The Latin American market has substantial potential for e-commerce growth, with online sales in the region expected to grow more than 19 percent in the next five years — compared to the global average of 11 percent, according to Focus Economics.
“The Latin American market for e-commerce will be about $120 billion by 2021, serving 156 million people,” Ray Wang, a principal analyst at Constellation Research, told the E-Commerce Times.
“Transaction volumes are rising as mobile phone adoption increases.”
However, logistics, traffic and infrastructure remain major obstacles in the region, Focus Economics pointed out. Logistics alone can amount to 15 percent of the cost of sales, well above the cost for other regions. The rules and regulations differ in each country; and the legal underpinnings for commercial transactions such as payment mechanisms, dispute settlements, and methods to ensure contracts are upheld, all need an overhaul.
Now it might become more practical for e-commerce SMBs in the United States to sell to Latin America. ShipStation on Wednesday announced a partnership with Mercado Libre, which is known as the “Amazon of Latin America” and has operations in 18 countries throughout the region.
Mercado Libre is the fourth largest marketplace in the world in terms of visits per month, and the largest in Latin America. Its top markets are Brazil, Argentina, and Mexico.
ShipStation, a wholly owned subsidiary of Stamps.com, offers shipping software and has partnerships with more than 300 leading shopping cart, carriers, and fulfillment services. These include FedEx, UPS, the United States Postal Service, Amazon, Shopify and BigCommerce.
Those partnerships are crucial. A study conducted by the Colography Group for Pitney Bowes in 2017 found that SMBs pay more unnecessary costs to carriers because they don’t have the clout to negotiate favorable deals. The solution is to use multiple carriers.
That’s where ShipStation and other e-commerce software and logistics providers such as Shippo and ShipEngine can come in handy.
Enter Mercado Libre
ShipStation is “widely used by many e-commerce companies in the U.S.” so the partnership “will give thousands of U.S. companies the ability to easily fulfill any of their products they list on Mercado Libre,” Mark William Lewis, founder of Netalico Commerce, told the E-Commerce Times.
Mercado Libre’s buyers will get “access to even greater product variety and options, via ShipStation’s network of tens of thousands of U.S. merchants,” Krish Iyer, head of industry relations at ShipStation, told the E-Commerce Times.
They will also “benefit from improved delivery and overall customer experiences, enabled by ShipStation’s shipping software and workflow management tools.”
Meanwhile, U.S. e-commerce SMBs will get access to Mercado Libre’s e-commerce and payment tools. These include a centralized seller account, end-to-end shipping solutions, and the ability to finance payments in installments through Mercado Pago, a secure payments system.
Mercado Libre has various business units, including:
- MarketPlace, where users sell products;
- Pago, its payment platform for online sales;
- Shops, which lets SMBs open virtual stores on their existing websites; and
- Credito, which offers buyers and sellers a credit line.
Mercado Pago has a mobile app that serves both as a mobile wallet and a point of sale system that processes payments using a QR code. The mobile app, along with Credito, could go a long way toward facilitating sales in Latin America — because traditional credit and debit payment options are not available for up to 70 percent of Latin Americans who are “unbanked,” meaning they do not have bank accounts.
Solving Sales Issues
“The strong cash dominated market and lack of a credit market has proven to be one of the biggest barriers to sales in Latin America, but pre-paid credit cards and QR codes at merchants for payments have accelerated growth, especially in Mexico with Mercado Libre,” Wang said.
“U.S.-based companies must address the prepaid credit and payments problem, along with regional dialects, in order to personalize their offerings.”
Mercado Libre’s payment solutions constitute “one of the biggest opportunities for U.S. sellers,” Netalico’s Lewis said.
“Latin America is a different market that operates under different rules. Less than half the population has access to bank accounts and most of the credit cards issued in the region don’t work outside the country they’ve been issued,” Lewis added.
“Mercado Pago allows potential customers access to vendors they didn’t have access [to] before, with the possibility to pay in cash in their country and currency of origin.”
The Possibility of Business Success
Latin America may be a good place to grow, but even large, aggressive companies have stumbled in the region.
“The opportunity to grow amidst the tariffs is tempting,” Constellation’s Wang noted, but “companies such as Amazon and Walmart have failed in the past” because of the lack of electronic payment mechanisms and a poor last-mile supply chain.
Commerce must rely on the last-mile supply chains to be able to deliver as promised. This will require “considerable partnerships and investments,” Wang said.
Leveraging Mercado Libre’s last-mile supply chain, as well as its payment mechanisms and presence in 18 countries throughout Latin America, may give U.S. e-commerce SMBs the key to doing business successfully in the region.