After watching from the sidelines, Latin America is getting wired. Enthusiasm among industry leaders is so high that some analysts rate the region second to none in its eagerness to adopt e-business technologies. Computer sales are rising and Internet interest is soaring. The number of Internet users in the region is expected to double this year to 25.5 million, up from 3 or 4 million just a couple of years ago. At the same time, barriers-such as trade restrictions, lack of capital and expensive computers-are fading fast. This is attracting startups aimed at serving the new economy, often backed by well-known names like AOL’s Steve Case and Netscape’s Mark Andreessen.
B2B Services Lead the Pack
Much of the action is concentrated in business oriented web services-business-to-business marketing and commerce, known as B2B. While it may not be as exciting as online consumer commerce, business-to-business service is the lifeblood of e-commerce and could truly change the way Latin American companies do business. Forester Research predicts that B2B online spending in Latin America will account for $76 billion in revenues in 2004; other forecasts are even higher. International Data Corporation (IDC) estimates that about 70% of total e-commerce growth will come from B2B services by 2003.
The growth in business-to-business spending and Internet technology is fueling a new economy, which is attracting corporate interest across the region. While not long ago, many Latin American corporate leaders were skeptical about e-commerce, today businesses of all sizes are looking to the web as a strategic tool and integrating e-commerce into their business plans. A 1999 study by IDC shows 85% of Latin American companies either using or willing to evaluate e-commerce within the next two years. Another study by the Yankee Group reveals that 60% of businesses are planning to increase their e-commerce spending within the next two years.
“E-commerce in Latin America faces significant challenges but there are clear signs that the economic climate is dramatically improving.”
Stuart Woodwring, vice president of research, emerging Internet economies, the Yankee Group
The key to the growth in Latin American e-commerce is a slew of new web services, mostly aimed at enabling the online B2B market. These include web hosting businesses and data centers, business and technology consulting, and hardware and software design aimed at helping companies run their online businesses. These firms, many of which didn’t exist just two years ago, are racing to help build the infrastructure needed to support e-business in Latin America. In essence, these companies provide the building blocks of the new economy. How quickly they can move will determine just how rapidly e-commerce grows in Latin America.
Web Hosting Companies Manage Online Business
Businesses of all stripes are using outside data centers, but the largest concentration is in retail trade, manufacturing and telecommunications. Next on the list are finance, wholesale trade and health care companies. Many businesses are turning to web hosting companies to manage and monitor the complex array of software, hardware, network and other infrastructure components that go into running an online business.
Outsourcing these services benefits companies that don’t have the expertise or resources to run their own in-house operations. Instead of spending time assembling and managing the diverse and complex infrastructure necessary to run an e-business, companies can focus on the tasks that truly differentiate their websites and services. The other work is left to outside companies such as Intel Online Services, a division of Intel Corp. that operates in the United States, England and Korea, and will soon operate in Latin America.
Companies ranging from Internet service providers (ISPs) to telecommunications companies are building new data centers to operate web hosting businesses. Brazil, where more than half of all online users in Latin America are located, is leading the way in new data centers, with Mexico and Argentina following. These service providers are now facing competition from many new Latin American companies that are popping up. New, fierce competition is helping to drive down costs, increase the adoption of new technology, improve services, and attract more corporate customers. A recent report by the Yankee Group says that “content hosted outside Brazil prior to 1999 are now having it hosted domestically.” The Yankee Group predicts web hosting services will generate $358 million in 2003, a yearly compound growth rate of 46.2%.
There are several types of web hosting services:
Shared hosting where companies simply rent space on a server for $10 to $40 a month. This is aimed mostly at small companies with modest needs and budgets. Dedicated hosting where web hosters store, maintain, and monitor the servers residing in the hosting provider’s data center. This is for companies with high capacity requirements. Services include domain name registration, website design, firewalls and various administration tasks.Collocated hosting where businesses put their servers at the hosting provider’s data center, but manage content upgrades, server configuration and maintenance. This is for companies that want control over their content and applications, but don’t want to deal with delivery and performance. Applications hosting where businesses “rent” prepackaged or customized web solutions, such as site management, financial services, even sales force management and supply chain management. This is the least available and least prevalent kind in Latin America.
No matter which option they choose, companies with B2B operations can clearly gain a strategic edge. E-commerce allows companies to deal more effectively and efficiently with their customers and suppliers. Customers can check the status of a shipment; suppliers can easily bid on projects; and vendors can check the status of an invoice-all without tying up employees.
Latin American companies take the leap
One example is Latinexus, a new Miami-based online service formed by an alliance of the California-based Ariba Inc. and four large Latin American companies: Alfa, Bradespar, Votorantim and Cemex. The company, which offers e-procurement services in the region, will simplify and automate a vast array of business interactions, including sales transactions and shipment tracking. This will cut costs, particularly for small- to medium-size companies that can profit from the economies of scale brought to the exchange by the larger companies. The potential market for these services in Latin America is huge. This type of B2B activity may account for over 70% of all e-commerce business in the region. The companies believe $70 billion in B2B goods and services will be sold over the Internet by 2003, representing 10% of the total e-commerce market.
Organización Soriana is another Latin American brick and mortar business that is moving a large portion of its B2B business online. It is the first retail company doing B2B e-commerce in Mexico. The company’s website has automated payments to vendors, while assuring merchandise is received on time and inventories are more carefully managed. Paper, and paperwork, has been dramatically cut. Soriana has pushed its new e-strategy aggressively across the board, even demanding that its suppliers have computers and Internet access if they are to continue doing business. After some minor resistance, suppliers joined the bandwagon, and business appears to be flowing smoothly.
The growth of these businesses-and e-commerce across the region-will rely largely on overcoming various barriers. B2B e-commerce, to some degree, depends on the overall growth of online business in Latin America. While Internet usage is rising, it is still far lower than in the United States. Other issues include poor distribution logistics, users’ concern over transaction security and consumption habits in general. Most Latin Americans don’t own a credit card, and only three persons in ten have telephone lines. These issues will continue to slow overall e-commerce in the region.
Still, analysts say these challenges are being addressed and will eventually be overcome. Surveys of industry leaders show they are extremely confident of their companies’ growth prospects, and the prospects for e-commerce in the region. This sort of attitude, and additional capital inflows, will go a long way in moving Latin America into the digital age.
Bart Heisey is general manager of Intel Corporation’s Latin America operations. Intel, the world’s largest chip maker, is also a leading manufacturer of computer, networking and communications products. Additional information about Intel is available at www.intel.com/pressroom.