Latin America’s E-commerce scene is still in its early developmental stages. There remains a lot of potential that has not yet been tapped into, but statistics show that between 2016 and 2021, the E-commerce world will continue to rise in this region due to the increased use of internet and smartphones. Here’s what you need to know about the rise of E-commerce in Latin America.
Regional overview of E-commerce in Latin America
Brazil remains the largest market of B2C E-commerce in Latin America, making up 38% of the E-commerce activity in the region. Being the largest Latin American country with a population of 207.5 million people, and with an E-commerce market worth US$ 11,598,000,000, it’s no surprise that this country is at the forefront of Latin American E-commerce growth. Its compound annual growth rate is at 12%, so it’s isn’t the fastest growing, but it is making the most developmental progress to date.
In addition, mobile shopping is an upcoming trend in Brazil. Approximately 25% of the transactions made in E-commerce were done through the use of mobile phones in the year 2017, involving more than 55 million Brazilians. The year before that, in 2016, the total value of online purchases made in this country hit $17 billion, and till today, that number grows, with M-Commerce leaders being the companies Mercadolibre (an Argentina-based corporation), AliExpress, and Americanas.
Another upcoming country in Latin America when it comes to E-Commerce is Colombia. Colombians have started to appreciate the benefits of using E-Commerce in a wide variety of purposes, especially in home deliveries, the security aspects of online transactions and the safety of online payments. This is especially done through the use of the Vía Baloto payment method, the most popular one used in the country.
Columbia’s current E-commerce market value isn’t particularly impressive, standing at just US$ 1,336,000,000 in 2017, but by 2021, it’s expected that Columbia’s E-commerce scene will experience a growth rate of over 20%, making it one of the two fastest growing E-commerce markets globally with a compound annual growth rate of 27%.
Mexico is another country in Latin America that has started to appreciate E-commerce. It is the second in this region when it comes to the volume of the online sales and is growing surprisingly quickly with a compound annual growth rate of 25%, meaning it’s only right behind Colombia in terms of development. It even makes up 19% of Latin America’s E-Commerce scene and was worth US$ 5,928,000,000 as of 2017.
The key driver behind the expansion of online retail in Mexico is M-commerce, thanks to the use of smartphones with which 1/3 of the population uses to make online purchases. Many E-commerce participants in the country make use of the OXXO voucher payment method, which is the most widely used in all of Mexico.
Alongside Brazil and Mexico, Argentina is one of the counties in Latin America that is the prime driving force of all E-commerce activities in the region. With an E-commerce market worth US$ 6,653,000,000, Argentina makes up 22% of all E-commerce activity in Latin America. It is also the fastest growing of all the E-commerce markets in the whole region, with a compound annual growth rate of a whopping 32%.
One of the biggest key players in Argentina’s E-commerce scene is MercadoLibre, which is based in this country and also has heavy influences on a number of other Latin American countries. In the first half of 2017, the MercadoLibre website was responsible for the most amount of online orders received in the region, with second place falling to the MercadoLibre application. Meanwhile, some common payment avenues used often by Argentinians are Cobro Express, Rapipago, and Cupón de pago paid at Pago Fácil.
The Landscape of E-commerce and Its Opportunities in Latin America
Latin Americans in northern Mexico are among the most active Internet users in the world thanks to their increased ownership of smartphones. This is due in large part to their rising number of middle-class citizens, propelling a rapid adoption of faster and better Internet and furthering network expansion. As the E-commerce market in the region continues to evolve, both domestic and cross-border online sales have become a part and parcel of the market’s landscape.
E-commerce is growing around the globe and this growth is expected to continue in Latin America at a rate of 29% annually till the year 2020. This makes it a market that is very promising for both international and local merchants, as well as international E-retailers who want to expand their businesses.
How do you start? What kind of challenges will you face?
The companies or organizations that are interested in expanding to the region of Latin America but don’t come from the area may find it difficult to determine where they should start in the E-commerce market. Other than internal business factors like the company’s decision making, existing ties to specific markets, and each company’s unique strategy, there are other factors that need to be considered when getting into a new market. After all, not all markets are meant to be attractive to are. The following are some of the areas that one should evaluate in order to determine if expanding the business to Latin America is a viable move or not.
1. The attractiveness of the market.
The attractiveness of a market is determined by making calculations and estimations based on the current size of the market, its current and projected growth rates, and the potential that this market has in continuing to progress and develop.
2. Ease of entry.
Understanding the complexities of a market is very crucial in order to identify the locations that one can expand a business. The factors that make it easy to get into a market are the regulations imposed on the given business, the general business environment, available infrastructure, and reported corruption levels. These factors are helpful in determining whether the business is going to make a profit or a loss.
The increased usage of the Internet, credit cards and smartphones are all crucial in evaluating a market. Latin American countries have a high score when it comes to smartphone usage, all scoring well above the global average. In the past, Latin American countries did face the E-commerce challenge of accessing credit cards, but the introduction of secure online payment services like Paypal has changed that aspect for the better.
4. Geographic proximity.
The geographic proximity of a company to its home market as well as an existing business that has different services or products should have a huge influence on your decision to enter a new market. The proximity of these businesses always goes hand-in-hand with businesses that have similar cultures and time zones because often, collaboration with the headquarters of these companies is necessary. This will make the business trips shorter, saving time and expenses. In addition, companies that have a good working relationship with other companies in the world have a better chance of testing new products due to the already gained experience of the business in question.
With these factors in mind, it is always advised that before starting a business in a new environment, a pilot program should be launched. There are several challenges that are faced by E-commerce companies, with the major ones being logistics and limitations in access to secure credit cards. It’s a good idea to keep in mind that many people in this region do not use formal banking and you might find that sometimes those who do have credit cards are unable to use them for online transactions.
There is still a lot of untapped potential in Latin America and several business opportunities continue to arise with the widening of their markets, rising internet penetration and increase of buying power. It is projected that Latin America will achieve US$ 84 billion in online sales by 2019. In fact, on top of that, it is expected that by the year 2021, North America will be outpaced by Latin America when it comes to E-commerce. As such, it’s no surprise that now is a strategic time to take the dive into the world of E-commerce in Latin America, and the country you decide to place your focus on will depend entirely on your own assessment of multiple internal and external factors.