The Rising Potential of the E-Commerce Industry in Latin America

The Rising Potential of the E-Commerce Industry in Latin America

Retail Tech Insights | Thursday, August 04, 2022

E-commerce in Latin America is flourishing, as is well-known. Instead of being dominated by industries such as lumber and oil, the region's economy is heavily influenced by technology.

FREMONT, CA: It is no secret that the e-commerce industry in Latin America is thriving. Contrary to the common perception of the region as being dominated by old-economy industries such as lumber and oil, technology is a significant element of the local economy and continues to expand daily. This is partly because of the Covid-19 epidemic and partially attributable to a growing middle class with refined tastes and disposable income. Nevertheless, several obstacles prohibit Latin America's thriving digital industry from completely integrating with the international community, placing the area in a state of limbo.

First, global assessments are less than ideal, with the World Bank assessing Latin America's logistics as inadequate. In truth, Latin America comprises 33 countries with vastly different GDPs, political climates, and degrees of infrastructure, despite the inclination to treat the region as a single entity. For example, Mexico, Argentina, and Brazil all rank inside the top 70 of the LPI rankings compiled by the World Bank. It is unjust and profoundly deceptive to generalize about the entire region.

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During the recent Covid-19 pandemic, Latin America has been under increased investigation. As quarantine and work-from-home measures were adopted globally, e-commerce in all areas witnessed an unparalleled surge. However, Latin America experienced a 37 percent increase in e-commerce sales in 2020, totaling $85 billion. Despite this extraordinary revenue growth, market penetration remains limited. Brazil, for instance, only managed to increase penetration from 7.5 percent to 12.5 percent, indicating that there is still a massive untapped market. Moreover, payment wallets, such as PayPal, which has a roughly 47 percent market share, were favored by only 10 percent of Latin American consumers.

Here are some statistics that may provide further background. In Latin America, Internet penetration reached 74 percent in 2020, an increase of 20 percent over the prior five years. This starkly contrasts the 92 percent in North America. This means that a portion of the population will not engage in e-commerce because they do not have internet access.

Secondly, many delivery companies are still living in the analog era, employing physical spreadsheets and delivery lists, and are frequently required to make deliveries in underdeveloped areas with dirt roads and inconsistent signage. These complications might add days or even weeks to the end of estimated shipping times, making it impossible to predict when an item will arrive. Shipping prices can also be uncomfortably volatile, fluctuating based on political or weather situations that the infrastructure cannot manage. Given that unexpected charges, most notably shipping fees, account for 55 percent of all shopping cart abandonment, it comes to reason that price increases retard an already underperforming industry.

Unfortunately, it is impossible to reduce a situation of this complexity to a series of concrete procedures that must be followed to enable full integration with the international supply chain. However, it is an overreach to claim that inadequate infrastructure in portions of Latin America is the source of many problems. Better roads and better-interconnected communities could lead to more consistent and rapid delivery times. Additional trust in the e-commerce industry could result from faster delivery times, leading to increased money that can be utilized to modernize outmoded methods of operation. The improvement of infrastructure could initiate a domino effect that enhances all other aspects of the sector and, more significantly, the lives and livelihoods of the local population.

This is not a zero-sum game. The global supply chain is strengthened to the mutual advantage when Latin America prospers. In the wake of the difficulties caused by the Covid-19 pandemic, the success of one region might contribute to the prosperity of the entire worldwide sector.

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