Deciphering Latin America | EqualOcean Founder Mr. Huang Talks to YQNLink Founder Mr. Zhou

EqualOcean was founded by Mr. Huang Yuanpu in 2018. It is a business information platform and thinks tank that focuses on serving the globalization of Chinese brands and helping overseas markets and institutions grasp China's development opportunities. For customers who have made globalization in China, EqualOcean provides macro-political and economic analysis, overseas market and industry research, brand international makeup photos, overseas resource construction, etc.

EqualOcean has Chinese and English websites, and it is one of the few institutions in China that can write in-depth reports in English. EqualOcean ’s English content is authorized to be published on Bloomberg Terminal, SeekingAlpha, and other platforms.

Mr. Zhou Shihao has more than 20 years of experience in international logistics. He is one of the earliest market pioneers in the field of "digitalization + international logistics" in China. He founded the YQNLink(Chinese:运去哪) platform in 2015. YQNLink is the world's leading one-stop international logistics online service platform, providing enterprises with comprehensive international logistics services including sea freight, air freight, rail freight, multimodal transport, trailers, customs clearance, insurance, overseas warehouses, and destination ports. Since its establishment, YQNLink has received 7 rounds of financing, with a financing amount of more than USD 300 million, and its business territory covers Brazil, Mexico, the United States, Thailand, Vietnam, Singapore, and other 24 countries around the world.

The following is a review of the content of this live broadcast, organized by EqualOcean.

EqualOcean: First, please briefly introduce yourself and the current situation of the company in Latin America.

Zhou Shihao: I am very glad to have the opportunity to share some of our overseas experiences and lessons, especially in Latin America, with all the friends who are going to sea and who have already gone to sea through the platform of EqualOcean. YQNLink is a logistics service platform that grew in China and serves Chinese companies that are about to go to sea or have already gone to the world. Latin America has always been a market that we pay more attention to. We very much hope that through professional digital logistics services, we can help China's manufacturing industry and more overseas brands become world brands in a true sense. Whether by sea or air, the supply chain is a particularly important part of going to sea; it is both an important cost and an important competitive advantage. Where to go is constantly helping Chinese companies go overseas, especially in Latin America. We help companies how to manage their logistics according to digitalization, how to calculate their own logistics costs before going overseas, how to make their products more competitive and suitable for the local market in the process of going overseas, and arrange their supply chains as a whole and effectively. Therefore, in a sense, we are not just a transportation company, but more about helping Chinese brands gain a foothold overseas in terms of commercial value, and then deepening their cultivation. We hope that more companies will learn about Latin America, understand where they are going, and care about their supply chains in the process of going overseas. The supply chain is a very important consideration and a "double-edged sword". It may be a "pit" for overseas companies, or it may be an advantage and added value. This is also some of the value we hope to bring to you in the field of logistics. EqualOcean: Thank you, Mr. Zhou. Mr. Yuanpu has been conducting field research in overseas markets since the end of last year. Please share with us briefly.

Huang Yuanpu: Hello, everyone. EqualOcean has launched a Chinese website since last year and will write about many countries and regions. We have focused on the US, Southeast Asia, and the Middle East before, but frankly speaking, Latin America is a market that we have neglected. I think many people may have been to the United States and Southeast Asia, but not to Latin America. In the past few days, I happened to be doing research in Sao Paulo, Brazil, and this afternoon I will go to Colombia and then Mexico. It is a great honor to meet Mr. Zhou today, a well-known entrepreneur with actual business in Latin America.

EqualOcean: We learned that in addition to Latin America, YQNLink has branches in many other emerging markets, such as Vietnam and Thailand; Mr. Yuanpu has also traveled to many markets around the world in the past two years. So, I would like to ask you what the difference between Latin America and other emerging markets is? If Chinese companies want to go overseas, how should they choose the target abroad market?

Zhou Shihao: When choosing an overseas market, I may personally choose Latin America first. This aspect is determined by the stage of Chinese companies going overseas and the changes in international trade in the world in the past 20 years. The Asian market, especially Thailand and Vietnam, is indeed very different from Latin America. In addition to cultural differences, when Chinese companies go to Thailand and Vietnam, they give more consideration to the transfer of supply chains, that is, to transfer their manufacturing capabilities overseas, such as Thailand and Vietnam. But, 20 or 10 years earlier, more companies went to Latin America because they regarded Latin America as a consumer market. Now, more companies are beginning to see Latin America as a production base for supply chains and manufacturing. Therefore, the difference in the goals of going overseas has led to the essential differences in the companies going overseas in these two countries. The culture of Southeast Asia will be closer to ours, while Latin America has both European and American cultural heritage and its unique local customs, which will lead to differences in the judgment methods of local business behavior, brand selection, and consumer groups, resulting in obvious differences in business development and Asia.

Huang Yuanpu: From the perspective of the development stage, several major countries in Latin America are still slightly higher than the development stage of Southeast Asia. For example, in terms of per capita GDP, apart from Singapore, other countries in Southeast Asia are still in a relatively early stage with a per capita GDP of USD 3 to 5,000, but some Latin American countries such as Brazil may have reached that stage at the end of the last century.

Zhou Shihao: Latin America has experienced much turmoil in history. During World War II, Latin America was a very stable region in the global economy, because it was far away from political and economic conflict areas, like a "Xanadu". So after World War II, Latin America had a very good and stable social and economic foundation. However, since 1973, with the rapid economic development of other regions, Latin America has fallen behind, resulting in currency value and political turmoil, which has a very serious impact on Latin America.

Therefore, when we chose to go overseas and to find opportunities in the entire Latin American market, we conducted data analysis and research on different countries. We found that Chile is a relatively stable region with very small population growth, women are much larger than men, and social class and consumption habits change slowly. However, Mexico is the market that has changed the most. There may still be opportunities to go to Chile in five or even ten years, but the opportunities between not going this year and going to Mexico next year will be much different, so we made a judgment at the time and decided to go to Mexico first. For Brazil and Argentina to do band. Once the country's overall economic situation is not good, social consumption purchases can be reduced at once; but once the currency is stabilized, the pressure on external debt is reduced, and the population base of Argentina and Brazil has led to their strong consumption power. Therefore, when choosing an overseas layout and looking for opportunities, it is necessary to make comprehensive judgments from the aspects of currency, culture, and industrial layout.

EqualOcean: Spanish and Portuguese are the main languages in Latin America, and English may not be commonly used locally. May I ask Mr. Yuanpu, did you encounter any language problems during your local research?

Huang Yuanpu: English popularization in Latin America is worse than I imagined. I had a language problem when I checked into the hotel: I don't speak Portuguese, and the front desk doesn't speak any English at all. Finally, it took an hour to check in with the help of a local passer-by (who had lived in the US before and knew some English). In addition, global software such as Uber taxis and Google Maps can also solve language problems to a certain extent. So to a certain extent, some Internet infrastructure, because it is a product of globalization, can support and greatly help globalization. In addition, when I came to Latin America for the first time, I would have some prior impressions. For example, when we searched for Sao Paulo, Brazil on Shanghai Xiaohongshu Network Technology Co., Ltd.（Chinese：小红书）, there was a lot of content about mobile phones being robbed, which made me feel very unsafe. But after I stayed for a few days, it didn't seem so scary, and the overall impression was relatively friendly. Does Mr. Zhou have a similar experience?

Zhou Shihao: I think it is very difficult for Chinese people to go to sea. In fact, from the moment we step out of the country, and when we stay overseas, no matter whether the (local) environment is dangerous or not, we will instinctively feel some tension. Only when we return home and walk through the Chinese customs with our passports in hand, can we relax. As for safety, I think it is very important to stay within familiar circles as much as possible and respect local etiquette and courtesy. For example, we have our branches, suppliers, and partners in Latin America. When you are in this circle, your life is very safe. I have been to the slums by myself before, and the clothes I wear are completely integrated into the local area. (At this time, you will find that) The local people are very friendly. As for the language issue, in the entire Latin American country, when talking about business, the penetration rate of English is quite high. People who can speak English in these places are generally people who do foreign trade and have travel and overseas study experience. No matter which overseas market we are dealing with, if we integrate with an open mind and follow certain rules, we can boldly and confidently open ourselves up and integrate into the local market.

EqualOcean: Mr. Zhou, did you encounter any cultural collisions when you formed a local team in Latin America, or did you need to adjust between the teams?

Zhou Shihao: Let me give you a small example. In Brazil, it is inappropriate to ask a local employee why he didn’t come yesterday, or what he did after he asked for leave yesterday. This is something that is common in China and may be offensive to locals. Of course, after the explanation, he will understand that I just care about him, and care about the staff in a friendly way. Therefore, communication between colleagues (multinational teams) should pay attention to details and communicate in a way that respects others.

Another interesting example is that many companies in Brazil have a 40-hour working day, so on Thursday night you will find that many local employees have already started drinking to celebrate the arrival of Friday. They don't have such a great sense of insecurity in life, especially in Brazil and Argentina, where the locals/employees are full of happiness in pursuit of the individual. So, when our Chinese overseas companies go to Latin America, how can we respectfully promote business? I think the first thing is to keep sharing, starting from the goals or things we hope to achieve in Latin America, to establish connections with local employees, and to make them interested in what we (Chinese companies going overseas) want to do. Secondly, entrepreneurs who go overseas may need to talk less about their feelings with local employees. When a Chinese leader who can speak English is sent to Latin America to communicate with a Latin American leader who can speak English, he will face several layers of attenuation of his native language. Chinese-output English-receive English-Spanish/Portuguese. In such a communication process, only 20%-30% of the information may be fully retained and understood. Therefore, entrepreneurs who go overseas should give concrete goals to local employees, pay more attention to practical and specific things rather than feelings, and maintain an attitude of awe and respect, so that it is possible to break the "wall" of information sharing.

EqualOcean: We learned that Brazil's tax system is very complicated, with high tax rates, various types of taxes, and heavy tax-related penalties. Can you share some more experience about the pitfalls that Chinese companies will encounter when going to Latin America?

Zhou Shihao: Let me summarize the common situation. First, regardless of Brazil, Chile, or Mexico, when we did the preliminary research, we believed that some money really cannot be saved, and the first is the local service providers. Don’t think that you will be very clear when you ask a few local people when you go to sea. Considering many local things such as different categories, different logistics customs clearance, value-added tax deductions, investment details, environmental protection policies, etc., you must combine the results given by the local consulting team with Chinese-funded enterprises that have gone to Latin America and local partners that have reached cooperation in the local area to find out the answer.

Second, choosing the right partner is very important and risky. When some Chinese manufacturing companies go overseas, they will choose to let agents distribute them in the early stage. However, in some Latin American countries, the law prohibits casual dismissal of agents. Therefore, once an agent fails to meet the agreed distribution volume, and cannot provide sufficient evidence, it is impossible or difficult for the company to dismiss the agent. Therefore, when selecting a local agent, it is necessary to have a very clear understanding of its actual situation and capabilities and maintain a cautious attitude.

Third, when cooperating with agents, we must consider the distribution of benefits. When some good agents in Latin America prove their dominant position, they will clarify their status as a member of parliament (state or national congressman). This is a bonus item, but it cannot be used as the only standard or basis for cooperation. We have a saying that "Don't take money in easily, the best way to divide the benefits", we must design our funds and profit returns, and comprehensively consider the conversion between currencies. So, the entire taxation, labor, and labor costs in Latin America, as well as the construction of the agency network, are relatively new to overseas companies. As a result, when some overseas companies choose agents to land in Latin America, they would rather choose to cooperate with European companies first and let them use the original agency channels for distribution in Latin America, instead of entering Latin America rashly and starting from zero. Some countries in Europe, especially Spain and Portugal (in Latin America), have more advantages. They can let them do some test marketing in the market first. After the strategy is determined, the overseas companies will go to Latin America to implement it. YQNLink is deeply involved in the Latin American market, and can also help you find a partner that is more suitable for you, and share some experience in taxation and other solutions. Of course, the more important thing is that entrepreneurs need to understand the situation on the ground.

EqualOcean: Next, I would like to ask Mr. Yuan Pu, did you shop online during your stay in Latin America? Have you experienced the development of local e-commerce in Latin America?

Huang Yuanpu: I change hotels almost every day, and I don’t do online shopping, but I use the local food delivery platform, which takes about an hour. A local friend in Latin America told me that logistics, e-commerce, and food delivery in Latin America have improved very fast compared to before the epidemic, but they have not yet reached the same level of speed and low cost as China. The data also shows that the logistics cost of Brazil as a whole is much higher than that of China.

As for the e-commerce environment, I feel that Brazil is still dominated by offline, and online accounts for about 10%, which is far behind China's 30% to 40%. In addition, many local e-commerce platforms in Brazil were originally based on the O2O (Online To Offline) model. Several large local e-commerce platforms have their retail terminals offline, and some e-commerce platforms have developed from offline to online.

When China's e-commerce was developing in the late 1990s, offline retailers such as Suning Holdings Group Co., Ltd.（Chinese：苏宁） and GOME Retail Holdings Ltd（Chinese：国美） did not develop for a long time. China's online and offline sales were very fast, and offline sales could hardly survive. On the other hand, in Latin American countries, the offline foundation in Latin America has been developing well since World War II, and the online development process is later than offline, so I feel that Latin America will not have as many e-commerce opportunities as Southeast Asia.

Zhou Shihao: YQNLink has launched cross-border e-commerce transshipment services and one-click delivery services in Mexico. We have also been observing e-commerce in Latin America. In 2020, the local e-commerce giant in Latin America, Mercado Libre, Inc. accounted for 50% of the e-commerce traffic in Latin America. However, Shopee has grown rapidly since entering the Brazilian market in 2019. In 2021, among the shopping apps in Brazil, Shopee ranked first in terms of total downloads and total time spent by users, surpassing e-commerce giants Amazon and Mercado Libre, Inc. We were also very surprised at the time. The reasons behind this are various: first, the infrastructure of e-commerce in Latin America is weaker than that of the United States, let alone China. Second, the growth rate of local e-commerce in Latin America is slow and lacks high growth. In 2020, Mercado Libre, Inc.’s GMV occupies 20% of the e-commerce market share in Latin America, which is almost the sum of the e-commerce GMV of the remaining six local companies. Its annualized growth rate is around 50%, which is not so amazing, and the activity of independent stations in the Latin American market is even worse. Third, when the investment in infrastructure is insufficient, we often find that (sea products ) have arrived in full containers, and the front warehouses have been transported to Brazil and Mexico. However, the distribution after that is very difficult. The uncertainty of customs clearance or the compliance challenges of customs clearance makes it difficult to stand alone in Latin America.

Of course, we can still see obvious growth rates in Latin America, so I suggest that overseas companies can first test the waters on local platforms that already have a certain amount of traffic, first find out whether the selection and supply are in line with the local culture, and whether they have formed some understanding of the purchasing behavior and habits of local consumers.

I don't think we should do the Latin American market separately from the US and European markets. When a brand or product category has established a certain degree of consumer awareness in the United States and Europe, it will be very advantageous to expand the Latin American market at this time. Many of our customers will first build their product market maturity and consumer awareness from the Spanish-speaking region, Portuguese-speaking region in Europe, or the United States, and then adjust from the popular categories according to the local consumption power in Latin America. Latin American (consumers) are more eager for brands than Europe and the United States, but their spending power and sensitivity to product quality and price are a level behind. Therefore, companies going overseas need to find a balance between the two, so that it is possible to create (relatively speaking) popular products in Latin America.

Huang Yuanpu: I will supplement the general speech next week. After coming to Latin America, I visited many offline shopping malls, but I hardly saw any Chinese brands. As Mr. Zhou said, the Latin American market is dominated by European and American brands, and Japanese and Korean brands also have a certain share; South Korea’s Samsung Electronics Co., Ltd. and LG Corporation are doing well, and Japan began to immigrate to Latin America before World War II, so Japanese brands have a place in the local area. Chinese brands still face many challenges to enter Latin America. I have observed that the price of Xiaomi Corporation（Chinese：小米） in Latin America is three times that of China, and the price of Apple mobile phones in Latin America is 1.5 times that of the United States. This shows that the polarization of consumption in Latin America is very serious, and the Gini coefficient is relatively large, which means that some people must have money, but most people do not have money. Therefore, it is necessary to think carefully about what kind of products or brands to use to enter Latin America. Shopee does have a market in Latin America, but it is hard to say what kind of brand is an independent station.

Zhou Shihao: Indeed, the risks in the early stage are quite high. We will see that manufacturing is more active in Latin America than going overseas. I think going out to sea is actually like Columbus discovering the New World. It is to find the right path in uncertainty, and risks and opportunities coexist.

EqualOcean: Do Latin American consumers have their preferences or characteristics when it comes to choosing product categories?

Zhou Shihao: Among the customers shipped to where the proportion of terminal consumer goods is not large, and more of them are cars or large items (products and partners). I can only talk about some indirect feelings. We have observed that the share of Chinese brands in the entire Latin American market is very small, so I think the risks may far outweigh the benefits. At present, Chinese companies going overseas should use their manufacturing capabilities to cooperate with existing local brands. Secondary development and subdivision of consumption details are not what Chinese brands are very good at in the Latin American market in the short term; differentiated marketing is not particularly suitable for Chinese brands in Latin America.

Huang Yuanpu: The Engel coefficient is relatively high in Latin America. A friend from Sao Paulo shared that living in Latin America, accommodation expenses account for about one-third of income, and food expenses and transportation expenses account for a large proportion. The remaining money is not enough for additional brand consumption. The social structure here is very stable. There are a group of big families who came from manors with high consumption levels, and their descendants will choose to go to the United States and Europe when they study more. There is a middle class, but the proportion may not be that large (including Japanese descent, etc.), and the huge group is ordinary people with lower income levels. So which group does the overseas brand meet? This is a question that needs to be considered in advance.

Zhou Shihao: Yes, I think that in Latin America, overseas companies may first put the needs that the products can meet first, that is, the cost performance itself. As for the meaning behind the brand, brand differentiation and added value should be placed in the second place. This may be more in line with the practice of the Latin American market and a problem that companies going overseas need to be aware of.

EqualOcean: Finally, please share your outlook for the future of the Latin American market or companies that are interested in the Latin American market and want to test the waters. What suggestions do you have?

Zhou Shihao: First of all, I want to emphasize Mexico. At present, the big challenge we are facing is that international trade has changed from the original global trade to "friendly trade and near trade". How to truly turn the supply chain into a circle that can connect with global friendly trade and near trade is very important, and Mexico is a hub and cultural zone that naturally connects North and South America. Regardless of whether Mexico is regarded as a small microcosm of the Latin American market or as a front-end market for Chinese manufacturing to enter Latin America, Mexico is an irreplaceable opportunity for the entire Americas.

Of course, there are also opportunities in Chile, Brazil, and Argentina. China's going overseas is to transform the original simple trade into a more complex and dynamic trade chain. China's going overseas is also an opportunity for global brands to enter China. From a business point of view, Latin America is closer to Europe and the United States. It is still necessary to treat the European and American markets and Latin America as a whole, rather than throwing everything at one basket. Frankly speaking, the Latin American market is not a single market in a simple sense, it is still an incremental part of the overall market or a more important part.

In addition, in terms of manufacturing capacity, we also need to comprehensively consider the consumption capacity of the (sea destination) and its re-export consumption capacity for layout and make some calculations. YQNLink is committed to integrating its own digital logistics service capabilities, our ability to support local teams, and a series of calculations before going overseas into the service. We believe that only by doing the above things better can we bring more customers and support more enterprises to go overseas. In the future, we hope that YQNLink can become the preferred provider of international digital logistics services for Chinese brands going overseas, and help Chinese companies going overseas go further.

Huang Yuanpu: This is my first visit to Latin America. My feeling is that although there are great opportunities in Latin America, China's sense of presence is still a bit weak. Of course, Latin America is the back garden of the United States, and it will have a certain impact on international relations, but not much. When Chinese companies go overseas to Latin America, the first step should be to visit Brazil, Mexico, Argentina, and Colombia. Chinese companies such as Gree Electric Appliances Inc. of Zhuhai（Chinese：格力） have done well in Brazil, but they have been deployed for nearly 20 years. Therefore, Latin American companies may need to spend a long time thinking and planning for overseas companies, instead of achieving outstanding results immediately. The development of Latin America is zigzag forward, ups and downs; Brazil is like this, after hosting the World Cup and Olympic Games, it will go down in the next few years. If you want to be a brand in Latin America, companies may need to be able to span the cycle, and the 10-year or 20-year goals can do something. This is the difference between Latin America and Southeast Asia. Southeast Asia is quick to make a wave of money, and it is relatively easy to advance and retreat, but the threshold in Latin America will be higher, and it is better to set a longer-term goal from the beginning.

In addition, in terms of food, there are not many Chinese restaurants in Latin America, which shows that there are still relatively few Chinese companies or people coming to Latin America. So I especially agree with what Mr. Zhou just said, we should talk more about Latin America so that everyone can understand and plant the seeds after we come here. Not to mention the comparison with European and American companies, there are quite a few brands in South Korea and Japan that are already well-known in the local area, and it is still very likely that Chinese companies will achieve a similar level. The Latin American market has a large room for growth, and the returns are still considerable, so this business can be done. In addition, I also want to ask Mr. Zhou, which categories do you think are more likely to open up the market in Latin America?

Zhou Shihao: Looking at Brazil alone, it is indeed a barren land for consumer goods. Brazil puts a lot of emphasis on leisure and culture, but the culture of industrial workers is not sufficient. Its biggest cost advantage is its unique natural resources, whether it is metal deposits or agriculture. Therefore, most of the Chinese-funded enterprises that I have learned that have done well in the local area have taken advantage of Brazil's local natural resources, such as the decomposition and processing of meat, the decomposition and refining of soybean protein, etc. At the same time, these enterprises may not simply focus on Brazil. Among the tens of thousands of customers with global distribution, there are indeed not many terminal consumption layouts that do manufacturing in Latin America.

When it comes to industrial semi-finished products, such as tires and some production equipment, Brazil may still have some potential as a link in the global supply chain of the top 500 multinational companies. Textiles accounted for a large proportion of Brazil's past commodities from China, but whether the industry needs to be front-loaded and whether it is substitutable is still full of uncertainties. Brazilian consumers are relatively sensitive to the cost of textiles and related fields, and local traders are more important in trade. In the transfer of manufacturing industry, I will see Mexico more as the first stop for exporting to Latin America. It will be more practical to use Brazil as a distribution extension of Mexican capabilities or European and American capabilities.

EqualOcean will soon publish an analysis report for the Latin American market, so if any of you would like to participate in our interviews and communications, or would like to participate in our livestream, please feel free to contact us. WeChat：xyrnina，Email：nina@equalocean.com