Latin America’s Tech Unicorns Signal a Digital Transformation Ahead

Can a lack of technological infrastructure actually make a region more likely to take a leap forward? In this episode of Mastering Innovation on Sirius XM Channel 132, Business Radio Powered by The Wharton School, guest Felipe Monteiro, Mack Institute senior fellow and professor at INSEAD, discussed factors in Latin America that suggest it’s on the brink of a digital transformation.

Monteiro analyzes the success of several Latin American tech unicorns that have emerged in recent years, such as MercadoLibre in e-commerce and TaxiGuru in mobility. Factors such as high mobile penetration and consumer behavior (high use of social media and online services) have allowed companies to bring solutions to millions of consumers. Brazilian citizens spend more time online than people in any other country, and consumers now have more price transparency and a wider variety of products to browse than ever before. Despite digital developments and the borderless nature of modern e-commerce, however, obstacles remain: a lack of trust around digital payments and physical infrastructure that inhibits delivery of physical goods, for example. To overcome these, Monteiro suggests that future investments in infrastructure and education around mobile banking will be necessary.

An excerpt of the interview is transcribed below. Listen to more episodes here.


Felipe Monteiro
Felipe Monteiro (Mack Institute Senior Fellow)

Harbir Singh: What got you [and your co-authors] interested in thinking about digital transformation in Latin America?

Felipe Monteiro: I think we started looking at this because every day, in our classroom, in the companies we work with, and in the research we do, there’s a lot of discussion about digital transformation. But most of the companies we talk to or discuss are based in the U.S., Europe, or China. I got really curious and intrigued by what is happening in Latin America because I think the same forces driving digital transformation in the U.S. are likely to also affect the region. We started looking at what’s happening there, and got really excited to see that there’s a lot going on.

Singh: Specifically, you talk about a leapfrogging opportunity, can you talk a bit more about what that leapfrogging means?

Monteiro: The two examples that might come to our minds are really this idea of when you don’t have existing infrastructure, how do you take it as an opportunity to skip steps and adopt the most advanced technologies? Many times we can think about this happening in Africa with mobile payments in Kenya. When you start looking at Latin America, we identified a number of areas where this leapfrogging can take place. For example, if we think about fintech and we think about the unbanked population in Latin America, what we’ll see is that so many Latin Americans will never have a typical bank account.

“When you don’t have existing infrastructure, how do you take it as an opportunity to skip steps and adopt the most advanced technologies?” – Felipe Monteiro

Singh: Interesting. In a sense what you’re saying is that the conversation around startups and fintech and unicorns very often ends up focusing on U.S.-based companies, or Western European, or even Chinese. But you have identified some very, very successful companies in Latin America. Perhaps you can focus on a couple of them to tell us what drove their success.

Monteiro: When we think about Latin America, we typically think about the really big, well established commodity companies, like the oil or mining companies. But as we start looking in the digital space, there are a number of unicorns. There are about 10 unicorns in the region, 4 of them in Argentina, 3 in Brazil, so still concentrated. They are kind of widely distributed in the region, but mainly concentrated in a few countries. And then, we have companies when we think about e-commerce. We have this Argentinian company called MercadoLibre which is really a leader in e-commerce, much stronger than Amazon is in the region, for example.

If you think about mobile payments, the most recent unicorn was a Brazilian company called TaxiGuru, which had its IPO in the U.S. earlier this year. Those examples are not companies we typically associate with the region, so these are not at all related to commodities.

Singh: You also talk about sort of the penetration of e-commerce in different countries and how that is actually much higher than many people may have anticipated. How is that penetration, how did it come about, what were the first ports of entry for people to start doing a lot of e-commerce?

Monteiro: It’s really mobile penetration, because what you see there is the same way that it happened in Africa. In Latin America, and in Brazil, instead of having fixed line and fixed broadband, people start having e-commerce and having access to the internet via mobile devices. What’s really interesting is not only the large penetration of mobile devices but also how intensively people use those devices. I was looking at some of the statistics, as much as they change all the time, to get a model of the trend rather than specific figures, and it looks like that. For example, in Brazil, people spend more time online than anywhere else in the world. Numbers like 4.5 hours per day compared to 3 in China or 2.5 in the U.S. It’s really mobile and not only the device or the infrastructure itself, but also the consumer behavior of being really adept at using their devices at home for e-commerce and social media.

“We typically think about the really big, well established commodity companies, like the oil or mining companies. But as we start looking in the digital space, there are a number of unicorns. ” – Felipe Monteiro

Singh: What explains this high level of engagement online?

Monteiro: We can speculate. Maybe part of the reason is a variant population. If we look at the demographics in a number of those countries, they’re very young people. That’s maybe one driver. Another driver, which is going to be very important if we talk about another area where the region can leapfrog in terms of smart cities, is an urban population. If you look at the numbers, Brazil has about 86% of the population in cities, Chile, 90%, Argentina, 92%, Colombia, 77%, which is much higher [than other regions], right? I believe, for example, India should be about thirty-something.

Singh: Right. Maybe that’s a related factor, the percentage of urban population. Wouldn’t that make Latin America and certainly countries like Argentina and Brazil targets for all the global players? Yet, what you see, and what’s fascinating about your work, is a lot of homegrown organizations. And maybe you can talk a little bit about the global powerhouses versus the more regional, and how their strategies differ.

Monteiro: Let’s pick two examples. When you think about e-commerce, it’s interesting that so far, Amazon has not been aggressive in the region. A couple months ago, you started to hear rumors that they will be stronger in Brazil, but most of the e-commerce has been by local companies and developed over time. You heard of MercadoLibre which is more of a regional player, but in Brazil, a lot of the players are really country players, Brazilian players for the Brazilian market. We also think about mobility, and it’s very interesting. Uber is very strong in the region, especially Brazil. But it’s also very interesting to see the global competition dynamics because a Brazilian company called 99Taxis, one of the leaders in Brazil, was just acquired by DiDi from China recently.

You see kind of the homegrown company that got to a scale that became attractive, and then you see competition with the Chinese investing. And now, we have this competition between Uber and 99.

Singh: In fact, that was going to be one of the issues I wanted to ask you about. If you think about some of the Chinese companies which were able to grow, Alibaba being one, with a very large consumer base to draw upon, they have the platform to actually diversify and support growth in new areas. DiDi is, of course, an example of that. Do you see more of this kind of activity or is it sort of the more entrepreneurial ones? In other words, in the long run, would we see global players with partnerships, or would you see local champions?

Monteiro: I think we will see a mix, but compared to today, I think we’ll see more global players entering those markets because most of it had been grown by local players.

About Our Guest

Felipe Monteiro is a Mack Institute Senior Fellow and Affiliate Professor of Strategy at INSEAD. Before joining INSEAD, he was a standing faculty member at The Wharton School and teacher at the London School of Economics and Political Science (LSE). He has also worked as a Senior Researcher at the Harvard Business School’s Latin American Research. Prior to joining academia, Felipe was a Senior Analyst at Banco do Brasil acting as an advisor to foreign companies investing in Brazil.

His research published in top journals (e.g. Org Science, Strategic Management Journal, JIBS) focuses on global open innovation and on knowledge processes within multinational corporations (MNCs), in particular, on how MNCs access external knowledge across organizational and geographic boundaries. Professor Monteiro consults and gives talks for companies and governments worldwide.

Professor Monteiro obtained his Ph.D. in Strategic and International Management at the London Business School. He also has a LL.B. (JD equivalent) degree, cum laude, from the Federal University of Rio de Janeiro, a M.Sc. in Business Administration from COPPEAD/UFRJ, Brazil and a MRes in Business Studies from London Business School.

Mastering Innovation is live on Thursdays at 4:00 p.m. ET. Listen to more episodes here.