Learn how to overcome the 4 biggest Challenges to enter the Latin American E-Commerce Market – and get your business ready to grow +200% annually for the next 6 years.
In this post, we will be learning about what you need to do so that you can succeed and become a pioneer in targeting Latin America online – one of the world’s top 3 fastest growing regions – we will also go one by one, through some of the biggest challenges on the way of investors to benefit from this high online ROI potential. This post was originally written by my friend Alex Lund an expert ecommerce strategist who via this article shares some important insights into this promising industry.
Latin America is one of the markets with the greatest potential for growth in E-commerce. According to a recent post by Mashable, in Latin America specifically, traffic is estimated to increase by 48% by 2015, only second to Africa and the Middle East (Indvick 2011 ). In terms of year over year growth, Internet Retailer reported that Latin America’s number of Internet users increased by 15% in January 2011 from January of the previous year (Reuters, 2011).
This growth has accelerated thanks to an increase in Internet penetration and the privatization of previously owned government telecommunications companies. In Costa Rica in particular, the removal of the telecommunications monopoly has dropped the cost of accessing the Internet and the quality of connections has significantly increased.
Although an increase in Internet access does not automatically correlate to an increase in ecommerce, Internet Retailer claims that many countries in Latin America are set to experience a growth in ecommerce. Brazil’s ecommerce industry is estimated to grow to 178% by 2016 while Mexico’s will grow by an average of 209% (Moore, 2011).
Mexico will have the most accelerated economic growth of the region during the next 6 years
Analysts expect Mexico to have the most accelerated growth of the region for the next 5-6 years. Mexico’s growth in E-commerce and other industries has been hindered during the past 6 years due partly to Felipe Calderon’s decision to take on Mexico’s drug trafficking organizations head-on. Despite this situation, according to Roberto Ruarte, analyst Ruarte Reports, the bad environment has been well absorbed by the market by both the Mexican foreign exchange rate and the stock market, which has had a stable growth.
Mexico’s old rulers will return after 12 years of PAN’s government. Enrique Peña Nieto of Mexico’s PRI will assume the country’s presidency on December 1, 2012. Mexico’s society will keep a much closer eye on government transgressions. If the PRI is to engage in its old ways, Mexico’s society outcry will be loud. Therefore it’s likely that the next six years will bring more continuity than drastic change in Mexico, which sets a positive panorama for Mexico’s economy.
In terms of growth, the Mexican Stock Exchange has had the worst growth performance in dollar terms over the past 10 years compared to most of the other key Latin American markets including Brazil, Colombia, Peru and Chile. Only Argentina and Venezuela had a worse performance during this period. This level of market performance does not resonate with Mexico’s infrastructure and growth potential and thus, there is a great potential for the Mexican market to reach a higher growth level during the next decade.
According to Roberto Ruarte, in the next 10 years Mexico’s stock exchange could have a higher growth than the growth that Brazil has had in the past decade. If you are about to invest, Mexico presents a good opportunity, both on the Mexican stock exchange but specially for entrepreneurs on an ecommerce operation.
Despite the positive outlook and expected growth, when setting up your ecommerce business you will have to face multiple obstacles in the region. You must be aware of shipping issues, government red tape, electronic payment issues, and cultural differences. As internet use and demand for ecommerce increases, companies that implement the correct ecommerce strategies will succeed and become pioneers in targeting this market.
How to overcome the 4 biggest challenges for successful E-commerce in Latin America
It turns out that most companies are failing to manage the E-Commerce potential due to lack of a proper anticipation of the key challenges.
There is a big gap of knowledge and resources between producers, manufacturers and consumers, which presents you with a great opportunity to complete the link and offer the missing value added in terms of conceptualizing the right online e-commerce value proposition and setting up the right distribution strategies.
According to Francisco Ceballos, Mercado Libre’s Mexico’s country manager, ecommerce sales account for only 1.5% of total sales in Mexico. Francisco recognizes that with the right strategy in place, there are huge opportunities for growth in this market (Market Wire, 2011).
Consider this 4 key challenges before design a successful ecommerce strategy:
Perhaps the biggest issue for businesses is shipping. Addresses in Latin America are difficult to understand and are not unique. Several houses aren’t numbered and streets have no official names. The infrastructure needed to deliver packages can be lacking as roads can be difficult to travel on and the official postal system is not trustworthy. Delivering a package to the right customer could become a nightmare. Companies such as Border Jump have tackled this issue. Border Jump partners with U.S ecommerce sites that allow users to deliver their packages to a U.S address provided by Border Jump. The company then delivers goods through air post and uses its own couriers to complete the delivery.
The company relies on contractors or its own infrastructure instead of using the national postal system of each country. Additionally, the company ships by volume in order to lower costs and expedite government customs processes (Deatsch, 2011). It is vital for an ecommerce company in Latin America to partner with a reliable local courier service or decide to create its own delivery system.
This could increase costs at first for the ecommerce operator but it will guarantee that customers receive their package promptly and in a good condition.
Companies could eventually acquire economies of scale by handling their own shipping and making use of their customer service for shipment tracking, as they usually have to deal with these requests regardless if they decide to outsource shipping or not.
A good alternative is to invest on ecommerce based on information products. This type of ecommerce has the highest potential as there are lower production costs, higher returns and you can avoid shipping complications.
Government red tape and bureaucracy
Can also become a significant problem. Customs can be slow in processing shipments and companies have to deal with requests for bribery. Officials are also known for charging different amounts of taxes each time. Companies must be prepared for dealing with ethical dilemmas, keeping sufficient inventory in case of shipping delays, and plan longer shipping times than the usual estimated times.
E-commerce companies in Latin America must also be creative in how they complete payments for products. Unlike in the United States or the United Kingdom, the use of debit and credit cards is not prevalent. Companies can also not implement a “pay after you receive the product “ strategy popular in Germany, as most customers will decide not to pay for their good at all. Businesses therefore need to allow for multiple payment options. One of the most popular payment completion systems is through bank deposits. Payments are done through deposits for exact amounts by online transfers or through physical deposits. Although this process could take time, it is one of the safest and most accessible methods to complete payments. Companies will still need to accept payments through credit or debit cards but must implement strict security and encryption software for all transactions. As more Latin Americans are adopting the use of credit and debit cards and electronic payments are becoming safer, this method will become more popular.
Cultural differences and shopping expectations
Can also become a challenge for an ecommerce venture. Customers are not accustomed to flexible return policies and are hesitant on purchasing a product that may not fit or is not as described. Users must be educated on return procedures and assured that products are refundable. Ecommerce companies must also be aware of purchasing behaviors. During the four days of the world cup, ecommerce sales dropped to half of their usual amount in the three top Latin American countries (Moore, 2011). Businesses must be aware of holidays, days with large sport events, and national customs in order to properly forecast sales and create a proper business strategy.
Despite the multiple challenges that exist for an ecommerce venture in Latin America, a company that can tackle these issues correctly has the potential to access one of the fastest growing ROI opportunities at a time where other markets are in a crisis or stagnating.
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