When going to Latin America, be careful about being sued by your employees | Nine insights into Latin American consumption

The Latin American market is becoming a new blue ocean for companies going global. However, faced with the early stages of e-commerce development, tax and logistics challenges, labor protection and other issues, companies urgently need to gain an in-depth understanding of local market characteristics and cultural differences.

This year, Latin America is undoubtedly the most popular destination for overseas travel.

In addition to Mexico's manufacturing industry, Brazil's Fintech and pan-entertainment, and the booming mining industry in Chile and other countries, Latin America's consumer market is also a blue ocean that is gaining popularity day by day.

According to data from the International Monetary Fund (IMF), in 2023, there will be two Latin American countries with a per capita GDP of more than US$20,000, namely Uruguay and Guyana. In comparison, China's per capita GDP last year was US$12,600. However, many friends may not have heard of the names of these two countries.

In addition to its astonishing GDP, Latin America is also in a period of rapid e-commerce development. In 2023, the e-commerce market in Latin America will exceed $117 billion, a year-on-year increase of 30%. It is expected that sales will reach $205 billion in 2028 (Statista).

"Digging for Gold in Latin America" ​​has become a slogan known to everyone in the overseas circle, but information gaps have also begun to emerge.

"The first hurdle (to going to Latin America) is not compliance, logistics, etc., but information asymmetry. It is difficult to understand foreign media and visas are hard to get. Sitting at the desk and gazing at the other side of the ocean is far away from the market, and even farther from making money." A seafarer once told Xiaguang News Agency.

Two months ago, Xiaguangshe organized an offline salon in Shenzhen, focusing on the Latin American consumer market and opportunities in the Latin American e-commerce market.

Among the guests of this salon, some flew to the Latin American market to conduct in-depth first-line research, some flew back to Latin America from time to time and called it their "happy hometown", and some continued to pay attention to Latin America and witnessed every node of the changes in the Latin American consumer market.

What they share is valuable first-hand information and the most scarce front-line experience in the market.

Xiaguang Society recorded the entire salon content and, combined with relevant materials, organized it into nine insights into the Latin American consumer market.

Speakers:

Hong Peilin - Assistant Director and Minister of Shenzhen E-Commerce Service Center;

Sam Zheng, an investor of Zhongwei Capital (hereinafter referred to as “Sam”);

Meikeduo official manager;

Thomas-Founder of Bandalabs, an overseas influencer marketing company.

Insight 1: Latin America’s e-commerce development is roughly equivalent to China’s in 2010

A guest asked at the salon, "Do you know what the current ratio of online consumption to offline consumption in Latin America is?"

Someone boldly guessed 3:7, but the actual data is even more exaggerated than this, it is 1:9.

China's e-commerce business has now developed to a very mature stage. "Whether you're browsing TikTok or not, you may have placed several orders." However, the current development of e-commerce in Latin America can be compared to that of China in 2010.

With the popularity of smart phones and the maturity of Internet infrastructure, China bid farewell to the PC Internet era in 2010 and officially opened the door to the mobile Internet era. As the digital economy gradually matured, e-commerce platforms such as Taobao and JD.com also entered a period of rapid growth.

Latin America is still in the early stages of e-commerce development.

Latin American consumers are not yet fully accustomed to the e-commerce model, but the epidemic in the past few years has also made them feel the convenience of online shopping. "(Consumers) are still constantly changing their consumption habits, from offline consumption to online shopping.

Moreover, payment behavior is also changing. In the past two years, many consumers still used cash on delivery. "said the official manager of Meikeduo.

Inside a Brazilian shopping mall. Source: Sam

“Just the beginning” means great opportunities in the future, and it also means that those who enter the market can reap the benefits of rapid growth in recent years.

Take a seller that Meikeduo’s official manager has contacted as an example. Last year, his sales were “about 1,000 orders a month”, but this year, it has reached “1,000 orders a week.”

Insight 2: “Made in China” is a dimensionality reduction attack on Latin America

Latin Americans who have been to China are often amazed by the dazzling array of "Made in China" products.

A friend once said that his Latin American friend traveled to China and spent two days shopping in shopping malls. "They would go into every store and look around, and would keep asking, 'What is this?' To them, there are too many Chinese products and they are too 'advanced'."

Santiago, the capital of Chile. Source: Pedro

Due to the low level of local industrialization, Latin America is indeed lacking in diversified products. As e-commerce platforms are just starting out, the lack of products is even more obvious - there are even sellers who move products from other cross-border platforms and then resell them on Meikeduo.

Because of the high taxes, prices in Latin America are not low, so consumers have a high demand for cost-effective products. "They will fly to the outlet mall in Los Angeles to buy shoes because they are cheaper than local ones," Thomas said.

Diversity and cost-effectiveness are the advantages of Made in China.

An insider of Meikeduo revealed that after many European and American big sellers transferred their best-selling products to Latin America, they found that sales were also good, but they had not paid attention to this market before.

Moreover, Latin American consumers do not blindly worship international brands. Instead, small and beautiful new consumer products have a huge market.

Insight 3: It is important to choose the right track for the five popular consumer categories

Strong consumer power and market potential are good signs, but what sells well in Latin America?

The official manager of Meikeduo combined the data and showed that the current hot-selling products are mainly concentrated in five categories.

The first is consumer electronics. Smartphones, laptops, and electronic accessories are very popular in Latin America. Latin America is still a growing market for mobile Internet, and consumers have a high demand for mobile phones. Brazil is even known as the "country that loves mobile phones the most."

The second category is furniture and tools. It is not uncommon to hear about furniture companies going overseas to build factories in Mexico this year, but for cross-border sellers, considering logistics and inventory issues, Meikeduo’s official manager recommends that domestic sellers make products weighing less than 25 kilograms.

The third category is clothing and sportswear. Currently, clothing products on Latin American e-commerce platforms tend to be single-color standard products. "There is a great lack of clothes with patterns and designs. Latin American women love beauty and they want to see more clothes that can show off their figures," said the official manager of Meikeduo.

The fourth is automobile and motorcycle accessories, such as car bags, pendants, etc. In the Latin American market, popular automobile and motorcycle brands tend to be cost-effective, such as Great Wall Motors and Honda Motors, and they need to consider practicality and adaptability when making accessories.

Fifth, there are maternal and infant toys. It should be noted that the fertility rate in Latin America is currently declining. Take Brazil as an example. In the 1960s, each woman of childbearing age had an average of 6.3 children, and this figure dropped to 1.7 in 2020. But even so, because the local supply chain in Brazil is not perfect, consumers still rely heavily on Chinese maternal and infant products.

Insight 4: Latin American consumers: willing to spend money, but also love value for money

According to Sam, someone conducted a small survey of 30 people in Brazil. The question was, "For a product worth 80 yuan, would you choose to pay it all at once, or pay it in 10 installments of 10 yuan each?"

All 30 people chose the latter.

Brazil provides a glimpse into the current consumption situation in Latin America. The development of Fintech has prompted consumers to form installment consumption habits. What they care about is not the total value to be paid, but the absolute amount of each payment.

When many people think of Latin America, the images in their minds are still slums, gangs and drug dealers. Compared with its neighboring Southeast Asia and wealthy Europe and the United States, Latin America seems to be a "thankless" market. In fact, Latin American consumption power is not low, and the average customer price is "basically between North America and Southeast Asia." The habit of installment payment is very helpful in promoting consumption.

An art museum in Sao Paulo, Brazil. Source: Pedro

The younger population also makes the Latin American consumer market full of vitality. A friend once half-jokingly said, "I went to Mexico and found that people there drink two large bottles of Coke every day. No wonder I didn't see many elderly people."

According to the data, in 2022, the population of Latin America will be about 650 million, of which 67.46% are in the golden age group of 15-64 years old. This group of people has both the ability to work and the willingness to "moonlight".

Of course, value for money is also ingrained into the DNA of Latin Americans. Even the rich who can afford yachts buy clothes on Shein.

“If you want to sell a product for $10, you have to mark the original price as $15 and then give them a 30% discount. You have to make them feel like they’re getting a bargain,” said the official manager of Meikeduo.

Insight 5: To understand the Latin American consumer market, start with Brazil

When talking about Latin America, we cannot avoid Brazil.

After an in-depth visit to Brazil, Sam shared some little-known facts about Brazil, which also provide a glimpse into the opportunities in its consumer market.

The first is that Brazil’s regional economic landscape is very similar to that of China.

"The richest place is in the east, similar to East China, Jiangsu, Zhejiang and Shanghai. The south is where Italian descendants live, similar to South China, and very wealthy. The northeast is relatively poor, but the further west and north you go, the worse the economy becomes, a bit like the Northwest, with vast land and sparse population."

Therefore, if you want to see the consumption capacity and trends of the Brazilian market, it is enough to focus on the coastal areas in the east and south.

Brazilian highway. Source: Sam

Second, Brazil is one of the world's leading plastic surgery markets, and since 1998, medical insurance has been available for cosmetic surgery in Brazil.

Brazil's love of beauty has also made it a major "influencer marketing" country after the rise of mobile Internet. Nielsen data shows that the number of bloggers with at least 10,000 fans in Brazil has exceeded 500,000. If e-commerce brands want to enter Latin America, they must embrace KOLs.

Third, Brazil is the country with the largest number of Japanese people outside of Japan. According to data from the Japanese Ministry of Foreign Affairs, there are about 2 million Japanese-Brazilians in Brazil.

At the end of the 19th century, Brazil established diplomatic relations with Japan and later decided to introduce workers from Japan to fill vacancies in coffee and other planting industries. After more than a hundred years of accumulation, many Japanese have become middle class and above in Brazil.

"Nowadays, Japanese people in Brazil are working in relatively white-collar jobs and have a relatively high social status. Therefore, Asian faces and Chinese products are more popular in Brazil."

The two-dimensional culture favored by the Japanese also has a large market in Brazil, and the popularity of "Genshin Impact" in Brazil proves this.

Insight 6: Mastering the influencer economy is the first step to enter the Latin American e-commerce market

The success of "Genshin Impact" in Latin America is inseparable from the help of influencer marketing.

Thomas has worked with miHoYo on a KOL communication project in Brazil, but not only the gaming industry, but also cross-border e-commerce is increasingly relying on influencer marketing.

“Latin Americans are very susceptible to being influenced by influencers in making purchasing decisions.”

In a survey on whether consumers have made purchases due to recommendations from influencers in the past year, the global average is 18%, while this figure is 41% in Brazil, 29% in Mexico, and 20% in Colombia.

Moreover, the current development status of short videos in Latin America is just like when Kuaishou and Douyin first emerged in China. Its internet celebrity economy is still developing, resulting in many internet celebrities not being aware of the value of their own traffic.

"Some influencers have very high-quality fans, but their business quotes are not high. Some Latin American influencers initially quoted very high and outrageous prices, but after bargaining, the prices were finally acceptable. From the results, it can be seen that the ROI of using Latin American influencers for marketing is higher."

Thomas (fifth from left) in Brazil. Image source: Thomas

The power of influencers is enormous - in Netflix's recent hit reality show "Manhattan Prime," American social media celebrities can sell tens of millions of luxury homes through Instagram.

It is foreseeable that the live streaming e-commerce industry will continue to be strengthened in Latin America.

Insight 7: Taxation and logistics are still major hurdles. The docks must be visited and protection fees must be paid.

Taxation and logistics in Latin America have always been a barrier for cross-border people. Sam revealed that a large Chinese company took 20 years to turn a profit in Brazil, mainly because of tax issues.

Brazil's nickname is "the country of ten thousand taxes":

For cross-border parcels priced below US$50, the import tax is 20%; for parcels priced between US$50 and US$3,000, the import tax is 60%.

In addition to federal taxes, an additional 17% ICMS state tax must be paid.

For sellers, the same product sold in Brazil may have to be priced 3-4 times higher in order to make a profit.

Mexico may be more friendly, but the situation has also become severe this year. According to the latest decree issued in April, a temporary import tariff of 35% will be imposed on textiles, clothing, footwear and other products entering the country.

Guanajuato, Mexico, is also the inspiration for the movie "Coco". Source: Thomas

This is related to the "revitalization of industrialization" campaign led by Brazil and radiating to some Latin American countries. Since the 1980s, Latin American countries have generally relied on imports and neglected the development of national industries, resulting in a fragile industrial chain and a low level of industrialization.

After realizing the problem, Latin American countries began to pay attention to the development of their own industries and were determined to "de-depend" on imported products.

The problem of finding a balance between cost-effectiveness and profitability may plague cross-border sellers in Latin America for a long time.

In addition, Latin America’s logistics problems have long been criticized.

Most logistics companies in Mexico will purchase "armed escort insurance". "All cargo transport there must be equipped with guns. If you don't buy insurance, your cargo will most likely be robbed. Even the escort and robbers may be the same group of people," said the official manager of Meikeduo.

In fact, Mexico's logistics system is relatively mature, because "quite a lot of people have already established local networks in the early stage." Therefore, overseas companies must visit the local docks and pay protection fees. If they do not have the strength for the time being, they can rely on the overseas warehouse model of large platforms to keep their goods.

Insight 8: Excessive labor protection, 996 and internal circulation "have nowhere to hide"

Faced with the dual pressures of taxation and logistics, large and powerful companies will consider setting up offices or even building factories in Latin America, but labor issues have become a focus.

Thomas mentioned that he once received a flyer and business card from a labor lawyer at an office building in Latin America. The lawyer asked, "Do you want to sue your boss?" In Latin America, "suing your boss" has even formed an industry chain.

The historical reasons for excessive labor protection can be traced back to the last century. Under the influence of populism, some Latin American countries pursued a high welfare system, hoping to gain the support of the middle and lower classes by "spending money", but the final result was "welfare catch-up", hard-working people did not get the due rewards, and laziness became the habit of most people.

“In Brazilian office buildings, you hardly see locals after 6pm,” Sam mentioned.

Streets of Sao Paulo, Brazil. Source: Pedro

White-collar workers are relatively easy to manage. When faced with the more complex management of blue-collar workers, some companies will hire a human resources company to handle this, but the price is high. "If the basic salary of an employee is $1,900 a month, the price paid to an external company is about $5,000. The cost is about twice as high."

Some companies also hire "Contractors" in order to reasonably reduce labor costs, which is equivalent to "outsourcing" in China.

In addition, the management thinking and management culture of Chinese and Latin American companies are different. For Latin Americans who love their families, "996" and "involution" are absolutely unacceptable.

Insight 9: Don’t rely too much on experience. Making money often requires a “change of mindset”

The previous eight insights have discussed many facts about Latin America, both good and bad. But for those going overseas, the most important thing is to find opportunities, which are often unexpected.

Let’s end with a story shared by Minister Hong:

"I went to a province in the mainland to investigate. There is a company in Latin America whose main product is coffee machines. This kind of coffee machine is different from what we imagined. It is similar to the equipment for grinding rice and is very industrialized. For Chinese people, drinking coffee is a very refined and petty bourgeoisie thing. It is a kind of enjoyment. It should be brewed slowly with a moka pot."

"But they don't make that kind of stuff. They need to meet two main needs of customers. First, it must be able to be placed outdoors and withstand the sun and rain without paint peeling or cracking of wires, and without the risk of electric leakage. Second, it must meet the number of people, at least be able to make a large pot of coffee that can satisfy many people at the same time, so that everyone can drink it together."

Now, the company has become the leader in its category in Latin America. The cheapest product is priced at US$2,000 or more, and "sales can reach several hundred million per year."

In the Latin American market, there are still many unseen consumer demands.

“Don’t rely too much on the experience you have gained in mature markets. You should break down your experience, embrace change, and embrace new things. In this process, you will find opportunities for your own rapid growth.”

Author | Feng Ye Editor | Li Xiaotian This article is written by the author of Operation Party [Xiaguangshe], WeChat public account: [Xiaguangshe], original/authorized to be published in Operation Party, any reproduction without permission is prohibited.

The title image is from Unsplash, based on the CC0 protocol.