In Business Trends & Strategy

Note: This article is part of a series of articles on disruption in Latin America, including the industries that are most vulnerable to disruption and the obstacles to disruption in the region.


Latin America’s inefficient service sectors (a $4 trillion economic segment) are under attack by app-driven new disruptive business models. The pace of this latest wave of disruption has proven startling, up to twice as fast as the disruption of market share of similar sectors in the U.S. and Europe.

8 Drivers of Disruption in Latin America

The vulnerabilities of Latin America’s service sectors that invite disruption include:

Under-utilized overhead. Both Uber and Airbnb succeed in part due to private ownership of assets (cars and homes) that are rarely or under-utilized. App-driven models connect customers and owners of said assets. Global brands and well-tested apps create a trustworthy, frictionless transaction environment between buyer and seller. Too much overhead is why asset heavy traditional courier companies (DHL, FedEx, UPS) face competition from upstarts in the high growth market of last mile e-commerce fulfillment. Uber-like models like Chazki are springing up across LatAm that utilize private jobbers in their own cars, motorbikes and bicycles to make (same city) deliveries of small parcels. Brazil’s CargoX exploits the fact that the country has an excess of trucks on the road (thanks to a decade of misguided tax subsidies for vehicle buyers) which operate at an average of only 60% of their capacity.

Disintermediation. One of the founding principles of e-commerce is the disintermediation of unnecessary layers between provider and end-user. Why by a computer from the re-seller of the importer of the manufacturer when you can buy directly from the manufacturer? Similarly, why hire an interior decorating firm when you can hire the decorator directly? Latin American professional services firms are notorious for massive mark-ups on the costs of their staff, particularly entry level professionals. Law firms in Latin America are known to mark-up 10-15 fold the cost of sending a runner to a court house to collect a vital document when billing their international “partner” law firm customer. That explains the success of Evidencity, which uses its own network of jobbers across LatAm and around the world to gather documents for global law firms, due diligence firms, insurance companies and others, saving clients fees and time by using a direct communication platform between customer and on-the-ground researcher to collect, scan and translate court, police, and regulatory documents.

Poor customer U/X (user experience). This is still the norm in many Latin American service sectors. Long lines continue to plague banking customers who then face stifling bureaucracy when seeking a loan. The same taxi drivers who cry foul over Uber and Easy taxi were infamous for their ill-maintained vehicles, robberies and over-charging shenanigans. Banks have long neglected SME businesses because they lacked sufficient data to assess their risk and/or their customer acquisition costs were too costly to justify going after small commercial customers. Today, dozens of alternative lender start-ups across LatAm strive to fill the void. Companies like Creditas in Brazil, Sempli in Colombia and Mexico’s Kubo Financiero offer small loans at high rates of interest to small businesses who can usually provide some form of collateral including personal assets like a car or access to accounts receivables.

Oligarchies & supplier concentration. These often lead to overpricing and poor service. The most galling example of Latin American oligarchies is notary publics, whose owners receive and pass on their licenses like medieval lords. As a result, obtaining a notarized signature in Latin America can cost four times more in Mexico City or São Paulo than it costs in New York, not to mention the additional time it takes to get to and from one of only a few dozen notary offices in two of the world’s largest cities. Ancient laws and plenty of corruption keep this archaic system in place but should a brave politician decide to break the notary public oligarchy, disruption will be immediate. In the meantime, more penetrable oligarchies in Latin America are under attack. Netflix and other sources of streaming content are undermining the power, poor content, and overpriced advertising rates of television networks in Latin America — just ask Mexico’s Televisa or Brazil’s Globo. For the same reason, the voice and texting revenues of cellphone operators continue to drop as disruptors like WhatsApp move customers to much cheaper data and Wi-Fi communication rails.


Traffic. Four of the world’s 20 most traffic congested cities are in Latin America, while 13 are in Asia, 2 are in Europe and 1 is in the US. The frustration of time wasted in traffic is an important driver of a variety of new disruptive service models. In Latin America, today’s most successful unicorn is Rappi, the company that brings everything to your door from food to services to cash (from your bank account). Rappi’s most important value proposition is the time you save from avoiding traffic, not to mention the one-stop (Amazon-like) site for purchasing any form of home delivery. So popular is the Rappi brand in multiple LatAm countries that the firm is now expanding into the payments space and many soon become a disruptor in e-commerce fulfillment. Traffic is a big driver of physical e-commerce successes in LatAm like Pão de Açúcar, the Brazilian online supermarket and MercadoLibre, Latin America’s eBay. Traffic is another reason for individual service providers to eschew working (and commuting) for an employer and instead market themselves directly on OLX, Latin America’s answer to Craig’s List.

Labor & process inefficiencies. These are visibly evident when you walk into a Latin American retail store or hotel. Culturally, Latin Americans do appreciate and are even willing to pay for a higher level of human customer service than their American or European counterparts. It is rare to see a Colombian woman carry her own suitcase down to the lobby when checking out. Most Mexican men don’t pump their own gas. But cultural norms are starting to change along with demographics. Latin America is the world’s fastest aging population thanks to rapidly declining fertility rates and net emigration. Labor is gradually growing scarce as the population over 60 years of age triples in size over the next thirty years and is not fully replaced by young workers. Retailers, hotels and other labor-intensive enterprises have been slow to invest in labor saving software and other forms of technology, but e-commerce is forcing retailers to cut costs, the greatest of which is labor. The same goes for hotels who are under attack by Airbnb. Slowing the process of reform for these labor-intensive industries is Latin America’s highly onerous employment laws, many of which were written a century ago. Firing a 15-year employee can cost a year of wages in severance. With constrained access to financing, many companies take a double hit to their limited working capital if they want to simultaneously install new software and lay off staff.

Idle labor. This is common in Latin America, particularly in household services such as cleaning staff, nannies, chauffeurs, gardeners, cooks and security guards. In many Latin American offices, runners are full time employed to deliver documents, make bank deposits, collect coffee orders, etc. In both home and office environments, these low skill providers are usually informally employed, which helps reduce costs. But they are often idle as well – how many hours of the day is the chauffeur or gardener really needed? They often live on the premises, adding uncounted costs to their employment. Their lives can be complicated, resulting in children or parents also living with them. They get sick and employers foot the medical bill. But asking well-heeled older Latin Americans to live without their live-in chauffeur or their live-in cleaning woman is a hard sell. However, it is a different story for millennials. Unlike their parents, they move out of their homes before they are married, usually to a small apartment. Most new upscale apartment constructs in expensive real-estate cities like Sao Paulo, Panama and Santiago de Chile do not have un cuarto de servicio, where the live-in maid would sleep. Millenials prize their independence and don’t want any live-in staff snooping on their private life. What is replacing all this informal and under-utilized labor? Rappi has replaced the delivery staff of thousands of restaurants and some offices, staff who remained idle for hours at a time. Sites like Midulcehogar, operating in Mexico for the outsourcing house cleaning services. Eventually, a site like Spain’s Habitissimo will operate in Latin America, offering outsourced access to number of personal services categories.


Cultural acceptance.  For any service sector to be disrupted, the customer must be willing to change its habits and embrace change. Adults seeking training will gladly shift to an online model to save money and time and access expertise that may only be found far away. The same adult is not likely to take his or her child out of elementary school to attend a purely online education, regardless of cost and time savings or any improvement in his education. Similarly, most Latin American households do not embrace the notion of sending their aging grandmother to an old age home, regardless of the economic logic of doing so.

Next Steps

Naturally, there are obstacles to disruption as well, which we explore in a separate article and invite you to read. Understanding both the drivers and obstacles of disruption helps our clients appreciate how vulnerable they are to competitive disruption as well as offers insights on how to either slow down or accelerate the pace of disruption, be you a company that sees disruption as an opportunity or a threat.

AMI is pleased to be teamed up with IG Motion, a boutique management consultancy that specializes in the digital transformation of its clients. Together, we diagnose the threat/opportunity of disruption, work with our clients to define an appropriate strategy, aid them in their decision making and guide them through the arduous, change management process of delivering on their new strategy.

Contact us to find out more about how we can help you diagnose disruption in your industry and prepare. And if you’re a disruptor looking to expand to LatAm, reach out so you can understand legacy players better, as well as potential roadblocks like legislation, protective practices and more.


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