In Eco-political analysis, General Interest

Note: This article was co-authored with Jerry Haar, a professor in the College of Business at Florida International University who has studied Latin America for decades. 

The election of a right-wing populist as president of Brazil and a left-wing one in Mexico, trade conflicts, massive Venezuelan emigration, drug violence, changing demographics and the invasion of new app-driven business models are disrupting Latin America. As chaotic as some of these changes appear, disruption also delivers health and scientific breakthroughs, a reduction of under-employment, greater citizen engagement and wealth creation.

The most sweeping impacts of Latin American disruption have clearly been in business. Take transportation. Uber began operating in Mexico’s capital in 2013 with 20 drivers. At the start of 2019, close to 500,000 drivers and 12 million customers use Uber each month —15% of adult Mexicans. The success of Uber in Mexico and across Latin America’s largest markets is not an aberration. Today, Latin America is the world’s fastest-growing region for other disruptive business models like Airbnb, Coursera and Netflix.

The Two Ripest Areas for Disruption in Latin America

The first is television. Currently, Televisa and TV Azteca in Mexico and Globo in Brazil dominate traditional TV, limiting programming options. Little wonder that Netflix thrives in both countries. In 2017, Mexicans watched more Netflix content per user than any other of Netflix’s 190 worldwide markets. In fact, 5 out of the top 10 Netflix binge watching countries in the world are found in Latin America: Peru (3rd), Chile (5th), Brazil (6th), and Argentina (7th).

Another area with disruption potential is education. Public education in Latin America, which receives more funding (as a percentage of GDP) than most Asian countries, consistently produces lackluster results, with students scoring well below their global peers on international PISA and other tests. The region has proven a promising market for online educators. Coursera, the world’s largest player in the Massive Open Online Course (MOOC) market reported in 2017 that their enrollment grew faster from LatAm countries than any region around the world. Online education firms such as Miríada X and Telefónica from Spain, Kroton from Brazil and Open English and Pearson are some of the disruptive leaders in the educational space at all levels of learning.

Latin America’s Disruption Drivers

Disruption succeeds by exploiting Latin America’s economic weaknesses. Statistically low unemployment in Latin America belies the 20-30 percent under-employment of the workforce. Rigid and costly labor laws force up to 50 percent of employers to operate informally, denying their staff legislated benefits. Unsurprisingly, gig-economy business models that offer flexible employment are met with enthusiasm. Long before Uber, multi-level marketing firms like Avon, Amway and Herbalife achieved massive success in Latin America by empowering the most under-employed demographic: women.

Disruption will deliver a new level of competitiveness and transparency to Latin American economies as it upends retailing, logistics, tourism, healthcare and the car rental industry, among others. For example, taxi drivers who infamously evaded income tax in the past are now replaced by tax-compliant Uber drivers, to the delight of honest technocrats working in government. For decades, Latin American governments failed to modernize and formalize large portions of their service economies. Now, cell phone apps and bold entrepreneurs will get the job done.

The Downside of Disruption

Of course, these changes won’t all be positive. Replacing thousands of cab companies with Uber and a few copycats may create new employment for under-utilized drivers but also destroys a middle-income merchant class of cab company owners. Software-driven disruptive service models can polarize income levels by bankrupting inefficient small business owners. If Latin America’s impressive adoption of disruptive business models continues unchecked, hundreds of thousands of small companies will close, replaced by (often foreign owned) new business models. That is bound to have political repercussions in a region with few resources or experience for retraining its workforce. Just as globalization and automation led to politically explosive layoffs in North America and Europe, some anticipate an equally polemic reaction to service sector disruption coming next to emerging markets, starting with Latin America.

The 2019 outlook worldwide is one of volatility and disruption—both positive and negative. The impacts transcend the macro level and directly affect the business sector. In Latin America, the countries, sectors and companies that embrace change will thrive. Those that choose to ignore or fight the forces of disruption will wind up falling behind.

John Price is the managing director of Americas Market Intelligence. Jerry Haar is a professor in the College of Business at Florida International University as well as a Global Fellow of the Woodrow Wilson Center in Washington, D.C. They are the co-authors of Can Latin America Compete?

Keep up to date with our insights

Recommended Posts