Volume 6, Number 8, Page 1

Challenges to Electronic Commerce in Latin America

by Andrés Vanyi-Robin

Editor’s Note: The development of true and pervasive electronic commerce in Latin America is still in the distance, pending improvements in consumer credit availability and the legal infrastructure. The following article and accompanying table outline the primary challenges facing the creation of successful on-line markets.

Predictions abound about the explosion of e-commerce in Latin America and the innovative ways the Internet is expected to alter the way businesses interact with consumers. But while others herald the e-commerce revolution, there is a somewhat different point of view, specifically regarding information technology product delivery, but also applicable for other products and services.

In the foreseeable future, e-commerce will not replace the traditional sales channel. Instead, the Internet will enhance the traditional IT sales channel and transform it in some innovative ways that will help keep it alive for some time to come.

Direct-to-consumer IT marketing—such as the type successfully implemented by companies like Dell and Gateway in the U.S.—is a good model for the type of e-commerce that will eventually reach Latin America’s shores. However, it is not there yet and will not be for some time. Why? A combination of factors unique to U.S. business and culture have been catalysts to the success of IT marketing, including the wide availability of credit and the surrounding infrastructure (such as credit bureaus and legal protection for customers, retailers and banks), efficient delivery systems, a common U.S. currency and the wider prevalence of modern technology (see table).

In Latin America, by contrast, credit is not as widely available, is more expensive and the legal protection surrounding the use of credit cards and the purchase of products is not as well developed or enforced.

These obstacles in Latin America will not make the Internet and e-commerce useless in the region— quite to the contrary. They will, however, create a fork in the road of the evolution of the Internet in Latin America and create a different road map for its development in individual regions. Based on comparisons of the business and cultural environments of the U.S. and Latin America, e-commerce has not yet been completely born in Latin America.

Internet retailing is not the only reason the Internet exists, however. In fact, despite the above issues, Latin America will be the host for some of the most innovative uses of the Internet anywhere in the world. Simply put, Latin Americans are risk takers. They are in the process of rebuilding their economies after the recent worldwide economic turmoil and thus have everything to gain from new ideas.

In Mexico, for example, the government is using a unique combination of technologies to streamline the governmental request for proposals (RFP) process. CompraNET, a federal government program, is being used to publish all of the federal RFPs for government purchases on the Internet. The general public can browse through the site and if they so choose, submit proposals electronically. Of course, a great deal of security protects the system to ensure that competitive proposals are not compromised.

Each proposal is protected by a “digital signature.” Because the law requires handwritten signatures, CompraNET uses technology developed by a U.S. company called PenOp as a means to substitute traditional ink signatures.

Every government division that issues RFPs (approximately 3000 divisions total) must use the system. Every qualified provider also uses the system. According to the federal government, there are currently at least 70,000 providers.

In addition to the project in Mexico, another Latin American project bears a closer look as well. In Nicaragua, Visualcom is working with the government to use the Internet to help increase the price of Nicaraguan treasury bonds.

To improve the return to investors while maintaining risk at a quantifiable level an investor needs a great deal of information. Simply put, the risk co-efficient for a particular investment decreases with the amount of solid and authentic information available. The availability of more and better information makes the investor more secure in making decisions. Therefore, an investment opportunity with a thin information packet is not as likely to attract much attention or funding as one with credible, qualified analysis and data.

In the case of the Nicaraguan government, an issue of government bonds would be inherently risky in that until last November, Nicaragua had not issued bonds in over 20 years and the international financial community did not receive adequate information concerning the future of the Nicaraguan market.

Accordingly, the project will utilize the Internet to store massive amounts of government information and financial data. In fact, one proposal is to integrate multiple sources of financial information within a user-friendly interface. In addition, this information would be stored in intelligent government databases, enabling the formulation of key statistics. This facilitates risk analysis in a way that has not yet been available with regards to Nicaragua’s economic future. The government will be able to use the Internet to provide essential information for international markets and foreign investors. This simple application has the potential to have a favorable impact upon interest rates paid on Nicaraguan treasury bonds.

In general, however, in Latin America the prize of e-commerce is still somewhat in the distance. Until that destination is reached, the current legal and banking infrastructure will need to be modified to make the Internet a true business tool and facilitator of free trade throughout the Americas. The best hope is that business and government work together to initiate an Internet strategy.

Andrés Vanyi-robin is CEO of Visualcom, Inc. located in Miami, Florida. This article and accompanying table were first printed in Latin Finance Magazine.