LATIN AMERICA.COM By Raul Gouvea FIT Department Anderson Schools of Management University of New Mexico Albuquerque, New Mexico (87131) I - INTRODUCTION •The Internet is drastically transforming the nature, geographic boundaries, timing, and scope of global competition. •The Internet is changing the “mental geography” of international business. •The numbers are staggering: global Business-to Business (B2B) E-commerce is expected to skyrocket to US$ 7.29 trillion by 2003. Global business-to-consumer (B2C) E-commerce is also expected to reach US$ 1.3 trillion. •The demographics of the Web are changing fast: English is still the lingua franca of the Internet, where 96% of all E-commerce transactions are conducted in English. •By 2003, most Net users will not have English as their first language, it is expected that 50% of Internet users will live outside the U.S. •The U.S. currently contains 70% of all websites. However, by 2003, it is expected that the U.S. share will decrease to 35%. It is clear that the days of focusing on the U.S. market are over. II – THE DIGITAL ECONOMY •At the onset of a new millennium the globalization process is permeating all segments of business transactions. •The Internet is launching a global re-mapping process. A process that is redefining space, mass, and time barriers. It is modifying the fabric of global business, boosting competition at the global level and forcing companies to redesign their domestic and global strategies, business models, and corporate structures. •It is also creating new industries and modifying existing ones. These transformations are making the global economy look like a cluster of digital metropolis’. These digital metropolis’ are erasing national boundaries and rewriting business strategies in many industries across the globe. •The New Economy, or the digital economy, is creating an explosion of economic growth and productivity never seen before. •The diffusion of technology, fostered by the Internet, is taking place in Internet time, leading to an acceleration in the rate of innovation. •The Internet has had a substantial impact on the international business environment. It has forced companies to rewrite business strategies in many industries across the globe, by shrinking business response times, and by shortening service and product life cycles. •The Internet has also boosted trade across boundaries by making more and better information available. This has leveled the playing field for companies of different sizes. Small and medium size companies don’t face the same capital constraints they did in order to reach a global market. •In the Internet age, core competencies like speed, quality, and quality service will be key to a company’s success in the global E-marketplace. •The nature of the Internet also makes it easier to expand the share of services in global trade, such as banking, gambling, consulting, retailing, and education. •On the investment side, the Internet facilitates the integration of companies’ activities at the global level, fostering the integration of the supply chain, cutting costs, and fostering innovations. •This global electronic shopping center is open 24 hours – 7 days a week. The E-consumer is an interactive consumer. •These E-consumers are clustered in digital communities across the globe, bringing a new meaning to the global segmentation of markets, developing E-commerce trends, and bringing together like-minded consumers across the globe. III – GLOBAL DIGITAL DIVIDE •The Internet holds the promise of narrowing the gap between the haves and have-nots, or between developed and less developed countries. •Despite all of this promising talk of globalization, there are 2 billion people that have never made a phone call. Table 1. Outposts on the Net-Projected Number of Regular Internet Users by Year-End 2000. Economic Region Millions of People North America Western Europe Asia-Pacific South/Central America Eastern Europe Middle East/Africa 148.7 86.6 57.6 10.8 9.5 7.5 Source: Mandel, 1999, p.77. Per 1,000 People 479.1 217.5 16.6 21.1 32.7 7.2 Table 2. Percentage of Countries Population Connected to the Web, 1999. Iceland 45% USA 39.9% Finland 32% Switzerland 16.2% Ireland 13.5% S. Africa 3.74% Chile 1% Mexico 0.6% Colombia 0.24% Angola 0.0001% Canada 42.3% Sweden Norway 36.3% Denmark Australia 30.5% England Japan 14.4% Holland France 12.9% Italy Venezuela 3.3% Brazil Russia 0.8% Argentina India 0.5% China Peru 0.08% Egypt Argelia 0.000025% 40.9% 34.0% 18.0% 13.7% 7.9% 3.0% 0.6% 0.26% 0.06% Source: Nua Internet Surveys (www.nua.org) •This superconcentration of users defies the idea of globalization as a universal concept. Table 3. Projected Number of Online Users by Region (millions of users) Region 1998 2003 North America Western Europe Asia Pacific Middle East Latin America Eastern Europe Africa 90.4 38.9 31.7 0.8 5.4 3.1 0.9 171.0 112.0 138.8 8.5 37.6 24.1 6.1 Source: Weyer, 2000, p.69. IV - WESTERN EUROPE AND ASIA •The European economy enters the new millennium with a renewed economic confidence. The “eurosclerosis” days are apparently over. Inflexible labor markets, lackluster economic growth, and anti-business government policies are no longer permeating the European economy. •The launch of a common currency is unifying fragmented markets, and is facilitating the emergence of venture capitalists, an essential feature of the New Economy. •For all the excitement, Europe still lags behind the U.S. when it comes to the Internet age. Only 10% of Europeans are connected to the World Wide Web. When it comes to E-commerce, Europeans are grossing US$ 19 billion for 1999, or 20% of the U.S. volume. Table 4. The New Old World - 1999 Country France Germany Italy Sweden Britain USA Cell Phones 28% 21% 50% 55% 32% 25% Internet Access 10% 15% 8% 48% 23% 43% Source: Baker and Echikson, 2000; p.eb44. 1 Online Sales (US$ billions) 9.20 16.3 5.40 86.00 26.00 12.00 •Across Europe however, one finds different levels of Internet penetration. •Despite their relative lag, European companies are quickly developing new technologies and new product technologies. For instance, mobile mini portals are the new challenge. Phones are being developed to carry Internet services. •By 2003 it is expected that 248 million Europeans will carry cell phones, up from 141 million in 1999. The growth of the Web in Europe still faces a number of challenges: 1) The increasing unification of European markets, making Europe more European, may have a negative impact on the goal of building a global village. 2) In many countries phone calls are charged by the minute, discouraging the use of the Internet. 3) Despite the creation of the Euro, companies are still dealing with fragmented markets, several languages, and a different set of laws. 4) The extensive use of English in the past has discouraged Europeans from using the Web. 5) In order for Europe to act as an electronic shopping center, import regulations have to be standardized. 6) Europeans are more willing to impose governmental control over the Web than Americans. Issues such as consumer protection and privacy are becoming the focus of many lawmakers in Europe. ASIA •Asian countries are also rapidly narrowing the Internet Gap. The convergence of PCs, cellular phones, and E-business is sending waves throughout Asia. •The Asians have woken up to the potential impacts of information technology on productivity and consumer spending. Asia’s immense untapped markets could turn into an “Eldorado” for E-commerce companies. •Asia, with 2.7 billion people, close to half the world’s population, and a young population with a rising disposable income, points to a booming E-commerce. •According to some estimates, by 2003 Asian E-commerce could amount to US$ 32 billion. •For instance, in China E-commerce is expected to increase from US$ 8 million in 1999 to about US$ 3.8 billion by 2003. •The Asian E-race is leading a number of countries to build technological parks, such as the Malaysia Multimedia Super Corridor. Singapore is planning to build a Science Hub and intending to build a fully wired society. Table 5. Technology Tigers Country Singapore Hong Kong Taiwan 30.5 28.4 23.2 14.4 Internet Technology (spending per capita) 1.2 0.6 0.3 0.1 Internet Technology (spending/% of GDP) 4.2% 2.2% 1.3% 1.0% Internet Users as a % of PCs 55% 55% 42% 42% Internet Users as a % of population 23% 17% 11% 5% GDP per capita USA Source: International Data Corporation •Like the Europeans, Asians are looking for alternative Web designs. In Japan the advent of the smart-phones, or Internetready cellular phones, is dramatically changing the status of the Internet. Japan is emerging as the technological leader in wireless Net communications. •Japan is also leading the global wireless industry by being the first country to jump into the third generation of mobile telephony or 3G. This new technology will allow for videoconferencing, web surfing, and a number of other applications. Table 6. Breaking Down the Barriers to the New Economy, 1999 Country Japan South Korea Taiwan India China Citizens 20.0 million 7.8 million 4.2 million 2.1 million 10.0 million PC Penetration 30.0% of households 23.0% of households 35.0% of households 2.5% of households 1.7% of households Source: Bremmer and Ihlwan, (2000); p.91. E-Asia faces a number of challenges: 1) Credit cards are not widely used in Asia. 2) The vastness of Asia and the heterogeneous nature of its infrastructure imposes limitations on the distribution side. 3) The lack of vast and liquid capital markets hampers the emergence of venture capitalists. 4) Asia is not a homogeneous business environment, regulation intensity varies from country to country. 5) Foreign direct investment restrictions in some countries, like China, will hinder the Web’s progress in Asia. 6) A lack of research-leader universities. 7) The lack of a risk-loving corporate culture makes the Internet less attractive to traditional Asian industries. 8) The anarchic nature of the Internet affects the foundations of many authoritarian regimes in Asia. V - LATIN AMERICA •Latin American countries are jumping at the Web at different speeds and different intensities. •Web users are expected to increase from 2 million in 1997 to 19 million users by 2003, reaching 7% of the Latin American population. •E-commerce should increase from US$ 36.2 million in 1997 to an expected US$ 8.0 billion by 2003. •Latin American online users should increase from 10.6 million in 2000 to an expected 66.6 million in 2005 (www.nua.com). • Latin American countries such as Brazil, Mexico, and Argentina are the most aggressive countries in the Latin American E-race. Brazil accounts for 85% of Latin American E-commerce, followed by Mexico with 10%, and all the other markets accounting for 5%. •The region’s business-to-business and business-to-consumers commerce is expected to reach US$ 8 billion by 2003. Brazilian E-commerce will increase from US$ 121 million in 2000 to US$ 4.3 billion by 2003. Mexican E-commerce will increase from US$ 25 million to US$ 1.5 billion and Argentina’s E-commerce will expand from US$ 15 million to US$ 1.1 billion in the same period. •3/4 of this E-commerce is still heavily directed at U.S. Web sites, which makes the development of Latin American E-commerce even more appealing to U.S. investors and companies. Table 7. E-Commerce Spending in Latin America (in US$ million) Year 1997 1998 1999 2000 2001 2002 2003 Volume 36.2 166.8 458.7 1,058.8 2,390.3 4,694.4 8,021.2 Source: Latin Trade (1999), p.54. Table 8. Internet Subscribers, Users (millions), and Number of Sites (units), 1998 - 1999 Country Brazil Mexico Argentina Users(1999) Subscribers (1998) 3.42 0.79 0.50 1.20 0.33 0.22 Source: Brazil em Exame 1999, p 62. No. of Sites 215 113 30 •Multinationals like Spain’s Telefonica and U.S.’s Microsoft are racing to connect Latin American customers. •BellSouth, for instance, is expanding its involvement in Latin America, going beyond wireless services. •The company is planning to offer Internet services in ten Latin American countries. •Latin American and E-multinational companies are also rushing to consolidate their position in the industry. •The lack of state-of-the-art telecommunications infrastructure is also leading to another race parallel to the evolution of the Internet. •Several multinationals are rushing to wire the region with highspeed broadband cables. •Brazil has 4 PC’s per 100 inhabitants and Argentina has 5 PCs per 100 inhabitants. The Latin American Web industry still faces a number of challenges: 1) Low credit card ownership hampers E-commerce. In addition, Latin Americans fear of credit card fraud keeps possible Ecustomers from shopping on the Web. 2) Shipping costs are high and crossing customs can be cumbersome and lengthy. 3) Phone calls are charged by the minute. 4) The integration of shipping services, inventory management, and customer service are still in its infancy. 5) Low computer penetration limits the impact of the Internet. VI – MERCOSUR: Brazil •Brazil is Latin America’s largest Web user. •Brazil accounts for 85% of Latin American E-commerce. •In the major cities of Brazil, like Sao Paulo and Rio de Janeiro, 9% of the population (on average) are connected to the Web, well above the 3% national average. •In terms of demographics, classes A and B account for 84% of Internet users. Table 9. Brazilians on the Web, 1995-2003 Year Number 1995 1996 1997 1998 1999 2000 2001 2002 2003 158,959 463,508 1,191,84 2,737.24 3,825,386 4,993,992 6,520,549 7,793,202 9,031,771 Source: Vargas et al, 2000. Growth Rate 192% 157% 130% 40% 31% 31% 20% 16% 16% •By 2003, Brazilian E-commerce should total US$ 2.7 billion, compared to US$ 1.47 trillion for the U.S. •It is expected that by 2003, 1.1 million E-consumers will be shopping on the Web in Brazil, compared to 46 million in the U.S. Table 10. Electronic Commerce in the US and Brazil (Billions of Dollars) USA 1999 2003 Business 43 to Business 109 1,331 0.06 0.13 2 Business 8 to Consumers 20 144 0.03 0.07 0.7 129 1,475 0.09 0.2 2.7 1998 Total 51 Source: Paduan, 1999, p 75. BRAZIL 1998 1999 2003 •A consolidation process coupled with increasing foreign direct investment is changing the profile of the Brazilian industry. •From 500 Web providers in the mid 1990s, the Brazilian Association of Web Providers estimates that only 50 will be in business by the year 2002. •In 1999, of the five largest Web providers, only one is controlled by a Brazilian group, Universo Online. ISPs such as ZAZ, Matrix, and Mandic were acquired by foreign groups. •The American company PSINet is among the newcomers that bought several smaller providers throughout Brazil. America Online (AOL) landed in Brazil in November of 1999. •The arrival of foreign E-commerce companies is being reciprocated by the internationalization of Brazilian E-commerce companies. •For instance, six out of 10 taxpayers now file their taxes over the Web, an increase from 706,000 tax forms in 1997 to 11.2 million tax forms in 1999. The Brazilian Internet faces some challenges: 1) 86% of Brazilians living in Brazil’s largest metropolis’ are still alienated from the Web as a result of lack of access to computers, phones, low income levels, low educational levels, or all of these factors together (Porto, 2000). 2) The low access to personal computers and phone line ratios are creating a bottleneck for further growth of the Internet industry. 3) In the first trimester of 2000, Brazil had 8.2 million computers, or one computer per 19 people. In the USA, the ratio is one computer per two people. 4) Brazil only has 28 million phone lines, or six times fewer phones per capita than a country like Canada. 5) The future of the Brazilian Internet is closely related to its penetration in Brazilian schools. 6) Only 10% of computers in public schools are connected to the Web. 7) Of the 188,700 schools, 116,000 do not have access to a phone line. Table 11. Who is Connected – Schools Canada USA England Brazil Public Schools Elementary Education High School Education 88.0% 97.0% 88.0% 94.0% 17.0% 83.0% 3.2% 10.0% Source: Schwartz, 1999, p 43-45. •It is time to start developing other less expensive outlets such as pagers and smart phones, following the Asian and European experiences. Argentina •The Argentine market is still in its infancy. •Argentina has only 350,000 Net users. VII – DRAWING LESSONS •It is clear that the global evolution of the Internet is taking place at different rates and shapes across the globe. •The Europeans, Asians, and Latin Americans are not fully replicating the American experience. All three players are developing their own regional Internet strategies and regional Internet flavors. •One lesson is being understood by many nations around the globe: nations must become Internet nations if they are to survive in the new digital global economy. •Latin America countries are not yet working as a single unified market. FINAL REMARKS •The New digital economy is forcing companies and nations across the globe to become Internet companies and nations. •In order to globalize, E-companies have to localize the content of their offering. •Digital metropolis’ are being organized along the social and racial fabric of these virtual communities, paying heed to their own native languages and cultures. •The Internet is fostering, more than any other industry, the development of north-south and east-west strategic alliances. •The E-commerce environment is going through a period of intense competition. •American and European E-MNCs are waging their battles around the world. •The American dominance and leadership of E-commerce is not so clear. •E-MNCs from Europe and Asia are starting to globalize their operations, using in some instances superior technology to the ones used in the American market. •E-MNCs are also coming from emerging Web frontiers.