Since the colonial period, Latin America’s role in the world economy has been dominated by the supply of raw materials. It is the recipient of high-tech technology from countries and regions such as the United States and Europe, rather than an innovator. In recent years, with the rise of the global technological innovation boom, some local technology companies in Latin America have begun to show the potential to become world-class technology companies. Sun Zhengyi, chairman of the SoftBank Group, once said: “Latin America is on the cusp and will become one of the most important economic centers in the world. We expect Latin America to achieve significant growth in the next few decades.”
In 2020, the outbreak of new crown pneumonia will occur . In the past, international capital’s venture capital investment in Latin American technology companies has increased substantially. According to data from the Latin American Private Capital Investment Association (LAVCA), from 2016 to 2019, venture capital in the region doubled every year. Although many Latin American countries fell into social unrest in 2019, investors from all over the world are still optimistic about the region and invested 4.6 billion U.S. dollars for its local technology companies. Among them, Brazil does its part and has become the region’s largest country in attracting international capital investment, accounting for more than 50% of the total investment in science and technology in Latin America by international capital. The second place is Colombia, accounting for 23.7%; the third is Mexico, accounting for 14.1%.
The emergence of technology “unicorns” in Latin America
According to the 2017 Tecnolatinas report, there are more than 5,000 technology companies in Latin America, of which 48% are located in Brazil, 19% are located in Argentina, 14% are located in Mexico, 8% are located in Chile, and 7 % Is located in Colombia, which is the 5 countries with the strongest technological atmosphere in Latin America. Sao Paulo in Brazil, Buenos Aires in Argentina, and Mexico City in Mexico have become the region’s largest technology business incubators.
In 2018, there were a total of 7 companies in Latin America with a market value of more than US$1 billion, and they were called the digital “unicorns” in Latin America. They are “99”, Rappi, Nubank, PagSeguro, ArcoEduca??o, Ascenty and Stone Pagamentos. Among them, “99” is called “Brazil Uber” and has nearly 300,000 drivers and more than 14 million passenger users. SoftBank Group, Didi Chuxing and Ruiwu Capital have raised a total of US$200 million in financing. In January 2018, “99” was acquired by Didi Chuxing. Known as the “Amazon of Colombia”, Rappi was only a start-up company providing beverage delivery business when it was established in 2015. Now it has developed into a multifunctional service platform and has expanded its business in Argentina, Brazil, Chile, Mexico, Peru and Uruguay. . In 2019, SoftBank Group invested US$1 billion in Rappi. Nubank is a Brazilian financial technology company and the digital bank with the largest number of global customers outside of Asia. Tencent has invested US$180 million in Nubank. In July 2020, the bank announced the acquisition of Cognitect, a software engineering company in the United States, and staged a “snake swallowing elephant” drama.
Asian investors much favored by
Asian investors, especially Singapore, Japan and Chinese investors, investment enthusiasm for start-up technology companies in Latin America is particularly strong (see Table 1).
U.S. investors are not far behind
In addition to Asian investors, American investors are not far behind. Large American technology companies have increased their investment in Latin America. Google established its Latin American headquarters in Argentina in 2007. In 2013, Google established a renewable energy-powered data center in Chile and another data center in Uruguay in 2020. Amazon built a $800 million data center in Argentina. In September 2019, Oracle announced the launch of 20 new “Oracle Clouds”, including the establishment of data centers in Brazil and Chile. According to data from research and consulting firm Frost&Sullivan, by 2022, cloud services in Latin America will exceed $7 billion. By then, Brazil will become the largest cloud service market in the region. Online payment company Stripe opened its first Latin American office in Mexico, committed to integrating into the Latin American market and better serving Latin American consumers.
In addition, U.S. investment banks and venture capitalists also frequently invest in Latin American technology “unicorns.” Los Angeles-based Fifth Wall Ventures participated in a US$150 million Series E financing of Brazilian express delivery company Loggi. The Goldman Sachs Group focuses on financing financial technology companies. In 2019, Goldman Sachs provided $100 million in financing to Credijusto, a company that provides financial products to Mexican SMEs. Other active US investment institutions include Anderson Horowitz Fund, Wise Capital and Jiyuan Capital.
Attract international capital of the inherent advantages of
the Latin American technology market has been increasingly favored by capital, we continue to get the blessing of international capital, mainly due to the advantages of the following four aspects.
First, mobile Internet connections have become widespread
Internet connectivity is critical to the success of technology companies, and Latin America has made great strides in improving Internet connectivity. Now, 73% of the population of South America has access to the Internet, and it will reach 450 million people by the end of 2020, basically covering all the population in the region. The huge consumer base in Latin America provides a market for large technology companies to test new products. For example, before bringing new products to the United States and other markets, Facebook often conducts tests in Latin America. In 2018, Facebook tested “Facebook Dating” in Colombia, which is an add-on program for the dating service for Facebook users.
Second, digital new media opportunities brought by
the entertainment media industry has been very popular in Latin America. Latin Americans love to enjoy life by nature, and traditional TV sets can no longer meet their needs for differentiation. This creates excellent opportunities for entertainment companies such as Netflix. Latin America is the most important incremental market for Netflix. By the end of 2019, the number of paying subscribers of Netflix in Latin America had reached 29 million. At the same time, Latin Americans attach importance to social needs, and young people have a high desire for self-expression. Short video applications (APP) have naturally become the first choice for social entertainment among young people in Latin America.
Third, the rapid development of e-commerce
e-commerce in Latin America is one of the world’s fastest growing region. According to the Finextra report, the current e-commerce growth rate in Latin America is 37%, which greatly exceeds the 2% growth rate in the Asia-Pacific region. Nevertheless, local e-commerce is still in its infancy, accounting for only 2.5% of total retail sales in Latin America. As a result, e-commerce giants such as Amazon are investing heavily in establishing regional offices in Latin America, as well as sales, customer service, and logistics infrastructure.
Fourth, the government’s support for technological innovation
The Latin American government attaches great importance to the development of technology start-ups. In 2019, the Colombian government established the Ministry of Science, Technology and Innovation, and the High Commission for Innovation and Digital Transformation to support the national technology upgrade plan and become the most enthusiastic country in technology and digital transformation among Latin American countries. Chile has launched a centralized online registration system that allows technology companies to complete business registration within one day. It also launched a technology visa facility to help technicians and investors obtain visas within 15 days. Mexico established the National Institute of Entrepreneurs (INADEM) to support the establishment of start-ups. Brazil has established the “Brazilian Startups” Federal Program to support start-ups. These measures have greatly increased investor confidence in the Latin American technology market.
Chinese enterprises into the path
Latino attention to social needs, young people have a higher desire for self-expression, and the United States is very close to the local ecology, which makes Chinese investors saw a fertile ground for the entertainment media industry in the region. Chinese technology companies usually invest in Latin America in two ways.
Penetrating Chinese technology companies have shown considerable flexibility in penetrating the Latin American market. In the first stage of entrepreneurship in the region, they basically “removed” the Chinese Internet model. After the project is launched, it will make corresponding adjustments according to the market and culture .
Many “super APPs” in China have achieved good results in the Latin American market. Star products include Douyin, Kuaishou, News Eagle, etc. According to the analysis of PrioriData, in the latest ranking of Douyin’s global downloads, Brazil and Mexico rank third and fifth in the world, respectively. Both Douyin and Kuaishou have established offices in Sao Paulo. According to Sensor Tower data, since July 31, 2019, Kwai, the international version of Kuaishou, has become one of the four most downloaded apps in the Brazilian Android store. In addition, VStatus, another short video application of Kuaishou, has more than 120 million users in Brazil. The “News Eagle” APP, developed by a company in Shenzhen, is known as the “Mexico version” of Toutiao and has 20 million users in the region.
Acquisitions or angel investments Chinese technology companies have completed several acquisitions of start-up technology companies in Latin America. For example, Didi Chuxing acquired “99”, a local ride-sharing company in Brazil. Some Chinese giants also participate in the financing of Latin American start-ups with European and American venture capital funds. In addition to the venture capital projects listed in Table 1, in 2019, Tencent also joined European and American venture capital funds such as George Soros, Goldman Sachs, and Point72 Ventures, and invested in the Argentine mobile banking startup Uala.
Chinese enterprises are facing challenges
when technology market in Latin America despite the heat surge, but including language, user habits, cultural differences, the popularity of hardware, network conditions and environments, including a special payment problems are Chinese enterprises “sea” in the region Should be considered in advance.
Competition in the “Super APP” market is fierce. Although some Chinese apps are becoming more and more popular in the Latin American market, American “super apps” such as WhatsApp, Instagram and Youtube have already occupied the mainstream position in the regional market. In the Apple App Store, their download times are much higher than those of Douyin and Kuaishou. In November 2019, Instagram announced the launch of the “Cenas” (English “Reels”) short video platform in Brazil, aiming to compete with Douyin and Kuaishou.
Infrastructure is still the biggest bottleneck. In the field of e-commerce, the biggest challenge facing the Latin American market is the weak infrastructure such as logistics, customs clearance and local warehousing. Chile’s e-commerce logistics ranks first in Latin America, but there is still a big gap compared with China. In particular, Latin American countries generally face the risk of a poor social security environment, which has seriously affected the safety of e-commerce distribution.
Mobile payment needs to be popularized. The bank card holding rate of users in Latin America is low. Locals prefer cash transactions. Many people do not have a bank card and cannot make mobile payments. In the past two years, the penetration rate of e-commerce in Spanish-speaking countries in Latin America has been increasing. The “2019 Latin America E-Commerce Report” jointly released by the SAP Customer Experience and E-Commerce Foundation shows that the amount of B2C online shopping in Latin America in 2019 reached US$84 billion, a year-on-year increase of 15%. Among them, Mexico ranked first with US$28.8 billion; Brazil ranked second with US$20.9 billion; Argentina ranked third with US$12.6 billion; Chile ranked fourth with US$7 billion; Colombia ranked fifth. Ranked at US$6.6 billion; Peru ranked sixth with US$4 billion. Chinese companies may be able to boost the popularity of mobile payments in Latin American countries.