & Winkler, 2020). In the same way that such
decreases in tariffs improved 4.0 integration in Argentina’s automotive sector (Dulcich, 2023),
expanding this rationale to other industries may have a similar effect. What can be reasoned from
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past findings is 4.0 technology integration may be able to be prompted through tariff relaxations
within the Mercosur bloc, as well as cultivate relationships with foreign economies through these
low import tariffs.
Tying in with the theme of promoting 4.0 adoption through building a larger international
network, we look at the businesses themselves. The work done by Agostini & Nosella (2020)
found that enterprises containing high management support were more likely to adopt 4.0
technologies in manufacturing. This finding, paired with research on the high level of
management engagement observed in MNEs (Meyer et al., 2020) indicate that focusing on
attracting such businesses would lead to increased 4.0 adoption, as seen in Brazil and Argentina
(Alvarez et al., 2013). Mercosur has liberalized trade to encourage agreements with MNEs of
different sectors in the past (Bengoa et al., 2020), so it can be reasoned that this can again be
done with a focus on manufacturing. The industries that would likely receive the most focus on
would be information technologies and the automotive sectors, as these have high MNE
representation within LATAM and been shown to increase R&D investments following
relaxations on tariffs (Grosse, 2019). The mere presence of MNEs leads to increases in
efficiency-seeking behaviors within a domestic economy (Alvarez et al., 2013), suggesting that
MNE recruitment may have a positive impact on the wider economy in addition to technology
adoption in manufacturing.
Barriers To Industry 4.0 Integration Into Mercosur
Figure 2 outlines the several potential barriers that have been observed so far in regards
to Industry 4.0 adoption: the point of emphasis is that each dimension acts on each other, solving
for one means that multiple issues must be addressed (Karadayi-Usta, 2019). During the initial
stages of integrating emerging technologies, the most immediate points of obstruction comes
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from the population to utilize it and the governing systems who have the power to regulate it.
The group immediately impacted by widespread 4.0 technology adoption is unskilled workers.
One argument against the integration of such technologies is that it would exacerbate the already
high levels of inequality observed in LATAM (Gasparini et al., 2020). The skilled workers
would be elevated to even higher regard and the unskilled would be left taskless at their current
skill level. This speaks to a wider problem regarding education and exposing the wider
population to more advanced technologies. This has given way for the argument for Industry 5.0
before 4.0 adoption in the developing world: the technologies are made to aid human production
with less of a focus on replacing workers (Groumpos, 2021).
Even in sectors that have the resources to adopt 4.0 technologies there is apprehension to
do so due to lack of familiarity: a survey conducted among Argentine leaders found that the
largest perceived current barriers against Industry 4.0 adoption are the technologies being too
complex for use and lack of public policy to support (Gutnisky et al., 2022). The observed lack
of support for advanced technologies in LATAM would also prevent nations and companies
from adoption. A frequently reported barrier from Industry 4.0 adoption in countries worldwide
is a lack of coordination between businesses and their domestic governments (Raj et al., 2020).
Despite Mexico’s credit for being a highly Industry 4.0 integrated nation, there is a broad range
in production capabilities within the regions of the country (Vargas-Canales, 2023). Overall, the
discrepancy between what each nation, and business, is capable of adopting and Mercosur’s
ability to regulate may to non-adoption altogether.
Figure 2.
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Display of observed barriers to Industry 4.0 adoption (Karadayi-Usta, 2019)
Discussion
In roughly three decades, Mercosur has risen to become the fourth largest trade bloc and
fifth largest economy worldwide (Galović, 2022). Being a part of this group has increased the
economic value for its respective members and strengthened intra-regional trade
(Mukhametdinov, 2007), but its lack of attention towards technology can be seen as a reason for
the region’s lag in global manufacturing (Diego, 2022). Technologies associated with Industry
4.0 have been shown to substantially increase manufacturing capabilities (Raj et al., 2020), and
have been shown to compensate in production for regions who lack skilled labor (Yadav et al.,
2020). The manufacturing success of Asia can be attributed in part by its emphasis on
technological integration in production: the region is currently the global leader in 4.0
technology adoption (Diego, 2022).
The argument is made for Mercosur to promote the use of such technologies within its
bloc through re-evaluations of tariffs and MNE recruitment. Brazil holds the largest
manufacturing industry within the Mercosur group (Tortorella et al., 2021) as well as the highest
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rate of 4.0 adoption (Herrero-Solana & Piedra-Salomón, 2022). Relaxations in foreign tariffs
have directly led to technology upgrades in manufacturing (Bustos, 2011). Taking this
observation paired with what was seen from Argentina’s increase in Smart manufacturing
following relaxations on foreign imports in the automotive industry (Dulcich, 2023), it can be
reasoned that decreasing taxation of foreign products may lead to an expansion of industry 4.0
into Mercosur countries. Closely linked to this is the proposal to increase recruitment of MNEs
within Mercosur borders as high MNE investment has been associated with high levels of 4.0
integration (Alvarez et al., 2013). The presence of MNEs within the manufacturing sector of a
nation has been shown to increase technological development (Grosse, 2019) so increasing
foreign presence may be the impulse to stimulate 4.0 integration and overall economic
prosperity.
Limitations
Past research on Mercosur and its relation to technology is very limited, and there was no
previous information provided on Mercosur’s relevance to Industry 4.0 technologies.
Additionally, research that focused on Mercosur’s rulings related to manufacturing was sparse as
most of the focus centered around what is imported versus exported (Delbianco et al., 2020).
Herrero-Solana & Piedra-Salomón (2022) highlight that there was only one comprehensive paper
examining Industry 4.0 and LATAM as a whole prior to their research, further illustrating the
void in its relation to Mercosur. There exists research on specific countries, but no research on
the group’s trade and its relationship with Industry 4.0. It is intuited that since there is research
on Industry 4.0’s interaction with other trade blocs seen throughout the world (Castelo-Branco et
al., 2019), that more exploration on this subject would be valuable. The more intricate details
regarding Mercosur’s trade regulation and tariffs were also scarce, as the main source of
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information being Mercosur’s main site (Mercosur, 2023) and research done by Bengoa et al.
(2020) examining the monetary effects of trade deals for LATAM as a whole.
Future Research
In light of the observation that tariff relaxations in both Brazil and Argentina led to the
adoption of advanced manufacturing technologies (Bustos, 2011; Dulcich, 2023), further
research examining how similar measures apply to other Mercosur nations may be valuable.
Reasons have been presented such as the decrease in imports led to an increase in access to
foreign advanced technology (Grosse, 2019), or that the decrease created a need to produce
more/more efficiently due to the rise of foreign competition (Alvarez et al., 2013). As noted
above, research has shown that Mercosur has made little effort to adopt industry 4.0 (Gutnisky et
al., 2022), a literature review examining why this attention has been stifled or other reasons is a
topic worth investigating. Last, due to a critique against industry 4.0 adoption being that
technology may be too difficult to use in LATAM (Raj et al., 2020), research on Industry 5.0’s
fit within the region should be explored as it is often-presented as offering more intuitive
technologies (Pereira & dos Santos, 2023); as well no such work has yet to be presented on this
topic for the region.
Conclusion
This research argues that the adoption of Industry 4.0 technologies is essential for
LATAM to be a competitive region on the global stage. Manufacturing is a major part of the
LATAM economy but has historically underperformed (Álvarez, 2022) and focused on noncomplex production (IDB Invest, 2023). Being that Mercosur is a major regulatory body in the
region regarding trade and product adoption (Galović, 2022), it would be in the best interest of
this group to dedicate focus to integrating these technologies via relaxations of trade and the
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recruitment of MNEs. These actions may lead to an increase in 4.0 adoption which can
compensate for areas where human capital is lacking (Yadav et al., 2020), allow for the
production of more complex goods (Raj et al., 2020), and have the potential to increase the
production capabilities for Mercosur countries (Álvarez, 2022). In total, these developments can
be used as a means for Mercosur to grow economically and increase its competition on the global
stage.
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