Experts expect Amazon’s entry to boost Mexican e-commerce. 

BY LATIN AMERICA ADVISOR
Inter-American Dialogue

A recent study by A.T. Kearney estimated the growth of e-commerce in Mexico at 32 percent last year, to $6.6 billion. However, the country's main Internet trade group, the Mexican Internet Association, says that only one-fifth of Internet users there make purchases online. What is behind the varying perspectives on e-commerce growth in Mexico? What is holding e-commerce back from greater growth in the country, and what is the sector's outlook over the coming years?

Javier Vallaure, director of business development at allpago international: Most of Mexico's e-commerce has been developed around the tourism industry, with airlines and travel agencies as the main innovators. But why has only the travel industry been successful in e-commerce in Mexico? It comes down to challenges in payments and logistics, but the potential is there. Most of the first wave of e-commerce was based on brick-and-mortar shops that used the Internet as a new sales channel. Key to fulfilment was the delivery of products to buyers. This is still a challenge in Mexico for two main reasons. First, the development of urban freight in the main metropolitan areas has been problematic because the institutional framework is a patchwork developed by different bodies. Second, Mexico is a big country with a low population density, and reaching out to every corner of the land requires an investment that demand hasn't yet justified. Global players like Amazon have announced that they will enter Mexico this year and are focusing on major cities where demand is high enough to justify the development of a logistics network. Furthermore, the second wave of e-commerce, based on the sale of digital products and services, hasn't encountered a logistics challenge. Mobile and Internet infrastructure has been developed in Mexico, and this has helped the development of this area of e-commerce. Credit and debit cards have proven the most convenient payment method for e-commerce. The penetration of credit cards in Mexico is particularly low, and while debit cards have a much wider reach, issuers have limited their use because of concerns about fraud, and some are not allowed to process online payments. New players, like allpago, are modernizing the payment industry in Mexico and provide necessary security standards. As a consequence, issuers are allowing more cardholders to use their debit cards on the Internet. Mexico has strong potential in e-commerce, and the sector can only grow. New improvements in payments and logistics--driven by entrants like allpago, Amazon and Inditex--confirm the interest in the market and its improved prospects.

Nicolás Mariscal, member of the Advisor board and chairman of Grupo Marhnos in Mexico City: I think Mexico will eventually manage to expand e-commerce in accordance with its potential. It is an exponentially growing market, but the characteristics of Mexico are very particular: it has approximately 55 million people living in poverty and many regions that still lack Internet service and cell phone coverage. However, those who have the economic profile to realize these types of transactions represent an attractive market to conquer, and for this, their trust must be gained. This last factor is crucial for e-commerce in Mexico--confidence that their personal information and financial identity won't be plagiarized or misused; confidence that the product will arrive on time and intact, or even options to pick it up at a pre-selected time and location; confidence that if it is not what was expected, it can be returned and the client will recover their money. Where is the added value of Internet shopping for a Mexican? That is the question that any company that bets on e-commerce in Mexico must answer and demonstrate.

David Bernardo, founder of e-commerce consulting company and service provider LITS e-business and professor of e-commerce and digital marketing at the Monterrey Institute of Technology and Higher Education:  E-commerce in Mexico is finally growing and will grow much more. Why? A few critical aspects: Amazon is entering the market, and so are Alibaba and eBay (maybe one of them will buy a local player). The dormant giant local retailers in Mexico have woken up and are finally investing seriously. Walmart started a few years ago with positive results and is preparing for further growth. Brazil had a boom of investment in e-commerce and digital startups and funding five years ago. The saturation of the market combined with the declining economy made funds start to look to the second-largest and more investor-friendly market, which is Mexico. Also, the Mexican government has made more than $200 million available for venture capital, and several international funds are entering the market. Infrastructure, although not perfect, is already sufficient for delivering a positive client experience. The low credit-card penetration is being replaced by several other payment methods, such as cash on delivery and payment at convenience stores. These improvements and new companies will educate the consumer to buy more online. The main challenge is human resources. At our school, ebusinessacademy.mx, we are preparing more than 500 people per year, but we estimate that the market needs over 5,000. International experts, while valuable, don't fully understand the specificities of the local market and often make serious mistakes (as an example, user experience should be partially different in Mexico compared to the United States). The varying perspectives between A.T. Kearney and AMIPCI are due to the methodology or lack of proper methodology by the different organizations. For the next years, you can expect: a fight for human talent and expertise, a fight between the large international players, small Mexican retailers either consolidating or closing, and U.S. and European companies and funds looking at the market seriously and making large investments. Mexico is going to be one of the highest growth e-commerce markets in the world during the next couple of years. If companies are planning to enter, they should do it sooner rather than later, or they might miss the train.

Republished with permission from the Inter-American Dialogue's daily Latin America Advisor