By Glenn Drexhage

The Business-To-Consumer ( B2C ) market is passe, right? Well, Nobody told Antonio Bonchristiano. He's the founder and CEO of Submarino, an e-tailer extraordinaire that began operating in July 1999 and now has operations in Brazil, Mexico, Argentina, Spain and Portugal.

Bonchristiano is an apt spokesman for Latin America's e-business aspirations; he saw an opportunity and didn't hesitate to act. "There was a clear gap in the online market coupled with a very poor traditional retail environment," he says. Now, Submarino offers more than a million units of books, CDs, videos, computer hardware and accessories, consumer electronics and toys. "I don't think there's any other company that addresses the markets we do and in quite the same fashion," he says.

LatAm Online

As the New Economy goes global, Latin America is emerging as a key-if challenged-e-business entrant. The region has about 520 million inhabitants, most of whom live in urban areas with developed infrastructures, according to the eLatin America Report from New York Internet research firm eMarketer. Plus, the population is younger than those of the U.S., Europe and Asia. And that could translate into serious future growth.

"Today's Nintendo-demanding children, teens and young adults, currently lacking the purchasing power and secure credit of adults, are tomorrow's likely cell phone and computer owners," the report notes. And in a missive published last May, Merrill Lynch confidently predicted that "the Internet will have a more important impact on Latin America than on the U.S."

But for now, widespread poverty is a major concern, as millions of people in the region live on less than U.S. $2 a day. And as the eLatin America Report notes: "Until income distribution levels out in Brazil, Mexico and Argentina, the market for Internet services in Latin America will remain a small segment of the total population."

Nonetheless, the region is moving forward. Anna Giraldo Kerr, a research manager at IDC Latin America, refers to the process as "euphoric evolution." She says that "1999 was the year when companies in Latin America were seriously acknowledging the presence of the Internet." Now, firms are dealing with the first two phases of e-business: using the Internet as a sales channel, and as a tool to establish a regional presence. Phase three-enhancing internal business processes via the Net-remains mostly untapped.

The leaders

Brazil, Mexico and Argentina have emerged as the region's "Big Three" e-business players. More than half of Latin Americans live in Brazil and Mexico, and as the eLatin report notes, these are the leading markets for computers, Internet access devices and Internet services. Argentina is the fourth most populous country (after Colombia), but has the third-largest Internet market due to its high per-capita GDP, well-educated population, strong telecommunications infrastructure and credit card penetration rate. According to Kerr, the Big Three account for 80 per cent, or about U.S. $4.3 billion, of all e-commerce spending in Latin America.

Other countries are also making a mark. Kerr picks Chile as a contender, as its various industries, such as logistics, strive to adapt to e-commerce. She also notes that Peru has pioneered the use of Internet cabins-accessible computer terminals that provide cheap hourly online access.

Noah Elkin, an e-marketing analyst and the author of the eLatin America Report, also names Peru, along with Colombia and Venezuela, as countriesbelonging to the "third tier" of Latin Net rankings.

B2B to mobile

As for hot markets, business-to-business ( B2B ) projects claim the top spot. According to IDC Latin America, B2B accounted for 80 per cent of total e-commerce transactions in 2000. "Latin America's economies are alive because of traditional industries and business to business is at the heart of that," says Kerr. "So companies that are being created around B2B services want to get a piece of that billion-dollar pie." In addition, the prospects are good for the business-to-government (B2G) sector, as Latin American governments move toward sourcing more services online. This development could be lucrative, as government spending is in the billions of dollars.

Although B2C is often dismissed as viable, Kerr rejects the backlash. "Online consumers are the first ones who started the Internet activity in Latin America," she says. "So the B2C activity served as an education to prepare the corporate world in Latin America." Last year, total B2C revenues in Latin America were U.S. $528.5 million.

The real revolution, though, could be mobile. Rather than waiting for telecommunications infrastructure to be put in place and PC penetration rates to rise, many Latin Americans may leapfrog straight to cell phones and other mobile devices. IDC Latin America estimates that by 2005, m-commerce will total U.S. $789 million.

But problems remain. For Kerr, the biggest e-business obstacle can be summed up in one word: infrastructure. As she notes, more phone lines and lower Internet access fees are essential. However, according to the eLatin America Report, telecommunications infrastructure is set to improve in the near future. Also, industry deregulation is taking hold in much of the region (Chile is often cited as a pioneer), allowing other players to compete and drive down prices.

Other e-commerce services need to be addressed. Logistics services are improving, but reliability and availability is spotty across the region. The development of online payment systems is also a big issue, due to the low credit card penetration rate. In addition, financial resources are scarce. IT managers have limited budgets; according to Kerr, the average technology investment by Latin American enterprises is expected to be U.S. $600,000 this year, modest compared to other parts of the world. Funding is also in short supply. Venture capital, especially for dot-com related projects, has become rare-although this situation is hardly unique to Latin America.

Keeping the hope alive

But if the story is right, the money is often available. Just ask Submarino, which in February received a third round of funding from existing investors worth U.S. $20 million. Meanwhile, Officenet-a Web-based office products company-raised a second round of funding worth U.S. $34 million last December.

The mood, then, is one of cautious optimism. "I think it will be a wait-and-see year," says Elkin. Despite the high-tech sector's global volatility, Kerr is encouraged that Latin American companies are restructuring and refocusing. "They're trying to keep that thread of hope," she says. "I believe [the volatility] will strengthen the Internet economy because it will allow the players with the stronger business models to survive."