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Latin America: An e-commerce continent on the rise

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Latin America: An e-commerce continent on the rise

By Jack Ehlers, Director of Product, Payment Networks and Business Development at PPRO

Latin America has historically been one of the most economically diverse continents in the world. Richer nations such as Uruguay and Chile have a GDP per capita that compares with those of mid-ranking EU states. Poorer countries however, such as Peru and Colombia, have a GDP per capita that’s lower than the poorest EU member state.

Today, Latin America’s economy is on the rise and growing once again. In 2019, 155.5 million people in the region are expected to buy goods and services online, which is a dramatic increase from 126.8 million in 2016. Recent figures have also shown that while Latin America’s e-commerce market remains small, in comparison with Asia Pacific or North American, the area’s retail e-commerce sales are projected to grow from $49.8 billion U.S. dollars in 2016 to $79.7 billion U.S. dollars in 2019.[1]

With a population of 386 million, there is an abundance of potential opportunities for e-commerce success in this region. However, the economic environment in Latin America also presents some challenges. But this is not a reason to shy away from it. Afterall, the value of online commerce is estimated to be worth $41.22 billion US dollars. What’s interesting however, is that the booming e-commerce growth in recent years took place against a backdrop of a struggling economy. While many wouldn’t expect a growth in e-commerce during economic unrest, this surge mostly came from the rise in internet and smartphone usage which provided access to goods from abroad that were previously out of reach.

Local growth driven by e-commerce

Latin America’s economy has traditionally been dominated by primary commodities. Low value raw materials and intermediate goods make up the overwhelming bulk of exports. Latin America’s abundance of, and thus reliance on, raw materials worked to its advantage in the early-to-mid 2000s. Between 2002 and 2007, Chinese consumption of commodities exported from South America increased, on average seven-fold.[2]

The growth in the commodities trade crowded out other economic activity. From the 1970s up until the late 1990s, South American economies diversified and become less reliant on a small number of exports. However, in the early 2000s, this process went into reverse. This not only left private prosperity highly dependent on a narrow range of economic activity, it did the same for state revenues. Before oil prices began to decline in 2014, for instance, 47% of Venezuela’s public revenue came from taxing the commodities trade, primarily oil.[3]

By 2008, with the financial crisis already in full swing, commodity prices were falling. After this period, a normalisation of commodity pricing in the post global financial crisis period between 2010 and 2016 translated into significantly lower growth rates[4]. But this all changed in 2016, helped by the explosion of e-commerce in the region. Now, Latin America looks to be on a recovery path and the region generates better results, with e-commerce at the forefront of this growth.

Overcoming payments and logistic challenges

Latin America still has much to overcome, especially when it comes to payment processing. In Latin America, access to secure, credit card-based payment methods are limited. In fact, many people in the region do not use a formal banking system. Amongst the logistical nightmare of a cash-based society for ecommerce providers targeting the region, merchants have found ways to manage this reality. eShopWorld reported that 36% of online consumers prefer to utilise PayPal, and 35% use Cash on Delivery.[5]

Interestingly, in the region’s largest markets – Brazil and Mexico – consumers’ preferred payment method is via credit card. These two markets hold enormous potential for e-commerce in Latin America. There are currently 66.4 million e-commerce users in Brazil, with an additional 28.2 million expected to be shopping online by 2021. Four years from now, these 94.6 million e-commerce users are anticipated to spend an average of 307 USD online.[6] By comparison, in Mexico, there are 59.4 million internet users, accounting for just under half of the population, leaving room for substantial growth. The number of Mexican internet users is equivalent to the entire population of the UK.

However, it isn’t all plain sailing even when targeting the most affluent populations in Latin America. Logistics, traffic and infrastructure are a major issue for the region and has a detrimental impact on sales, where logistics alone can amount to 15% of the cost of what’s sold. Many online retailers have put logistics on the back burner for years, focusing on the user experience through purchase, and as a result it can take weeks for a purchase to arrive at a customer’s door. In order to remain successful in the booming e-commerce era, investment in this area could result in more e-commerce sales in smaller regions.

Shifting attitudes

A return to growth, even if it’s still in its early stages, provides a better environment for retail than the economic stagnation and contraction of recent years within Latin America. The region’s consumers want premium products and are willing to pay for them. But that doesn’t mean they are not price conscious — 79% say that they are changing their shopping behaviour to save money on their purchases.

Latin American consumers are also willing to buy services and digital goods online, but there is still a high degree of openness to the idea of digital shopping for physical goods. Almost 40% of consumers, for instance, said they would be willing to buy food-takeaways, toys, and beauty products, using their smartphone. [7]

After years of recession, there is an increasing demand for e-commerce in Latin America, but customers are highly price conscious so any merchant hoping to meet that demand and take advantage of the opportunities available will need a highly focussed and localised approach to win consumer acceptance.

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Exclusive: China’s Huawei, reeling from U.S. sanctions, plans foray into EVs – sources

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Exclusive: China's Huawei, reeling from U.S. sanctions, plans foray into EVs - sources 1

By Julie Zhu and Yilei Sun

HONG KONG/BEIJING (Reuters) – China’s Huawei plans to make electric vehicles under its own brand and could launch some models this year, four sources said, as the world’s largest telecommunications equipment maker, battered by U.S. sanctions, explores a strategic shift.

Huawei Technologies Co Ltd is in talks with state-owned Changan Automobile and other automakers to use their car plants to make its electric vehicles (EVs), according to two of the people familiar with the matter.

Huawei is also in discussions with Beijing-backed BAIC Group’s BluePark New Energy Technology to manufacture its EVs, said one of the two and a separate person with direct knowledge of the matter.

The plan heralds a potentially major shift in direction for Huawei after nearly two-years of U.S. sanctions that have cut its access to key supply chains, forcing it to sell a part of its smartphone business to keep the brand alive.

Huawei was placed on a trade blacklist by the Trump administration over national security concerns. Many industry executives see little chance that blocks on the sale of billions of dollars of U.S. technology and chips to the Chinese company, which has denied wrongdoing, will be reversed by his successor.

A Huawei spokesman denied the company plans to design EVs or produce Huawei branded vehicles.

“Huawei is not a car manufacturer. However through ICT (information and communications technology), we aim to be a digital car-oriented and new-added components provider, enabling car OEMs (original equipment manufacturers) to build better vehicles.”

Huawei has started internally designing the EVs and approaching suppliers at home, with the aim of officially launching the project as early as this year, three of the sources said.

Richard Yu, head of Huawei’s consumer business group who led the company to become one of the world’s largest smartphone makers, will shift his focus to EVs, said one source. The EVs will target a mass-market segment, another source said.

All the sources declined to be named as the discussions are private.

Chongqing-based Changan, which is making cars with Ford Motor Co, declined to comment. BAIC BluePark did not respond to repeated requests for comment.

Shares of Changan’s main listed company Chongqing Changan Automobile rose 8% after Reuters reported the discussions. BluePark’s shares jumped by their maximum 10% daily limit.

GROWING EV MARKET

Chinese technology firms have been stepping up their focus on EVs in the world’s biggest market for such vehicles, as Beijing heavily promotes greener vehicles as a means of reducing chronic air pollution.

Sales of new energy vehicles (NEVs), including pure battery electric vehicles as well as plug-in hybrid and hydrogen fuel cell vehicles, are expected to make up 20% of China’s overall annual auto sales by 2025.

Industry forecasts put China’s NEV sales at 1.8 million units this year, up from about 1.3 million in 2020.

Huawei’s ambitious plans to make its own cars will see it join a raft of Asian tech companies that have made similar announcements in recent months, including Baidu Inc and Foxconn.

“The novel and complicated U.S. restrictions on semiconductors to Huawei have slowly been strangling the company,” said Dan Wang, a technology analyst with research firm Gavekal Dragonomics.

“So it makes sense that the company is pivoting to less chip-intensive industries in order to maintain operations.”

In the United States, Amazon.com Inc and Alphabet Inc are also developing auto-related technology or investing in smart-car startups.

Huawei has been developing a swathe of technologies for EVs for years including in-car software systems, sensors for automobiles and 5G communications hardware.

The company has also formed partnerships with automakers such as Daimler AG, General Motors Co and SAIC Motor to jointly develop smart auto technologies.

It has accelerated hiring of engineers for auto-related technologies since 2018.

Huawei was awarded at least four patents related to EVs this week, including methods for charging between electric vehicles and for checking battery health, according to official Chinese patent records.

Huawei’s push into the EV market is currently separate from a joint smart vehicle company it co-founded along with Changan and EV battery maker CATL in November, two of the sources said.

(Reporting by Julie Zhu in Hong Kong and Yilei Sun in Beijing; additional reporting by David Kirton in Shenzhen; Editing by Sumeet Chatterjee and Richard Pullin)

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Facebook switches news back on in Australia, signs content deals

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Facebook switches news back on in Australia, signs content deals 2

By Renju Jose and Jonathan Barrett

SYDNEY (Reuters) – Facebook Inc ended a one-week blackout of Australian news on its popular social media site on Friday and announced preliminary commercial agreements with three small local publishers.

The moves reflected easing tensions between the U.S. company and the Australian government, a day after the country’s parliament passed a law forcing it and Alphabet Inc’s Google to pay local media companies for using content on their platforms.

The new law makes Australia the first nation where a government arbitrator can set the price Facebook and Google pay domestic media to show their content if private negotiations fail. Canada and other countries have shown interest in replicating Australia’s reforms.

“Global tech giants, they are changing the world but we can’t let them run the world,” Australian Prime Minister Scott Morrison said on Friday, adding that Big Tech must be accountable to sovereign governments.

Facebook, whose 8-day ban on Australian media captured global attention, said it had signed partnership agreements with Schwartz Media, Solstice Media and Private Media. The trio own a mix of publications, including weekly newspapers, online magazines and specialist periodicals.

Facebook did not disclose the financial details of the agreements, which will become effective within 60 days if a full deal is signed.

“These agreements will bring a new slate of premium journalism, including some previously paywalled content, to Facebook,” the social media company said in a statement.

The non-binding agreements allay some fears that small Australian publishers would be left out of revenue-sharing deals with Facebook and Google.

“It’s never been more important than it is now to have a plurality of voices in the Australian press,” said Schwartz Media Chief Executive Rebecca Costello.

Facebook on Tuesday struck a similar agreement with Seven West Media, which owns a free-to-air television network and the main metropolitian newspaper in the city of Perth.

The Australian Broadcasting Corp has said it was also in talks with Facebook.

Google Australia managing director Mel Silva said in a statement published on Friday the company had found a “constructive path to support journalism”.

She thanked Australian users of the search engine for “bearing with us while we’ve sent you messages about this issue”.

Facebook and Google threatened for months to pull core services from Australia if the media laws, which some industry players claim are more about propping up ailing local media, took effect.

While Google struck deals with several publishers including News Corp as the legislation made its way through parliament, Facebook took the more drastic step of blocking all news content in Australia.

That stance led to amendments to the laws, including giving the government the power to exempt Facebook or Google from mandatory arbitration, and Facebook on Friday began restoring the Australian news sites.

(Reporting by Renju Jose and Jonathan Barrett; Editing by Richard Pullin and Jane Wardell)

 

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China’s factory activity growth likely moderated during February holiday lull – Reuters poll

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China's factory activity growth likely moderated during February holiday lull - Reuters poll 3

BEIJING (Reuters) – China’s factory activity likely grew at a slightly slower rate in February as factories closed for the Lunar New Year holiday, a Reuters poll showed, although growth is expected to remain firm, buoyed by an early resumption of production.

The official manufacturing Purchasing Manager’s Index (PMI) is expected to dip marginally to 51.1 in February from 51.3 in January, according to the median forecast of 20 economists polled by Reuters. A reading above 50 indicates an expansion in activity on a monthly basis.

Chinese factories typically scale back operations or close for lengthy periods around the Lunar New Year holiday, which fell in the middle of February this year.

However, the resurgence of COVID-19 cases in the winter had prompted local governments and companies to dissuade workers from travelling back to their hometowns, giving a boost to the earlier-than-usual resumption of production at many factories, analysts say.

“Although government COVID-19 prevention measures may constrain some manufacturing activities in the near-term, the fact that a majority of migrant workers stayed in their workplace cities for the holiday should facilitate an earlier resumption of business activity following the holiday this year,” said analysts at Nomura in a note to client on Thursday.

Wang Zhishen, a migrant worker from Gansu, told Reuters that his factory, a manufacturer of logistics boxes in the manufacturing hub of Dongguan, only closed for three days during the holiday, thanks to overwhelming businesses. Lured by the 1,500-yuan cash subsidy his factory offered, he chose to work through the holiday.

The Chinese economy has largely shaken off the gloom from the COVID-19 health crisis, with consumers opening up their wallets after months of hesitation. Growth is now set to rebound sharply this quarter, also helped by the low base effect of a year ago.

The country has successfully curbed the domestic transmission of the COVID-19 virus in northern China, with the national health authority reporting zero new local cases for the 11th straight day. Cities that were on lockdown have since vowed to push for a work resumption at full speed.

The official PMI, which largely focuses on big and state-owned firms, and its sister survey on the services sector, will both be released on Sunday.

The private Caixin manufacturing PMI will be published on Monday. Analysts expect the headline reading will dip slightly to 51.4 from 51.5 in January.

(Reporting by Stella Qiu and Ryan Woo; Editing by Sam Holmes)

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