Knowledge of the specific needs of consumers in a region has always been key to the expansion of international trade. Knowledge of language, culture, and legislation have also accompanied the development of major brands in global markets.
Added to this is the ability of companies to adapt to segmented markets. Generally, markets like Latin America have different realities coexisting with each other; different currencies, population dynamics, and economic activities taking place in a single space, at the same time. Brands and retail companies in Europe have forged experience over the years in markets with similar characteristics during their effort to reach new countries in the region.
Now, to these classic features of international trade, the development of payment methods and platforms that support the convergence of these new realities is added.
In Latin America, and specifically in Brazil, Chile, Colombia, Mexico, and Peru, the payment revolution and the mobile experience have driven businesses developing in a cash-intensive environment toward e-commerce even with the unbanked population.
The successful development of new payment methods has led some methods to grow with great success in Latin America, such as digital wallets and the Buy Now, Pay Later (BNPL) model, which by offering a financing and credit alternative brings the population closer to financial services and bank access.
These alternative payment systems coexist with the large circulation of cash in the market, which is absorbed and digitized by small businesses, retail stores, and mobile applications through tools such as QR codes and mobile applications.
Companies in Europe have previous experience in dynamic alternative payment systems, such as that which is currently operating in Latin America. This is one of the keys that will allow European brands to gain more and more ground on this continent.
The second key is handling the two main languages of the region: Spanish and Portuguese. The third key has to do with experience in localization strategies for success in individual markets.
On this matter, Nuvei has revealed in its analysis of e-commerce and transnational trade that Latin American consumers see Europe as a paradise for luxury and high-end shopping. This is due to the large supply of these brands on the continent and a lack of competition in this sector within Latin America.
Another aspect that favors the accelerated growth of some chain stores or global companies of European origin in this region is the existence of natural commercial corridors. Such is the case of the commercial exchange between Portugal, Spain, France, Italy, Germany, and Latin America, due to historical relations and immigration patterns.
Currently, the European Union is the largest direct foreign investor in Latin America, with a participation of US$37 billion in 2021. Among the industries that benefited the most from this kind of investment are renewable energy, automotive and auto parts, as well as advanced technology industries.
Foreign direct investment in these sectors also reveals the historical link between these two regions: innovation and technology, as well as the expansion of infrastructure in strategic sectors such as energy and telecommunications.
In 2022, this feature also reached the financial sector, as Latin America has also sought the guidance of several countries in Europe in terms of regulation and specifically, personal data protection policies and open banking.
In addition, Mexico is an excellent market for cross-border e-commerce, thanks to its open trade regime and its proximity to the US. Actually, more than a quarter of e-commerce in this country is cross-border, with the largest share among the large markets in the region.
Foreign sales are growing at a faster rate than domestic sales: at 39% per year versus 30%. Today, European companies increasingly are taking Mexico seriously. IKEA, for example, entered the country in April 2021 and has seen continued growth, even during the post-pandemic period. In October 2022, sales at its first store showed a 41% increase over the previous year. Given the success of this first store, the Swedish chain has opened a second store.
International companies that sell digital products and services are thriving. Gaming platform revenues are dominated by a variety of companies, including Microsoft's Xbox, Sony's PlayStation, and Valve's Steam, in addition to Japan's Nintendo.
With all this prior knowledge and expertise in new practices, the next step for large retailers on the continent is a deep dive into Latin America's largest markets: Brazil and Mexico, with an insight into potential territories for fostering growth, such as Chile, Colombia, and Peru.
These recommendations could even impact young businesses in Europe, which could find faster development in this region and better placement than in their home markets, which are already saturated by a wide offer.
Moreover, e-commerce in Latin America will develop further as fraud risks, underwriting difficulties, and international transaction fees decrease. Another area of opportunity will continue to be the access of credit and foreign exchange.
With the right payment partner, European companies can leverage cultural similarities and find niche markets among consumers ready to take advantage of what Western brands have to offer.