In the context of the pandemic caused by COVID-19, digital channels have helped customers and small and medium-sized businesses cope with social distancing measures and health quarantines. In the same way that many have become accustomed to working from home, turning to online streaming or entertainment services and interacting more using social networks, shopping online has become more common during those difficult times. While things are back to normal, Aaron Rodriguez, an eCommerce expert, explains how the tool has driven economic growth, innovation and competition in Latin America.
First, eCommerce helped many companies survive during the regional health quarantines. They were unable to choose from their physical sales channels. Secondly, eCommerce enabled financial inclusion in a region that has 45% adult population without a bank account.
“Added to all this, the possibility of selling online offers entrepreneurs wider markets and lowers barriers to entry,” Rodriguez explains. “This is due to selling products without the need to pay the cost of establishing the physical presence of their businesses, thus boosting competition, productivity, employment and innovation.”
However, eCommerce sales only reached 11% of the population and the majority of retail sales still occur through traditional physical channels. In fact, in Latin America, there are still several limitations that prevent these benefits from reaching a larger percentage of the population.
However, eCommerce sales have only reached 11% and most retail sales still take place through traditional channels. These benefits are not available to a greater percentage of Latin American citizens because of limitations.
Despite recent eCommerce growth, it is still marginally used in the region. eCommerce’s potential is limited by the low internet connectivity rate in the region, which averages around 60%. Additionally, the fragmented logistics services, and the absence of inclusive payment services, hinder its development. SMEs are often lacking the knowledge and resources to diversify their sales channels.
The decline in online shopping will likely be due to the ease of social distancing measures on the continent. Rodriguez notes that this will result in consumers choosing the channels they prefer, online, in-person or omnichannel.
Some people prefer to purchase a product online and see it in person. According to the Mexican Association of Online Sales data, nine in ten shoppers mix physical and digital sales channels.
Governments should therefore be able to create policies that will ensure a sustained recovery of the retail industry and use digital channels to increase economic growth, innovation, and employment. Latin American governments must support SMEs with digital transformation and training programs to help entrepreneurs take advantage of the online sales channels.
The government must also be cautious when regulating the retail sector. The US and Europe have different regulatory agencies that are focusing on eCommerce companies. They want to ex-ante regulate in a way that encourages innovation and competition, but also recognize the pro-competitive and marginal role eCommerce plays in the wider retail sector.
Latin America is therefore far more conducive to the sector’s development than other regions. According to the Economic Commission for Latin America and the Caribbean, the current data shows that the average rate of Internet shoppers in all Latin American countries was 30% lower than the Organization for Economic Cooperation and Development.
However, leading eCommerce companies have made the region their home, proving Latin America’s incompatibility and uniqueness with foreign regulations. The government must understand how the existence of international, regional and local marketplaces – as well as the adoption of online selling channels by traditional retailers – enhances competition and supports economic development.