Electronic Commerce in Latin America:

The Argentinean ExperienceGloria Robles

Kara Maupin

Kerry Owens

Carlos Nunez

Stephen Kennedy

Marcelo Rozas

Agenda

Overview Conclusions Culture, Economy, and Government Infrastructure Logistics Local vs. International E-commerce Sites Future Trends

Overview: Argentina & E-Commerce

“The priority of this country is a new technology revolution.”

--Jose Machinea, Finance Minister

4% of households, 3% of workforce $40M last year Exploding Internet demands

Argentina & the Internet

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

1997 1998 1999 2000 2003Online Users

Source: Prince & Cooke

Conclusions

Start-up mecca for Latin America First mover advantage belongs to local players Internet becoming a commodity B2C & ISP development: linear correlation Positive economic environment for E-development

Economic Background

The 3rd largest economy in Latin America Economic boom through most of the 1990’s

“My government has a simple, clear goal: to grow, grow, and grow…”

-President Fernando de la Rua

Recent Trends and Outlook

Rebounding from a year-long recession Changing population patterns Trends indicate positive environment for Internet

growth Favorable projections Highest growth rate in 50 years

Economic Strengths

Less government regulation

Stability

Low inflation rate

Economic Weaknesses

Economy vulnerable to external shocks

Unemployment

High local cost of capital

Infrastructure Today

Source: Morgan Stanley Dean Witter Research Estimates. Population estimates from the US Bureau of Census

E=Estimate

  1999E 2003E

  Argentina Rest of L.A. Argentina Rest of L.A.

Population 37 500 39 531

GDP ($B) 285 1,527 347 1,951

Tel lines per 1000 200 120 232 170

PC per 1000 69 46 121 95

Internet Penetration 1.6% 1.7% 7.4% 6.9%

Telecommunications

Total deregulation: competition without restrictions

Today:

• Bottleneck

• Speed problems

• Internet Cabins

Immediate demands

Higher speed connections:

1. First step:

Broad band technologies

2. Second:

DSL (Digital subscriber line)

Cable Modems

3. Third:

Analog modem connections

First step in B2B: Agribusiness

• Industry size: $14 billion

• Difficulties for competing abroad

• 1999: 10% access to Internet,

• 2000: 20% access to Internet

• E-nitiatives: E-commerce savings of 5% to 15% in

fertilizers, seeds, pesticides

• E-suppliers: Agropool & Agrositio.com

Transportation Issue Courier Services Local Services: OCA, Correos Argentinos International Services: DHL, FedEx, UPS Argentinean Courier market represents US$ 60

million, and 34% is served by DHL.

$0.00

$20.00

$40.00

$60.00

AirmailService

Express Mail FEDEX

Freight Cost 1lb US to Argentina

Payment Issue Main form of payment of e-commerce is using

credit cards Argentinean Credit card is served mainly by VISA

(58%) and MasterCard (35%) Low access to credit cards in Argentina

0%

50%

100%

US Argentina Brazil

Credit Card Holders

Payment Issue cont. ...

Secure Electronic Transaction (SET) standard is not available for local Internet sites

Average Argentinean does not feel secure doing transactions over the Internet

Checking accounts for personal use are not common among Argentineans

Ambito Financiero. Argentina March 8,2000

Customs Issue Buenos Aires is the main entrance of foreign

products (centralized) Argentinean Law is not yet prepared for int’l

e-commerce Customs Taxes: 23% ; Value Added Tax:

21% Int’l Freight+Duties+Taxes = 60% -100%+

Tatto You (2)Rolling StonesCDNOW US$ 25.98

AirmailFreight US$ 7.81

2-5 weeks

Customs Tax US$ 8.00Sales Tax US$ 9.00

Total Cost US$ 50.79Per unit US$ 25.39In % 95% more

Growth in E-commerce

Reviving economy, partly due to the Internet Connections to Europe Many obstacles U.S. Internet users spend 90% of their buying

inside the country South Americans spend 26% inside their countries

Strategies

Overcome obstacles Leverage new opportunities

versus First mover advantage Fast followers

Regional Websites

Types of Websites

Alcohol

Food

Collection goods

Apparel

Music

Flow ers

Other

Websites Reach

Local customers

Sell abroad

Sell in city

Mercosur

Regional Websites

Most Popular Websites

Delivery.com

Yenny

Disco

Musimundo

Aerolineas Airlines

Others

Joint Venture Websites

Scramble to enter Latin American market Mitigate risk Access local knowledge AOL Latin America

Foreign Websites

Many of the most popular Latin Websites are not Latin American

Spain’s Terra Networks New York’s StarMedia

Financial Backing: Who are the Investors?

Venture backers

• Local groups (Exxel, Clarin)

• Partnerships

• Foreign operators

• Investment firms

M&A activity:

• PSINet, Terra and IFX (Internet Infrastructure)

• StarMedia (Internet Portal segment)

• Patagon acquired by Banco Santander ($700M)

Future Trends

E-commerce: Final price for end-user

Infrastructure: VPN, Web hosting, broadband

access

Strong competition will increase efficiency

Internet widespread