In Latin America today, the status quo is under attack and the weaponry of change is technology. From corrupt politicians caught blindsided by damning recordings published on social media to a taxi industry up-ended by Uber, to a media industry undermined by Netflix, mobile-enabled technology delivers unprecedented levels of transparency and efficiency to Latin American society and industry.
Technology adoption and globalization are well-documented in advanced economies and are largely blamed for the reactionary political storm that elected Trump and provoked Brexit. If the world’s most competitive economy (USA) is rattled by the latest wave of technology, how will middle-income, inefficient economies like Latin America cope?
An Appetite for Adoption
Latin America’s leading markets have a proven appetite for technology adoption. Brazil (#2), Mexico (#6), and Argentina (#8) are among the highest-ranked markets worldwide for total hours per week spent on the internet, much of it on mobile devices. Latin American connectivity is the ultimate trade barrier buster, enabling innovation developed abroad to be imported instantly. Virtual products like media content is rolled out globally as quickly as it is translated, bypassing the television and movie industry’s oligarchical structures. Brazilian electronics consumers—who traditionally pay three times the retail price found in the U.S. or Asia—can now buy their next laptop or cellphone directly from a Chinese manufacturer. Even after paying import tariffs, the direct e-commerce link to Chinese suppliers—combined with logistics and payments plug-in solutions—enable Brazilians to save 30-40% vis-à-vis Brazilian electronics retailers.
How Economic Inefficiency Drives LatAm E-Commerce
E-commerce only commands about 2% of total LatAm retail for a whole host of reasons, but new solutions, often locally developed in LatAm, are improving e-commerce efficiency, access and security. As a result, e-commerce as a whole in LatAm is growing at 20+% per year with virtual products and services that suffer no logistics hurdles, are growing at over 100% per year (Uber grew tenfold in ride volume across LAC from 2015 to 2016). Brick and mortar retail space per capita in LatAm is about 15% of US levels. Outside of the region’s top 10 cities, traditional retail options are limited. Fragmenting consumer tastes in Latin America will increasingly be met through e-commerce.Latin America is considered a low-trust society where commerce is normally conducted between well-known parties. For that reason, many analysts are surprised by the enormous initial success of block-chain enabled e-marketplaces. In Mexico City, chilangos and visiting foreigners became very skeptical of the common taxi, the vehicle of countless robberies and kidnappings. And yet today, Mexico City is Uber’s busiest market in the world, revealing the allure of an e-marketplace which delivers transparency and traceability between buyer and seller. In addition, Latin America is Airbnb’s fastest-growing market region. As such, the hotel, taxi and car rental industries in Latin America are all under threat—and maybe even travel insurance.
The transformative power of e-marketplaces like MercadoLibre and Linio in a low-trust, inefficient economy like Latin America is rather mind-boggling when one considers its potential. Traditional, formalized sectors in Latin America are plagued with heavy tax burdens as profit-seeking businesses and as employers. Excessive regulations drive many businesses underground while others either absorb the cost, pay bribes to evade regulations or a bit of both. Ultimately, those costs are passed onto the consumer. Some sectors are still monopolized by government or suffer from limited competition, enabling price gouging. As result, Latin America ends up offering a perfect environment for online marketplaces.
This opportunity ends up playing out in a number of ways. For example, in Brazil, CargoX provides an Uber-like solution to trucking, linking single truck owners with cargo customers. In Mexico, a promising e-business that was started in a housewife’s kitchen now provides catering services to thousands of customers each day direct from the kitchens of underemployed amas de casas. It won’t be long until underpaid lawyers, accountants, designers and other professional service providers start stealing customers from their employers by affiliating themselves with marketplaces that specialize in their field…if they can overcome the challenge of payment acceptance, which still limits the reach of e-marketplaces seeking a mass market.
6 Key Areas of Tech Disruption in Latin America
In a recent conference in Miami, Dr. Magdalena Ramada of Willis Towers Watson, one of Latin America’s leading technologists, identified six segments of this technology revolution sweeping both the region—and the world:
- Gig economy: Self-executed smart contracts and full transparency enable perfect strangers to engage in commerce with one another, a powerful solution in a low-trust environment like LatAm. E-marketplaces facilitate the sale of contracted services from individual to individual such as transportation, hospitality, child care, pet care, handy man services, delivery services, etc.
- Sharing economy: P2P lending of under-utilized assets (think Airbnb) has the power to transform the real-estate industry and tourism. But outside of real-estate and car ownership, Latin America has far fewer underutilized assets versus wealthier economies so the disruption will be less profound but the demand growth of large ticket consumer items may be slowed – e.g. car ownership.
- Social media & network economics: This already taken LatAm by storm. The stifling lack of traditional media choice drove Latin Americans to embrace social media. Mobile phones provided the vehicle. The ubiquitous nature of social media will prove a profitable distribution platform for digital content.
- The internet of things: How many millions of Latin Americans are employed to guard entrances, turn machines on and off, and otherwise conduct menial tasks that can soon be replaced by the internet of things? The employment disruption potential of this technology wave is daunting.
- Next-gen big data and analytics: the ability to customize a product’s offering to the individual fulfils an inherent craving that all consumers possess. It also promises to disrupt the entire marketing, promotion and retail industry that has relied upon a mass market of collective appeal.
- Artificial intelligence: we are at the cusp of commercially viable AI. Repetitive mid-level professional services are doomed. Why hire a law firm to draft a contract when AI software can adapt a template to my needs? Why hire an accountant to do my taxes?
The Impact of Technology on the Social and Political Landscape in Latin America
Commercially viable technology is initially adopted in pursuit of profit but its repercussions are wide ranging. The consumer-driven tech revolution today in Latin America coincides with two additional societal changes: the shrinking size of family households and declining influence of the church. Marrying at an older age than their parents, young adults are moving out of their parents’ house before tying the knot with anyone. Retirees are eschewing the old social contract of becoming a live-in babysitter to the grand-kids in exchange for free room and board. Enriched by privately operated pension systems, today’s elderly are choosing to get their own apartment. Access to connectivity and the many options it provides only further empowers choice among young Latin Americans. Together, these trends have replaced family collectivism with individualism. Viewed largely in a positive emancipatory light, individualism also brings with it some negative social impact. As wired as Latin American millennials are, they are also the most historically disconnected generation from tradition and from one another. The identity crisis this generates is not unique to Latin America but the concept enjoys little study in Latin America—we have only begun to grasp with its implications.Latin America’s political class has proven to be unprepared for the social media + mobile revolution that adds unprecedented transparency to their lives. Temer, Morales, Maduro, and Peña Nieto are but a few who themselves and/or their cabinet members have been caught unawares of recording cellphones in their midst during compromising conversations. Worse still, their initial reaction was to deny culpability, further decimating what little trust remained of them. Social media will continue to change politics in Latin America, seemingly for the better.
Beyond escaping embarrassment, Latin America’s political class will soon face larger tech-driven challenges to their popularity. The employment disruption of modernization felt in efficient economies like the US or northern Europe will pale when compared to the millions of Latin Americans who will lose their jobs to innovation over the next decade. With the exception of perhaps Chile, Latin America lacks education systems that are both agile and accessible to mature students who require financing and scheduling flexibility from educators. If workers cannot be retrained for viable jobs, they will derail Latin America’s modernization path by voting for reactionary political leaders.
The recent political and economic tumult felt in Latin America is only just the beginning of what promises to be an equally exciting and challenging decade ahead. The region’s weaknesses will be further exposed by the competitive strains of innovation. Countries that are prepared to embrace change will prosper while those who resist it will suffer a political and economic backlash. In every market, the demand for innovation will continue to be largely supplied from abroad, marking Latin America as one of the most attractive technology markets in the world for the decade ahead.
En fin: Abroche el cinturón de seguridad.
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