How Entrepreneurs Can Capitalize on the Latin American Ecommerce Boom
Online shopping is spreading rapidly in Latin America, making it a prime target for foreign retailers. In fact, Latin America is the fastest-growing ecommerce market after China, according to Latin America 500. The latest forecasts predict that by 2020, Latin America will have 640 million consumers, and private consumption in the region will nearly double in comparison to 2012. Forrester predicts that ecommerce in Mexico, Brazil and Argentina will continue to grow at a rate of 20 percent year-on-year.
The numbers are certainly enticing, but it pays to prepare carefully before rushing into Latin American ecommerce.
Launching cross-border commerce in Latin America.
Building an online site in-house can be both time-consuming and complex. One viable option is to use a service like Shopify, which enables merchants to set up independent online stores. Many brands have chosen this route to build local ecommerce stores. Once the merchant’s website is set up, the next step involves localized search engine optimization (SEO). This is best performed by a local vendor that understands the search habits of the chosen market. Effective SEO can provide a merchant with an edge over local merchants’ sites.
When entering Latin America, as with most foreign territories, going solo can be risky. Gaining market share in new territories depends largely on the merchant’s familiarity with them. As such, merchants should consider working with local web platforms.
Because online retail has not yet reached maturity in all Latin American countries, many shoppers naturally gravitate towards household-name online merchants like Amazon, eBay and Alipay. But local online leaders are emerging. MercadoLibre, a regional ecommerce marketplace operator, is the most visited website in the retail category in most of Latin America. Brazil-based B2W Digital is another popular ecommerce destination, with online shops such as Americanas, Submarino and Shoptime. NovaPontocom also operates online shops in the region.
In May 2014, eBay began providing localized sites that support 18 markets in most of Latin America. This act garnered much attention because this sector was previously left to local companies such as MercadoLibre (in which eBay is invested).
The logistics maze.
Merchants can only sell goods or services through their websites if they offer effective international shipping. Cross-border consumers often abandon a website because they don’t know how their purchases will be delivered (or returned if unsatisfactory). Partnering with a local logistics provider that is familiar with the market can significantly increase the chance of success.
Nevertheless, logistics costs are high in Latin America. Jose Fernando Nava, Latin America President for DHL Supply Chain Logistics, has stated that logistic costs amount to about 15 percent of the cost of the sold merchandise. In general, logistics costs in Latin America are relatively high in comparison to other regions worldwide.
Payment methods in Latin America.
It is crucial that merchants understand and accept the preferred payment methods for each Latin American region. Credit card and alternative payment methods are rapidly gaining popularity, but cash on delivery is also widespread. Furthermore, mobile ecommerce has risen considerably, with almost a quarter of shoppers having used their smartphone for payment at least once.
Brazil is a category all its own.
Ecommerce is extremely popular in Brazil. Online expenditure in this country alone nearly equals that of the rest of Latin America combined. Here are a few key statistics:
- 299 of the top 500 Latin American ecommerce sites are based in Brazil.
- In 2013, Brazilian online shops generated revenues of $15 billion. That's three times more than Mexico and Argentina combined.
- 81 percent of Brazilians research appliances online, compared to 66 percent of Mexicans and 73 percent of Argentines.
While Brazil has the most mature ecommerce market in the region with a population of 202 million people in 2014, 62 percent of them are under 30 years of age.
Brazilian payment methods.
More than 80 percent of the Brazilian adult population now has a bank account, and last year the local payment method Boleto Bancário, which is regulated by the Brazilian Federation of Banks, was the second most used payment method. A Boleto can be paid via ATM, through internet banking, at the post office and at some private companies.
While Brazilians pay mainly by card (59 percent), other methods are still popular; paper cash is used in 20 percent of transactions, eWallets in 4.5 percent and cash on delivery in 3.1 percent.
New regulations enacted by the Brazilian government in 2013 and 2014 have helped boost the growth of online and mobile payments. Indeed, mobile popularity is soaring, with 79 percent of consumers in Brazil using their mobile phones for at least part of their shopping experience. Sixteen million smartphones were sold in 2013 alone; at 20.1 percent, Brazil boasts the highest smartphone penetration in Latin America.
The costs of selling in Brazil.
While the numbers are definitely good, doing business in Brazil is expensive and complicated. There are no less than seven different income taxes; an added headache is that they are cumulative (i.e., the seventh can only be computed after the sixth has been paid).
Furthermore, merchants that decide to use cloud services outside Brazil for their online stores are charged 40 percent on top of the invoice as an additional tax. Finally, Brazil imposes a flat import tax of 60 percent on the cost of merchandise valued up to $3,000. Since the buyer has to pay the taxes up front, the delivery process can sometimes drag on indefinitely if the sum isn’t paid promptly.
Laying the foundation for new markets.
Ecommerce is flourishing worldwide, and online merchants are constantly looking for their next market. By all accounts, Latin America ecommerce is up-and-coming. However, no matter how promising, it is always best to not rush in where angels fear to tread. By taking the time to learn about local/regional online shopping habits and payment systems, merchants have a much better chance of meeting shoppers’ expectations and ensuring profitability.