Towards the Digital Transformation of Paraguayan Industry (IDB). July 2024

Authors: Garnero, Paula; Feal-Zubimendi, Soledad.

Key Findings

1. Company Size Influences the Technological Gap and Future Digitalization Expectations

Data collected from the 2023 survey of Paraguay’s industrial sector show that, on average, 8 out of 10 firms use relatively basic technologies (first- and second-generation technologies), while only 17% use technologies more closely associated with Industry 4.0 (third- and fourth-generation technologies).

The greatest technological lag is observed in customer relations, where 7 out of 10 firms rely on first-generation technologies. The most technologically advanced functional area is supplier relations, where 22% of companies use third- and fourth-generation technologies. Looking ahead, on average, 58% of firms expect to be using Industry 3.0 and 4.0 technologies in the future.

2. Company size significantly affects both the technological gap and expectations regarding future digitalization. 

Larger firms are currently more technologically advanced, with 21% using third- and fourth-generation technologies, compared with 11% among medium-sized firms and 17% among micro and small enterprises. However, smaller firms are the most optimistic: 60% of micro and small enterprises expect to adopt third- and fourth-generation technologies within the next ten years.

3. Technological Gap: High Awareness, Limited Concrete Action

Although 7 out of 10 companies recognize the need to act today to close the technological gap in the future, only 1 out of 10 is currently implementing concrete measures. Four out of ten are conducting preliminary studies to undertake their digital transformation, while two out of ten have defined projects or formal action plans but have not yet begun implementation.

The most significant efforts are being made in customer relations (the most technologically lagging area) and supplier relations, where 13% and 12% of firms, respectively, are implementing concrete actions. In addition, 46% of large firms are taking concrete steps to close the technological gap, compared with 27% of medium-sized firms and 22% of micro and small enterprises.

4. Export Status Does Not Appear to Be a Determining Factor in Paraguay’s Path Toward Industry 4.0

In Paraguay, as in Uruguay—but unlike the patterns observed in Argentina and Brazil—there are no significant differences in technology adoption between exporting firms and those serving only the domestic market. In fact, survey data show a higher share of third- and fourth-generation technology users among non-exporting firms (21%) than among exporters (15%). However, looking ahead, 47% of exporting firms expect to use Industry 4.0 technologies, exceeding the expectations of non-exporting firms (24%).

5. Human Capital and Investment Are the Main Obstacles to Digitalization

Four out of ten Paraguayan companies identify the lack of appropriately skilled human resources as a major challenge, while three out of ten cite investment-related issues, including investment costs, financing, payback periods, and expected returns. Despite these challenges, 49% of firms provide or support employee training programs, and 37% invest in capital goods, such as machinery and equipment.

6. Soft Skills Rank Among the Most Valued Competencies in Hiring

Ninety-nine percent of Paraguayan firms place a high value on soft skills, while 84% recognize the importance of skills related to human-machine interaction.

To a lesser extent, surveyed firms acknowledge the importance of Science, Technology, Engineering, and Mathematics (STEM) skills. While 62% consider them important today, 87% believe they will become important in the future.

7. Digital Transformation Has the Potential to Generate Employment in Paraguayan Industry

Forty-five percent of firms report that the adoption of digital technologies and automation has not affected their workforce size. Meanwhile, 20% report workforce reductions, while 26% indicate that they needed to hire additional employees.

Looking ahead, firms expect increased hiring needs in areas such as marketing and market research, as well as process development and R&D innovation activities. Conversely, they anticipate declining hiring demand in areas such as supplier relations and customer service.

8. Digital Transformation Within a Broad and Adaptive Vision of Innovation

Over the past three years, Paraguayan firms have demonstrated strong innovation efforts. Eight out of ten firms report having introduced a new product or service to the market and implemented a new process or significantly improved existing ones. However, on average, only 14% report undertaking activities related to Research, Development, and Innovation (R&D&I).

This suggests that opportunities for value creation and innovation in Paraguay’s industrial sector are supported by activities other than traditional R&D investment. Firms appear highly dynamic in adopting alternative innovation strategies. In other words, the digital transformation process seems to be driven more by the integration and improvement of existing technologies and knowledge developed by third parties than by proprietary technological development.

This reflects a broader and more adaptive view of innovation, in which firms seek competitive advantages through the intelligent adoption and adaptation of available technological solutions rather than through traditional R&D investment.

9. Paraguay’s Journey Toward Industry 4.0 Is Long and Winding

At the base of the mountain stands a large group representing 74% of firms, referred to as Trekkers. These companies use relatively basic technologies and are not currently undertaking concrete actions to embark on the path toward Industry 4.0.

Halfway up the mountain is a smaller group comprising 20% of firms, known as Climbers. These companies use moderately sophisticated technologies and, unlike the Trekkers, are actively pursuing digital transformation initiatives. At the summit is a small group representing 6% of firms, referred to as Condors.

Among the Condors, firms are primarily concentrated in the textile, chemical and pharmaceutical, food and beverage, and paper and paper products manufacturing sectors. The very long investment payback period is the main challenge identified by Condors. For Climbers, the leading obstacle is the lack of qualified human resources, while among Trekkers, the high initial investment cost is the most significant barrier.

10. Condors, Climbers, and Trekkers Have Distinct Workforce Needs

Companies progressing along the technological adoption path display a more balanced appreciation of socio-emotional and technological skills. Virtually all Climber firms, which are actively transitioning toward Industry 4.0, place a high value on both soft skills and basic computing skills (100% and 99%, respectively).

By contrast, the more technologically advanced Condors prioritize technical competencies such as cybersecurity (80%) and big data analytics (68%), while placing comparatively less emphasis on soft skills. This reflects their highly automated environments and the need to maintain advanced systems. Meanwhile, the technologically less advanced Trekkers are almost unanimous (99%) in recognizing the importance of soft skills, underscoring the continued relevance of human capital and interpersonal relationships in less digitalized environments.

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