LATIN AMERICA.COM

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LATIN AMERICA.COM By Raul Gouvea FIT
Department Anderson Schools of Management Universi
ty of New Mexico Albuquerque, New Mexico (87131)
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• 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.

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• 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.

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• 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.

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• 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.

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• 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 dont 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 companys 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.

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• 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.

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• 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.

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Table 1. Outposts on the Net-Projected Number of
Regular Internet Users by Year-End 2000.
Economic Region Millions of People Per
1,000 People North America
148.7 479.1
Western Europe 86.6
217.5 Asia-Pacific
57.6 16.6
South/Central America 10.8
21.1 Eastern Europe
9.5 32.7
Middle East/Africa 7.5
7.2 Source Mandel, 1999,
p.77.
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• Table 2. Percentage of Countries Population
  Connected to the Web, 1999.
• Iceland 45 Canada 42.3 Sweden
  40.9 USA 39.9 Norway 36.3 Denmark
  34.0 Finland 32 Australia 30.5 England
  18.0 Switzerland 16.2 Japan
  14.4 Holland 13.7 Ireland
  13.5 France 12.9 Italy 7.9 S.
  Africa 3.74 Venezuela 3.3 Brazil
  3.0 Chile 1 Russia
  0.8 Argentina 0.6 Mexico 0.6 India
  0.5 China 0.26 Colombia
  0.24 Peru 0.08 Egypt
  0.06 Angola 0.0001 Argelia
  0.000025
• Source Nua Internet Surveys (www.nua.org)
• This superconcentration of users defies the idea
  of globalization as a universal concept.

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Table 3. Projected Number of Online Users by
Region (millions of users) Region
1998
2003 North America 90.4
171.0 Western Europe
38.9
112.0 Asia Pacific 31.7
138.8 Middle East
0.8
8.5 Latin America
5.4
37.6 Eastern Europe 3.1
24.1 Africa
0.9
6.1 Source Weyer, 2000, p.69.
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• 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.

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Table 4. The New Old World - 1999 Country
Cell Phones Internet Access Online Sales
(US billions) France 28
10 9.20 Germany
21 15
16.3 Italy 50
8 5.40 Sweden 55
48 86.00 Britain
32 23
26.00 USA 25
43 1 12.00 Source Baker and
Echikson, 2000 p.eb44.
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• 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.

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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.
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• 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. Asias immense untapped
  markets could turn into an Eldorado for
  E-commerce companies.
• Asia, with 2.7 billion people, close to half the
  worlds population, and a young population with a
  rising disposable income, points to a booming
  E-commerce.

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• 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.

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Table 5. Technology Tigers Country
USA Singapore Hong Kong Taiwan
GDP per capita 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 Source
International Data Corporation
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• Like the Europeans, Asians are looking for
  alternative Web designs. In Japan the advent of
  the smart-phones, or Internet-ready 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
  video-conferencing, web surfing, and a number of
  other applications.

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Table 6. Breaking Down the Barriers to the New
Economy, 1999 Country Citizens
PC Penetration Japan
20.0 million 30.0 of households
South Korea 7.8 million
23.0 of households Taiwan
4.2 million 35.0 of
households India
2.1 million 2.5 of households
China 10.0 million
1.7 of households Source Bremmer and
Ihlwan, (2000) p.91.
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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 Webs
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.
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• 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).

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• 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 regions 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 Argentinas 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.

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Table 7. E-Commerce Spending in Latin America
(in US million) Year Volume 1997
36.2 1998 166.8 1999 458.7 2000 1,05
8.8 2001 2,390.3 2002 4,694.4 2003 8,0
21.2 Source Latin Trade (1999),
p.54.
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Table 8. Internet Subscribers, Users (millions),
and Number of Sites (units), 1998 - 1999

Country Users(1999) Subscribers
(1998) No. of Sites Brazil
3.42 1.20
215 Mexico 0.79
0.33
113 Argentina 0.50
0.22 30
Source Brazil em Exame 1999, p 62.
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• Multinationals like Spains 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.

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• 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 high-speed broadband cables.
• Brazil has 4 PCs per 100 inhabitants and
  Argentina has 5 PCs per 100 inhabitants.

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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 E-customers 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.
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• VI MERCOSUR Brazil
• Brazil is Latin Americas 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.

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Table 9. Brazilians on the Web,
1995-2003 Year Number Growth Rate 1995
158,959 192 1996
463,508 157 1997
1,191,84 130 1998
2,737.24 40 1999
3,825,386 31 2000
4,993,992 31 2001
6,520,549 20 2002 7,793,202
16 2003 9,031,771 16 Source Vargas et
al, 2000.
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• 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.

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Table 10. Electronic Commerce in the US and
Brazil (Billions of Dollars)
USA
BRAZIL 1998 1999
2003 1998 1999
2003 Business 43 109 1,331
0.06 0.13 2 to
Business Business 8 20
144 0.03 0.07 0.7 to
Consumers Total 51 129
1,475 0.09 0.2 2.7
Source Paduan, 1999, p 75.
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• 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.

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• 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.

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The Brazilian Internet faces some challenges 1)
86 of Brazilians living in Brazils 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.
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• Table 11. Who is Connected Schools
• Public Schools
• Elementary Education
  High School Education
• Canada 88.0
  97.0
• USA 88.0
  94.0
• England 17.0
  83.0
• Brazil 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.

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• Argentina
• The Argentine market is still in its infancy.
• Argentina has only 350,000 Net users.

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• 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.

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• 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.

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• 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.