Latin America: Opportunities and Challenges under the Blue Ocean Market

The e-commerce market in Latin America is expected to become one of the fastest-growing and most promising markets in the world. According to eMarketer's data forecast, among the top 10 countries with the fastest e-commerce growth in 2022, Brazil, Argentina, and Mexico from Latin America accounted for 3 seats. The e-commerce growth rate in Latin America in 2022 was 20.6%, ranking second in the world, second only to the Southeast Asian region.

Furthermore, Latin America still benefits from a demographic dividend. As of the end of 2022, the total population of Latin America was approximately 658 million. Its natural population growth rate is on par with that of some Southeast Asian countries, making it one of the regions with rapid population growth. The average age of the population in ten Latin American countries is 30.43 years, with the proportion of the population aged 15-65 accounting for about 65%, indicating a youthful population structure. The younger generation is more likely to bring vitality to the market and is the driving force behind the internet economy and consumption.

Overall, compared to other emerging markets such as Southeast Asia, the Middle East, and North Africa, the key characteristics of the Latin American market are a "large market size, sound foundation, and limited competition."

So how did this blue ocean market emerge? What changes are happening in the e-commerce landscape in Latin America? What are the characteristics of consumers? What experiences do Chinese outbound companies need for localization in Latin America? In this issue, EqualOcean is delighted to talk with the Chairman Zhu and Vice Chairman Li of the Latin America Association to share their insights into the Latin American market.

EqualOcean: First, please give us a brief introduction to the Latin America Association.

Latin America Association: The Latin America Association was established less than two years ago based on the development trend of global cross-border e-commerce, taking into account the current domestic situationChinese market and the mainstream cross-border e-commerce markets such as Europe, the United States, and Southeast Asia. In the context of increasing internal competition within the current market, the Latin America Association has emerged.

The main service areas of the Latin America Association include four aspects:

Helping the government establish a communication bridge between with enterprises. and the government.

Assisting third-party platforms including JD, Amazon, and Moderna in establishing an ecosystem service system in China and providing correct guidance and cultivation of the market.

Providing professional consultation and guidance for seller groups.

Assisting Chinese brands in going global.

The Latin America Association and the high-quality service ecosystem enterprises around it work together to help Chinese brands enter various Latin American markets. In addition to providing services for the areas mentioned above, the Latin America Association focuses more on gathering high-quality resources to help domestic high-quality products succeed overseas.

The positioning of the Latin America Association is to facilitate Chinese brands' entry into Latin America and create an ecosystem of empowerment. The Latin America Association consists of two systems: first, it has the background and endorsement of the government and business associations. The Latin America Association is a subcommittee under the Professional Committee for Latin America. Second, the Latin America Association is an industry ecosystem organization with its operational entities, which can fully integrate industry-related ecosystem resources to better support going abroad.

In comparison to other emerging markets, what are the unique characteristics of Latin America? How should Chinese enterprises make decisions when selecting destinations?How should Chinese outbound companies decide on their destination when expanding into Latin America?

Latin America Association: Each market has its advantages and disadvantages, but Latin America is preferred. Compared to the Southeast Asian market, Latin America offers greater opportunities. The Middle East is an exceptiondifferent, with the term "Middle East" mainly referring to the six Gulf countries, including Saudi Arabia, the UAE, Qatar, Kuwait, Oman, and Bahrain. The concept of the Middle East extends to North Africa, Egypt, and other countries. If we focus solely on the six Gulf countries, the population in the Middle East is around 50 to 60 million, while Latin America has a population of 650 million. The scale is different, so they cannot be compared.

Latin America and Southeast Asia have similarities in terms of China's positive foreign trade trend towards these regions. Moreover, the market size and e-commerce development are comparable between the two.

When we talk about the Middle East e-commerce market, we mainly refer to the six Gulf countries, with Saudi Arabia accounting for half of it and the others having relatively smaller shares. Half of the Middle East's population comes from foreign workers, leading to a polarization of consumption in the region. Local people in the Middle East are considered to be the middle class or above, and they have higher purchasing power. The foreign workers in the Middle East are mainly from India and Pakistan and have lower purchasing power, focusing on value for money.

Compared to Latin America, the Middle East market is not as large.

Firstly,half of the consumption in the Middle East is mainly concentrated in Saudi Arabia, but most Saudi products require local certification. These certificates usually have a validity period of only one year and are not universally applicable. Secondly, the certification process takes several months. Therefore, it is more suitable for sellers focusing on a single market, as the return cycle is longer. Additionally, the Middle East is a Muslim region, which has various religious considerations. Finally, the market size in the Middle East is relatively small, and it is difficult for sellers to achieve sales of over CNY 100 million.

We can also recognize the fundamental differences between Latin America and other emerging markets from the following perspectives. Firstly, geographically, Southeast Asia and the Middle East are closer to China and driven by China's long-standing political, diplomatic, and traditional trade relations. They have a greater demand for China's supply chain. Most of their supply chains are from China, especially in recent years when many Chinese factories have moved to Southeast Asia, establishing stable low-end and mid-range supply chains there. Whereas, the Latin American market has not been as deeply influenced by Chinese supply chains and brands as Southeast Asia.

Considering the above, the Latin American market is a preferred emerging market for expansion. Currently, Latin America and Southeast Asia are both moving towards live-streaming e-commerce, such as the development of  Kawaii in Brazil and the promotion of TikTok in the Latin American region.

EqualOcean： The complexity of the Latin American region, consisting of over 30 countries, is no less than that of Southeast Asia. What would be the first step for Chinese companies to enter the Latin American market? Which country would be a better starting point? (e.g., Brazil/Mexico/Chile/Colombia/Argentina)

Latin America Summit: Each market has uniqueness, and it isn't easy to provide precise recommendations. Specific analysis based on the circumstances is necessary. Assuming insufficient brand influence and a lack of internal attention within the group, Mexico is recommended as the first choice. However, this recommendation needs further discussion.

Firstly, it depends on whether the enterprise is a trading or integrated production and trade company. The difference is that trading companies have a wide variety of supply chain categories, but factories have a few. Based on different third-party platforms, the desired brand premium of products, short-term profits or long-term brand establishment, ultimately leading to the selection of different countries in the Latin American market.

Currently, only a few relatively mature countries in Latin America can engage in cross-border e-commerce, including Mexico, Brazil, Chile, Colombia, Peru, and Argentina. Other countries are not recommended within the next three years. Let's focus on the characteristics of the mentioned markets. Argentina faces issues such as inflation and exchange rates, so it is not advisable, though it may present a good market opportunity in the future. Mexico has a relatively well-established logistics infrastructure, allowing normal entry into overseas warehouse platforms for sales. With a strong foundation of E-commerce development and Chinese sellers are mainly focused on OCK (Other Cross-border Platforms). Brazil faces issues such as customs clearance and compliance, which have resulted in many sellers only being able to enter the market through direct mail with a $50 limit. However, from a different perspective, it is currently the largest market in terms of globalization. Smaller countries can target niche markets, and small-scale sellers could achieve higher average order values, better profit margins, and face less competition. Although the volume is relatively small, averaging around millions of dollars annually, it still performs impressively compared to other markets.

EqualOcean: Which market should short-term profit-oriented and long-term brand-oriented businesses choose?

Latin America: Short-term players can consider both markets. The first market recommendation is Mexico. Mexico is currently a headquarters hub with smooth logistics and payment processes, allowing for multiple sales with a single shipment, greatly reducing risks. Brazil is another option, but it is recommended to start with small packages to avoid high customs taxes. Although there are cases of under-declaration and double clearance taxes in Mexico and Brazil, it is crucial to maintain a low declaration basis. Once it exceeds a certain threshold, there is a risk of inspection, which can result in high fines. If any problems arise, the sellers and shippers are the ones affected.

EqualOcean: How is the e-commerce environment in Latin America? Besides the shift towards live streaming, what other features are there?

Latin America: There are primarily two types of e-commerce platforms. The first type is third-party platforms, and the second is self-built or independent websites. In Southeast Asia, they are following the model previously used in China, using Chinese supply chains and warehouses stocked with supplies. They then engage local university students and internet celebrities to conduct live sales through platforms like TikTok.

Companies like Kuaishou, TikTok, and major domestic and international companies like Facebook are also making relevant arrangements. If these companies increase their investments and user downloads in this market, they will definitely move towards live streaming and sales. Latin America is already moving in this direction. However, in countries like Brazil, substantial inventory shipments may face high tariffs and costs.

EqualOcean: Are there any other characteristics of local consumers in Latin America? Which product categories are popular?

Latin America: Many countries in Latin America were former colonies, so they have retained certain colonial-era mindsets and industry forms. However, Mexico is different. Being close to the United States, Mexico shares similar consumption standards as the US and is often referred to as its "backyard." Currently, the shopping trends in Latin America, whether in terms of product categories, prices, or cost-effectiveness, revolve around products that can improve people's quality of life, quality, and lifestyle. As income gradually increases, people's expectations also rise.

Latin American consumption characteristics have several notable features. First, the per capita GDP in Latin America is close to $8,000, while Southeast Asia's is less than $4,000. Latin American consumption is higher than in Southeast Asia but lower than in Europe and the United States. Therefore, Latin American consumers tend to pursue both cost-effectiveness and quality.

Second, compared to Southeast Asia, Latin American consumers have a stronger desire for consumption and a lower savings consciousness. The light industry in Latin America is relatively underdeveloped. As a result, small products that improve the quality of life are preferred. Latin American consumption characteristics have several notable features. First, the per capita GDP in Latin America is close to $8,000, while Southeast Asia's is less than $4,000. Latin American consumption is higher than in Southeast Asia but lower than in Europe and the United States. Therefore, Latin American consumers tend to pursue both cost-effectiveness and quality.

Second, compared to Southeast Asia, Latin American consumers have a stronger desire for consumption and a lower savings consciousness. The light industry in Latin America is relatively underdeveloped. As a result, small products that improve the quality of life are preferred. Currently, clothing, 3C, home furnishings, kitchenware, and small appliances have the highest proportion of purchases on all platforms, and platform hosts also tend to focus on promoting these products. There may be differences in product categories among different countries. For example, in Colombia, there is a promotion of fitness activities, so the proportion of fitness equipment consumed locally would be relatively higher.

EqualOcean: How do local people perceive Chinese brands?

Latin America Summit: Accepting foreign brands in the local market requires a process. Most locals use mobile phones and appliances from Japanese and Korean brands, as they have dominated the industry for decades. Only in recent years have Chinese brands started to pay attention to and invest in the Latin American market. There are two types of Chinese brands: offline brands and internet brands. The locals have limited knowledge about Chinese offline brands.Additionally, if traditional trade brands want to enter overseas markets, various factors are involved, such as political issues, local protection, and economic cooperation. This can result in challenges for Chinese products when going global. However, internet brands such as Xiaomi and Huawei have gained some market share in the region.

EqualOcean: What experience do Chinese companies going overseas need for localization?

Two Models will coexist in the Future. Chinese brands going global often rely on the Internet to create brand awareness in the early stages. For example, Amazon and Mercado have a large audience in the Latin American region. Many Chinese brands have become internet-based brands, like Anker.

First, brand awareness is critical in the initial stages of product design. Second, companies can establish subsidiaries in countries such as Europe and the United States using Chinese legal entities or find local partners to establish companies with Chinese entities as major shareholders. Cross-border e-commerce involves redirecting domestic e-commerce consumers to foreign markets. The biggest challenge in this process is understanding overseas consumers due to cultural and lifestyle differences. Therefore, it is necessary to engage consumers through localization strategies. Additionally, logistics and delivery efficiency are pain points that can be addressed by establishing overseas warehouses. For instance, it may take 10 days to deliver a package to Mexico via express delivery, but local delivery within Mexico may only take 3 days, resulting in completely different consumer experiences. Lastly, ensuring local companies' financial and tax compliance is essential for a business's long-term sustainability.

In conclusion, the first step is to find suitable third-party platforms based on the supply chain. The second step is to find appropriate partner companies by considering their strengths, especially in logistics and payment. The third step is to ensure compliance, both domestically and internationally. The fourth point is about cultural conflicts. You can come to the Latin America Summit for detailed consultations if you have specific questions.