E-COMMERCE IN LATIN AMERICA
E-commerce is a fast growing segment of the economy and while it is still not as penetrated in Latin Americas, it promises impressive growth over the next years. Logistics is a key element enabling growth in e-commerce and there are still several challenges linking to customs, last mile delivery and returns that need to be resolved to enable even faster growth in e-commerce in the region. The white paper was developed in cooperation with the Panama Ministry of Commerce and Industry and hence also details the elements needed for a cross-border e-commerce hub and how Panama fares in terms of positioning itself as an e-commerce hub for the region.
E-commerce needs a complex supporting ecosystem to thrive. In the center is the end consumer, and brands and retailers that can emotionally connect to the end consumer have the power to succeed in a complex omni-channel world. E-commerce marketplaces such as Amazon and Alibaba, or in the case of Latin America, MercadoLibre, are often the ones to pave the way for e-commerce by making it easy for end consumers and sellers to transact online. 3PVs (Third Party Vendors) enable technologies to link various aspects of the online sale, while social media becomes increasingly important in influencing buying decisions.
While penetration of e-commerce sales out of total retail are still comparatively low in Latin America, we believe this will change fast. A few cornerstones that drive growth are in place, namely the increasing prevalence of smart phones and mobile data plans, establishment of localized payment options (e.g. less than 20% of households have credit cards) and enhancing product availability. Markets within Latin America are different and retailers have different strategies depending on the size of the consumer base locally.
Logistics is a key enabler for e-commerce as it impacts directly the end consumer experience. There are still a few challenges to logistics in e-commerce also indicated by the fact that online purchases in non-physical goods are growing about 2x faster. One key challenge especially to cross-border purchases is customs clearance. Processes are often not designed for B2C shipments and are slow, cumbersome and expensive. Last-mile delivery also can be a challenge due to congestion, security concerns and lack of proper address enumeration. Last but not least, returns are a challenge for retailers. Finding an effective return solution (often cross border) that keeps clients loyal without putting extreme pressure on costs is a key logistics challenge in Latin America.
A successful international e-commerce hub should have a few well working elements. First of all, establishment of Free Trade Zones with the right incentives for companies is key. In addition, good port and airport infrastructure supported by effective trade and customs regulations and processes are key to enable goods to move in and out seamlessly and cost effectively. Important are also e-commerce fulfillment skill set and generating good industry cooperation to make the e-commerce ecosystem function well. Panama has already some of those elements in place, such as Free Trade Zones and good logistics infrastructure. Trade and customs regulations on exports can be improved to be more B2C relevant, and bringing in e-commerce logistics knowledge or building up the local know how in the subject is a key pre-requisite to success in e-commerce.