Report: E-Commerce Coming of Age in Latin America

Latin American electronic commerce is poised to skyrocket to $15 billion (US$) by 2003, according to a new study by New York-based research firm eMarketer.

The report predicts that there will be about eight million active adult Internet users in Latin America by the end of this year, more than double last year’s figure. That total is expected to grow to more than 19 million, or five percent of the 372 million Internet users worldwide.

While the report found that the major barrier to the growth of online shopping and other e-commerce activity in Latin America is the cost of Internet access, a separate study from the Yankee Group indicates that the problem may soon be alleviated by a new wave of free access sweeping the region.

eMarketer also predicts that 87 percent of Latin America’s e-commerce activity will come from business-to-business (B2B) transactions, as opposed to business-to-consumer (B2C) activity. Nearly 75 percent of Latin American online buyers currently shop at U.S.-based Internet sites.

Heavy VC Activity

The fact that Latin American B2B e-commerce is set to take off has not been lost upon venture capitalists.

Over the past 14 months, venture capitalists have invested at least $1.5 billion in Latin American Internet companies, according to a new study by Bain & Company. The figure seems minimal when compared with the $19 billion invested in U.S. companies, but the Bain report predicts that current investment rates will at least double, and possibly triple, by the end of this year.

For the most part, venture capital firms that are already investing in the area are concentrating on developed countries like Brazil, Mexico and Argentina. Brazil is currently the largest on that list by a wide margin.

However, some forward-thinking companies are spreading the wealth to less developed countries. Softbank, for example, is currently studying the possibilities for investments in Chile, Venezuela and Colombia, “even if we have to put on a bullet-proof vest,” said Jan Boyer, head of Softbank’s Latin American Ventures.

Proceeding with Caution

Even with the rapid influx of cash into Latin American Internet and e-commerce companies, the biggest investors are taking a slow and steady approach.

“Everything has been happening too fast too soon,” according to Boyer. “That’s why I have always said that being the last mover isn’t so bad for Latin America.”

Demographically, the region is ripe for electronic commerce, since the overall population is much younger than that of the U.S., Japan or Europe. eMarketer believes that the populations of the various countries are more apt to use the Internet for shopping than previous generations.

However, a possible roadblock to the full development of e-commerce in Latin America may be the conflicting customs and various trade barriers among countries in the region. However, the increasing availability of free Internet access, coupled with a marked increase in PC penetration and an inordinately high usage of wireless devices may assist in breaking down barriers.

International Data Corporation (IDC) said earlier this year that Internet service provider revenue in the region will continue to increase at a 42 percent compound annual rate, from $1.41 billion in 1999 to $8.13 billion in 2004. Venture capitalists are clearly counting on increased usage to translate into increased business activity.