Global E-Commerce: Central and South America - The Overall Market: Bright Spots And Future Outlook

THE OVERALL MARKET: BRIGHT SPOTS AND FUTURE OUTLOOK

Total e-commerce volume for the region, as predicted by Forrester Research, will reach $82 billion by 2004. While this represents strong growth and an encouraging trend for Latin America, that figure still amounts to a relatively small share of the global e-commerce market. By way of comparison, Forrester estimated that by 2004 the total e-commerce traffic in the United States would reach $3.2 trillion, while the Asia-Pacific region would total $1.6 trillion, and Western Europe would amount to $1.5 trillion. Trailing the Latin American region would be Eastern Europe, Africa, and the Middle East, which would reach a combined total of $68.6 billion.

Some analysts were especially optimistic about the prospects for e-commerce in particular countries, such as Brazil. With about half the region's population and the eighth-largest economy in the world, Brazil was the nation most coveted by e-commerce players for growth in the short term, and was the most common invading ground for U.S. Internet companies seeking to make inroads into the South and Central American markets. Jupiter Communications predicted compound annual growth rates for Internet penetration of 19 percent between 1998 and 2003; by 2003, some 20 million Brazilians will be online. Brazil clearly is the largest e-commerce player in the region, with total e-commerce sales expected to reach $64 billion by 2004, according to Forrester Research. The Northbrook, Illinois-based consulting firm Core Strategies predicted that "e-commerce will experience an explosion in Brazil no place else in the world will equal." Core sited characteristics of the Brazilian market that make it so favorable. Among them are the fact that 40 percent of the Brazilian population lives more than 20 miles from a retail center, with transportation sporadically available. Such demographic features, Core suggested, will encourage the spread of e-commerce. Also, the Internet infrastructure is in place in Brazil as it is in no other Central or South American country, with about half, or $17 billion, of the Latin American information technology market centered in Brazil.

Brazil also harbored the highest percentage of South or Central American Internet shoppers. Fully 31 percent of Brazilian Internet users reported making an online purchase in 1999, a proportion nearly as high as that in the United States. And, while still paltry, credit card use was rising more quickly in Brazil than in any other country in the region. As might be expected, Brazil also had the most online merchants, according to Business Week. Brazil, in fact, faced a glut of ISPs in the early 2000s, with more than 500 providers. Internet analysts insisted that a shakeout was on the way.

According to the report "Web Sellers Best Practices 2000: Chile and Latin America," compiled by the Chilean Chamber of Commerce and International Data Corp. (IDC) Chile, e-commerce in Latin America's six-largest economies, including Mexico, grew 117 percent in 2000 to reach $1.1 billion, representing 4.3 percent of all retail sales in those countries. The report noted that Brazil led the region with 27 percent of all online retail sales, while Argentina claimed 21 percent, Chile 15.4 percent, Venezuela 9.3 percent, and Colombia 6.2 percent. Argentina, another regional powerhouse, would rack up $10 billion in e-commerce sales by 2004, according to Forrester Research.

With the growing population of Spanish-speaking individuals in the United States, which has close geographical proximity to Central and South America, many U.S. Internet businesses were shifting to capture a Spanish-speaking market. A growing flow of money was going south, and U.S. firms were realizing extraordinary benefits from trading with businesses in Central and South America. Indeed, the region constituted an extremely contentious field among international players in the late 1990s and early 2000s, as a few United States-based Web portals spent that period battling for position in the Central and South American markets. Yahoo!, StarMedia Networks, and Microsoft squared off against Brazil's own Universo Online, Argentina's El Sitio, and a handful of others to stake a claim as the region's preeminent Web portal. The leading force in the Internet service provider (ISP) field, meanwhile, was Telefonica of Spain, which operated major ISPs in Chile, Peru, and Brazil, building on its ownership of several leading telephone companies.

The Latin American market, therefore, offered savvy investors—who may have missed out on the dot-com explosion in the more developed regions— another chance, and with the benefit of hindsight as well. Estimates variously place the Central and South American Internet markets three of four years behind that of the United States—a prospect that greatly delighted entrepreneurs and venture capitalists in the early 2000s.