Predictions abound about the explosion of e-commerce in Latin America and the innovative ways the Internet is expected to dramatically alter the way businesses interact with consumers. But while everyone is heralding the e-commerce revolution, here is a somewhat different point of view, specifically regarding information technology product delivery, but also applicable for other products and services.
In the foreseeable future, e-commerce will not replace the traditional sales channel.
Instead, the Internet will enhance the traditional IT sales channel and transform it in some innovative ways that will help keep it alive for some time to come.
Direct-to-consumer IT marketing-such as the type successfully implemented by companies like Dell and Gateway in the US-is a good model for the type of e-commerce that will eventually reach Latin America’s shores.
However, it’s not there yet, and it won’t be for some time. Why? A combination of factors unique to US business and culture have been catalysts in those companies’ successes, including the availability of credit and the surrounding infrastructure (such as credit bureaus and legal protection for customers, retailers and banks), efficient delivery systems, a common US currency and the wider prevalence of updated technology.
In Latin America, by contrast, credit is not as widely available, or is more expensive, while the legal protection surrounding the use of credit cards and the purchase of products is not as well developed or enforced.
The challenges in Latin America are not going to make the Internet useless in the region-not by a long shot. They will, however, create a fork in the road of the Internet’s evolution in Latin America, and create a different road map for its regional development. But based on comparisons of the business and cultural environment in both the US and Latin America, the conclusion is that Internet retailing hasn’t really been born yet in Latin America.
Internet retailing is not the only reason the Internet exists, however. In fact, despite all the issues, Latin America is going to be the host for some of the most innovative uses of the Internet seen anywhere. With all the consumer bandwidth barriers, how can this be true? Simply put, Latin American business people are risk takers. They are rebuilding an economy almost from scratch, and thus have little to lose and everything to gain.
In Mexico, for example, the government is
using a unique combination of technologies to streamline the governmental request for proposals (RFP) process. CompraNET is a federal government program that is being used to publish all of the federal RFPs for government purchases on the Internet. The general public can browse through the site and if they choose to participate they can submit their proposals electronically. Of course, a great deal of security protects the system to ensure that competitive proposals are not compromised. But that’s not even the most exciting part.
To protect each proposal, it is sealed with a digital signature. Because the law requires handwritten signatures, CompraNet uses technology developed by a US company called PenOp as a means to substitute traditional ink signatures.
Every government division that issues RFPs (around 3,000 divisions in all) must use the system. Every qualified provider also uses the system, and according to the federal government, there are 70,000 providers.
In addition to the project in Mexico, there is another project in Nicaragua that bears a closer look as well. In Nicaragua, Visualcom is working on a project with the government to use the Internet to help increase the price of its treasury bonds.
To improve the return on an investment portfolio-while maintaining the risk at a quantifiable level-an investor needs a lot of information. Simply put, the risk coefficient for a particular investment decreases with the amount of solid and authentic information available about the issue. The availability of more and better information makes an investor more secure when making a decision. Therefore, an investment opportunity with a thin information packet is not likely to attract as much attention, or funding, as one with a stack of qualified, credible analysis and data.
In the case of the Nicaraguan government, an issue of government bonds would inherently be risky, because until last November Nicaragua had not issued a bond in 20 years, and the international financial community does not perceive that there is enough information about the future of the Nicaraguan market.
This project will use the Internet to store massive amounts of forward-thinking government information and financial data. In fact, one proposal is to integrate multiple sources of financial information with a user-friendly interface. In addition, this information would be stored in intelligent databases currently maintained by the government, and it would enable the formulation of key statistics. This facilitates risk analysis in a way that has never been available with regard to Nicaragua’s economic future. Consequently, the government will be able to use the Internet to provide essential information for international markets and foreign investors.
This simple application has the potential to favorably impact the interest rates paid on the treasury bonds.
In general, however, in Latin America the prize of e-commerce is still somewhat in the distance. Until we reach that destination, we need to deal with the current infrastructure and cultural challenges in making the Internet a true business tool in the region. The best advice is that everyone involved in business in Latin America initiate an Internet strategy. That must be qualified by saying that simply deciding to build a web site is not an Internet strategy. The site has to do something, it must fulfill a need and it must achieve results that are felt on the bottom line of the balance sheet.
Why the US is more suited to e-commerce than Latin America
In the US: Business
– Credit is abundantly available in the US. In fact, a new market is developing in which people who have just filed for bankruptcy are eligible for non-secured credit cards only three months after filing chapter 11.
Therefore, the capability to order via catalogues or the Internet is readily available for the vast majority in the US.
– The credit bureaus are highly efficient. The credit scoring system is highly accurate in gauging one’s ability to take on debt. And new ways of turning bad debt into performing debt are being developed all the time, so even bad risks are being alleviated.
– The credit card system favors the customers and the retailers. Customers can cancel a charge if a product is faulty, but the retailer does not get caught holding the bag. If customers pay for a faulty product, the laws protect them.
– For the banks who hold the credit cards, there are effective means of collecting on those debts, and those measures are enforced by laws that are acted upon by a vigorous judicial system.
– The postal service is highly reliable. All jokes aside, statistically, the US postal service is one of the most reliable in the world. In addition, the private parcel services, such as FedEx, UPS, etc., are relatively economical and effective.
– In the US, there is a single currency.
Culture
– In the 19th century, when people wanted to get a package from point A to point B, they hired a man to get on a horse and ride through the night to get it there. The Pony Express became the model, and while planes are used instead of horses today, the parcel service business hasn’t really changed that much since then.
– Around the same timeframe of the Pony Express, a little company called Sears&Roebuck put out its first catalog. Compare the first Sears catalogue to today’s catalogues-Sharper Image, Healthy Home Catalogue, Victoria’s Secret-and there aren’t that many differences, except for maybe Victoria’s Secret.
– As catalogues evolved, television got into the act. Consumers don’t even need catalogues to shop anymore. TV shopping channels make it possible to sit on the couch and shop.
– The US is known as “the disposable society.” When we’re done with consumer goods, we throw them away. Disposable plates, cameras, contact lenses, etc. So we buy more to replace what we throw away.
In Latin America: Business
– The credit market in Latin America is shallow and empty in comparison to the US. The majority of Latin Americans do not have credit cards, and the ones who have them are careful about how they use them.
– In most countries, there are no credit bureaus. In Venezuela or Mexico, they are inefficient because banks are afraid to provide credit card data for fear of “poaching.” This also leads to credibility issues that damage the accuracy of the credit scoring system in the region.
– The credit card system does not protect the retailers the way it does in the US. If a product purchased through a credit card is faulty, the store assumes the financial risk. In countries like Venezuela, the bank will not pay the retailer on the charge-back voucher if the credit card holder does not pay the bank. The vendor gets stuck with the bill. The credit card holder gets to keep the service or the product and the bank remains in the middle.
– The judicial systems in Latin America are not as effective as in the US, so there is little or no fear of prosecution for crimes such as credit card fraud. As a result, credit card holders don’t give their card numbers out to just anyone. Instead, they tend to use their cards only with trusted vendors. That chilling effect is also likely to keep Latin Americans from making credit card purchases over the web.
– Product liability laws are lax in the region, which makes people even more cautious of Internet purchases. If they buy a product, and it is faulty, how will an Internet storefront rectify the situation? Because of the lack of product liability laws in the region, this prejudice has a great influence over the acceptance of the Internet as a virtual storefront.
– In addition, payment delinquency is a difficult challenge, because the collections infrastructure is not well developed. If someone doesn’t pay the bill, short of going to their house with a couple of bouncers, the banks are stuck.
– The postal service is unreliable, and because of high overhead costs, the private parcel services are expensive. In addition, the customs procedures for high tech devices also take time out of the delivery process. The bottom line is that you will wait a long time and pay a steep price for shipping a computer in Latin America.
– In Latin America, there are many currencies, and that creates a high foreign exchange risk. Add to that the duties, customs and interest rate fluctuations and it becomes very unattractive to the consumer to buy anything over the Internet.
Culture
– The postal systems in Latin America are not perceived as reliable. In fact, in Mexico and Caracas, they’ve gone back to the Pony Express, only they use motorcycles instead. “Send it to me any way except mail,” is what consumers ask.
-Catalogue sales are not popular in the region, and there are very few catalogues that even get mailed to Latin America-assuming that Victoria’s Secret is probably one of them.
– Television shopping has not reached the masses in Latin America, which makes the paradigm of Internet retailing even more foreign to consumers in the region.
– Credit card use is discouraged by unstable interest rates, with some reaching as high as 50% percent in Argentina, for example. This creates a major crunch on the credit card system, because it means that banks are not going to extend credit to everyone who walks in. It means that only a select few receive bank-issued credit cards, and they have to jump through a number of hoops to get them.
Andre Vanyi-Robin is CEO of Visualcom, a Miami-based company which provides Internet and Intranet services for Fortune 500 companies active or expanding into Latin America