- Forget Europe: Here’s Why Online Startups Should Expand To Latin America First - September 6, 2018
Many entrepreneurs dream of going global, and doing so is no longer a move reserved for major corporations. Today’s entrepreneurs have more opportunity than ever to expand their businesses overseas after success in their home countries, or even start a business overseas from day one.
As such, the biggest question about conducting international business is no longer how to do it, but rather, where to do it. Typically, Europe has been the “first and best choice for most companies,” explains Index Ventures’ Dominic Jacquesson. But for founders of online businesses, I’d argue that Latin America actually has a lot more to offer. Here’s why:
Latin America is a young cluster of powerful markets
Europe’s more than 50 countries have a population of about 750 million, with the EU alone consisting of 28 countries and 500 million people. In contrast, Latin America and the Caribbean is home to 33 countries, boasting a population of about 650 million – more than the EU, and not too far off from Europe as a whole.
Surely, Latin America’s purchasing power has yet to match that of Europe. But the advantage it does have is that (with the exception of Brazil) its population almost exclusively speaks only one language: Spanish. As the EU alone has 24 official languages, entrepreneurs entering Europe would have a much harder time reaching the same number of consumers as they would be able to in Latin America.
In other words, for entrepreneurs, what Latin America currently lacks in purchasing power, it makes up for with the volume of consumers that share a language.
This both simplifies the marketing process and reduces the number of product adjustments required for each country. Additionally, as countries in Latin America continue to become more developed, consumers are bound to start spending more.
As a whole, Latin America has recently been labeled the world leader in e-commerce growth.
Even more, two of the three fastest-growing e-commerce markets in the world are located in Latin America: Colombia and Argentina. Not to mention that Brazil is already one of the world’s top 10 e-commerce markets.
The middle class is growing, and demand is following in step
Demand in Latin America is growing fast, with an expanding middle class that has actually doubled in size over the last decade. With this growth, more consumers are enjoying more purchasing power than ever. Chile, Panama and Argentina, for example, don’t fall far behind European countries Poland, Hungary and Latvia in terms of per capita GDP. And with time, they will find themselves catching up to other European countries, as well.
Even more, Latin Americans are increasingly combining their expanded purchasing power with a simultaneously expanding access to internet. In 2016, there were an estimated 120 million digital buyers in Latin America, accounting for 42.6 percent of internet users in the region. By 2019, these numbers are expected to jump to 150 million and 45 percent, respectively. Moreover, the region’s largest market, Brazil, is actually on par with the EU average: 66.4 percent of internet users were estimated to have purchased online in 2017, compared to 68 percent in the EU.
The online shopping trend is driven by the fact that, in many cases, Latin Americans can find cheaper options online than at their local stores. However, the region’s population also enjoys consuming foreign goods, including music, television, fashion and more.
As such, people throughout Latin America are excited about the notion of shopping online, and are taking to it with vigor, especially using their mobile devices, with mobile e-commerce growing at twice the rate of traditional e-commerce throughout the region.
Therefore, entrepreneurs can easily step in to fill these needs and capture the demand of this recently “connected” population.
There is less saturation and competition in Latin America
In Europe, consumers have plenty of options when looking to make a purchase. In Latin America, this isn’t the case. Many consumers rely on e-commerce platforms to get goods from outside the country.
In fact, of the region’s online purchases in 2016, 44 percent were imported, with nearly 60 percent of those imports coming from North America. Additionally, as a percentage, more online consumers in Latin America make purchases exclusively abroad than in any other part of the world.
This points to the fact that there are fewer local providers meeting the needs of Latin American consumers. In other words, there is ample opportunity for foreign entrepreneurs to enter the market as first-movers and remain on top for a long time. For example, AliExpress did just that, and quickly rose to become the largest foreign e-commerce platform in Brazil.
Consumers are demanding access to goods and services that are being consumed in other parts of the world, and for the most part, their needs are still going unmet. This is exactly why entrepreneurs have such ample opportunity in the region.
Businesses can take advantage of seasonal differences
An added bonus for entrepreneurs from the U.S. or other countries in the Northern Hemisphere is that there may be an opportunity to take advantage of seasonal differences.
In Brazil and many other countries in South America, summer and winter are the opposite of the U.S. This means, for example, that students go back to school in February, not August.
Apart from the fact that entrepreneurs should keep this in mind for their marketing campaigns, it also allows them the opportunity to potentially sell remaining seasonal items or inventory. For a business that sells clothing, unsold bathing suits from July could be snapped up when consumers head to the beach in December. Online education platforms and travel companies can also find ample opportunities to sell in what would have traditionally been slow months.
Addressing the elephant in the room
Undoubtedly, conducting business in Latin America does have a number of challenges:
“Despite these impressive statistics, eRetailers face many challenges in Latin America, including online payment security, low banking services usage among citizens, and serious logistics issues, according to Patricia Galina of IEBS,” writes Miriam C. Dowd in an article for Focus Economics.
But while the political and economic situations in Latin American countries can be difficult, it doesn’t have to stop e-commerce startups from succeeding. The key to overcoming these challenges is to rely on a network of local partners.
For example, to combat payment issues, local partners, including EBANX, can provide entrepreneurs both the technology and support they need to meet the payment preferences of consumers. Other local partners exist to help overcome logistics issues and reduce costs. And language and cultural differences can be resolved by working with local marketing companies to create personalized communication that resonates with the people in each specific country.
All things considered, e-commerce entrepreneurs would be wise to consider Latin America as their first destination when expanding internationally. The market is still young, but the opportunity is already there. While you might have an easier time expanding your business to Europe, you might find more success in Latin America.
Since when did anything good ever come easy, anyway?