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How Latin American startups are following the example of China

There are more than 30 countries around Latin America, and the population now exceeds 600 million, and continues to grow. This diverse region is also the second fastest growing mobile market in the world, behind sub-Saharan Africa.

With more than 200 million smartphone users, new technology companies in Latin America are increasingly looking to China for inspiration to solve the same local problems that China faced about ten years ago. One of the main challenges that these companies are trying to solve is to include the sub- and unbanked population in the financial system to improve their lives with technology.

“Historically, Latin America has looked to Silicon Valley and New York to do business, but there are innovations in China that could be even more applicable to Latin American reality”.

Felipe Henríquez, Managing Partner of Mountain Nazca, said in a recent Bloomberg interview. “When you go to China, you see what will happen in Latin America in five more years. Today we look at China. We look at Meituan, Alibaba and Tencent to know what we can do in the future”.

Here is a deeper insight into how new technology companies in Latin America are following in the footsteps of China.

A “mobile-first” approach to the payment industry

Being the largest e-commerce market in the world, China is also the leader in mobile payment technology. Mobile payments in China reached a new record in 2018 with 60.5 billion mobile payment transactions, representing an annual growth of 61.2% in the number of mobile transactions, according to a report by the People’s Bank of China.

Similarly, mobile payments are booming in Latin America. Traditional banks and financial institutions have failed to meet the new digital needs of consumers in Latin America today, leaving significant opportunities open for startups that attack the mobile or fintech market. The Latin American payments sector is one of the fastest growing in the world and an average annual growth of 8% is expected in the next five years. With this growth rate, only the Asia-Pacific region manages to beat Latin America.

Latin America is on its way to becoming a society that depends on mobile-first solutions with new mobile payment options appearing at all times, many of which are inspired by the success of Alipay and Wechat Pay in China. The millions of smartphone users in the region are rapidly adopting mobile payment applications, digital wallets and QR codes to buy online, send money, pay bills and more. Two out of three Internet users in LatAm said they would probably use mobile wallets or similar payment methods this year.

Forming a collaborative economy

Approximately 54% of the world’s population lives in cities. In Latin America, the urban population is growing at a rate of 1.5% per year and cities are expected to house almost 90% of the region’s population in the coming decades. Some of the largest cities in the world are located in Latin America, which creates numerous opportunities to develop a collaborative or shared economy.

The new Latin American companies are adopting many of the same initiatives that have been successfully implemented in China to stimulate growth in the region, from shared transport and accommodation platforms to collective financing services. China’s collaborative economy is expected to grow at an annual rate of 30% over the next five years, according to a report from the State Information Center. Many of China’s most important technological unicorns are also in the “sharing economy”, including the giant Didi Chuxing and the shared bike firms Mobike and Ofo.

In Latin America, there has been a wave of startups in the sharing economy industry that are growing rapidly. For example, Workana offers a platform for companies to find freelancers and employees with technological skills to help with projects. There are currently more than one million registered users on the platform. IguanaFix connects users with more than 20,000 professional service providers for home repairs. Afluenta is one of the largest peer-to-peer loan platforms in Latin America, with more than 11,000 investors and 15,000 loans granted successfully through its platform.

Like the Chinese startups in the collaborative economy, these Latino companies have grown thanks to an increasingly connected urban population and helped formalize the informal economy through technology.

Entrepreneurs are staying in Latin America

As the United States moves away from Latin America and the economic relations between the two remain uncertain, China is becoming an increasingly important partner for local businesses seeking international partnerships and investments.

Trade between China and Latin America has grown considerably, from US $ 12 billion in 2000 to almost $ 306 billion in 2018. While most of these investments were for energy and infrastructure projects, several investments in the technology sector LatAm broke records in 2018. This influx of capital, along with the increasing difficulty of taking a startup to Silicon Valley from Latin America, makes it more attractive for entrepreneurs to stay in Latin America and focus on innovating and solving problems in their countries of origin.

This trend is the same as what is currently happening in China. People with Chinese technological talent are returning to China in increasing numbers. According to the Ministry of Education, 432,500, or almost 80% of Chinese students abroad, recently decided to return to China after finishing their studies.

The Chinese technology industry is benefiting from this massive arrival of “sea turtles” (a name for Chinese returnees who studied abroad in the United States) and the growth of a young middle class who is already comfortable with technology . The Latin American middle class has also grown steadily in recent years, boosting growth in all consumption spheres. The expansion of the middle class in Latin America has not only been good for business, but it has also been essential to maintain and increase local technological talent. For example, Guadalajara is part of the “Silicon Valley” of Mexico and has more than 85,000 IT graduates every year. Meanwhile, São Paulo, Brazil, now has more than 2,000 new companies.

New alliances Latin America-China

As the ties between Latin America and China are strengthened, the two regions are increasingly likely to become the technological centers of the future. Until today, Silicon Valley startups still win in terms of attracting more capital, but startups in cities like Beijing and Shanghai in China and São Paulo and Medellin in Latin America are generating high-growth businesses, raising huge capital rounds and solving crucial problems in their respective developing countries.

As the partnerships between the two regions continue to increase, the new Latin American companies will continue to be undoubtedly inspired by the successes of China, either adopting similar business models and applying them locally or partnering with Chinese talent to achieve a broader scope in less weather.

Published inStartups

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