The Essential

I sat down for an interview in the 14th February 2019 issue of The Essential newspaper, based in Buenos Aires, Argentina. The interview addressed the growing e-commerce world in Latin America, and I talked about some dynamics and forecasts for 2020.

You can check out the full interview below:

The 33-year-old Dublin-native arrived in Buenos Aires in 2011 and jumped head-first into the then fledgling world of Argentinian e-commerce. Having enjoyed his eight years in Argentina, Richard Fenning now has Brazil in his sights.

We spoke to Richard a few days before the move, leading to an extremely informative look at the future of e-commerce in Latin America’s Southern Cone. Richard was forthright in his comparison of Brazilian and Argentine business environments, and our interview covered everything from Amazon’s entry strategy to the effects of new technology on banking and consumer purchases.

Edmund Ruge: Hi Richard, thanks for sitting down with us today. How did you end up in Argentina, and how did you get into e-commerce?

Richard Fenning: By accident! It was never my goal to get into e-commerce. I did a Masters in Marketing in Ireland and always had ambitions and plans to live abroad. Then Argentina came along, and I’ve been here for eight years. I’ve loved it and I think it’s an amazing place.

 As for getting into e-commerce, when you’re working in that individual space, there are many different areas you can enter. One of the great ones, for example, is travel. Traveling is a huge area. And there’s another whole area around financial stuff. Fintech is really hot and cool right now, as is bitcoin, another huge area in e-commerce.

I’d already worked on an application that had to do with fintech, a mobile wallet. So when I had the opportunity to go work at  Mercado Livre a few years ago, I was like “OK, good, now I’m working purely in e-commerce and, you know, purely in an electronic market”.

Edmund Ruge: What was the wallet app you worked on?

Richard Fenning: RecargaPay. It’s a huge company in Brazil, and it’s really interesting. The company was founded here in Argentina and had operations throughout Latin America, and then all of those operations were closed to focus 100% on Brazil. That’s a real theme I’ve noticed throughout my career here in Latin America.

As I see it, the financial or business hubs for Latin America are São Paulo and Miami. That’s how I’ve always seen it. In the tech space, this is where all the innovation and all the money comes from. Buenos Aires has been a great center of innovation for unicorns that went on to leave Argentina, like Despegar and Mercado Livre, Globant and OLX. As you can see, two of them are in the e-commerce area.

Now, with Mercado Livre, our number one market is Brazil, and earlier, when I worked at RecargaPay, in the wallet application, the strategy was to shutter operations in all other markets and focus on Brazil, despite the office being based here in Buenos Aires. In 2016 I was sent to São Paulo for the opening of the largest office there, so I’ve always had a very open connection with Brazil, albeit more out of necessity than any desire on my part.

Edmund Ruge: Do you see a change in strategy when companies open their Brazilian branch, or is it just to attract a larger market in general? Is there a different way of communicating with customers and doing business there?

Richard Fenning: Things are different in Brazil. Brazil is one of those countries that is so big that it is its own marketing, and grows independently of anywhere else. One of the interesting things about Brazil – last week João Doria, governor of São Paulo, went to Davos and he was talking about how São Paulo has an annual GDP of $647 billion, which is more than the entire country of Argentina. So just the scale of Brazil is impressive; it’s absolutely huge.

Another interesting thing about Brazil is that some of the numbers are just ridiculous. Brazil is 47% of the land mass of Latin America. However, all business in Brazil centers around the southern states. In northern Brazil, you see very little of that. It’s all centered around Rio, the state of São Paulo, Rio Grande do Sul and Santa Catarina. These states are all in the far south.

It’s funny, to bring this back to a digital marketing perspective… when we’re looking at analytics platforms like Google Analytics, looking at our user and profit data, it follows exactly the same trend that we see on a macro level in Brazil. All our customers come from these same areas. It’s like mapping out exactly the same people with money.

Edmund Ruge: With regards to legal barriers, or even the cost of doing business in Argentina and Brazil and bureaucratic obstacles that companies have to deal with, is this something that foreign companies have to worry about? Do you see a difference between operating in Brazil and Argentina?

Richard Fenning: Yes, there are some big challenges. One of the most interesting ones I see is what’s happening with Amazon. Amazon has been very slow to engage with Brazil in a big way. Last week, they launched 20 million new products in Brazil, mainly baby toys and personal care, but before that they weren’t doing much in Brazil.

One of the reasons put forward was that Amazon didn’t really understand taxation in Brazil, or the main suppliers there, and they were very… their way of doing business is like “we are Amazon and these are the conditions which you need to accept.” Whereas suppliers in Brazil are saying “look, you’re not the biggest e-commerce player here”.

Brazil has a lot of competitors: you’ve got Mercado Livre, B2W, Magazine Luiza, there’s already a huge amount of companies there. And Amazon was not a big enough player to enter the market under the terms they’re putting into contracts. Brazil also has very strict taxation and employment rules. It’s a difficult place to do business if you’re not paying attention. And then obviously there’s the language barrier. It’s Portuguese, unlike the rest of Latin America.

Edmund Ruge: That almost sounds like how Uber tried to enter the market here, their idea was to  just show up and start imposing their own terms. Do you see, or anticipate, Amazon running into the same kind of reaction that we’ve seen here with Uber? Just as a result of each country having its own well-established companies?

Richard Fenning: I don’t necessarily see setbacks for Amazon so far, at least not from the government. What I see is a kind of healthy competition between Amazon and the other big players. This is no longer the case in Mexico. Mexico is where Amazon is strongest right now, and the competition is basically over.

At the moment I get the impression that, because everyone is growing so quickly, it’s really just a race to get more buyers. There is not so much focus strategizing to compete with others.

I do find Amazon’s strategy in Latin America very interesting though. The logical strategy would be to think, why doesn’t Amazon – with its trillion dollar valuation – turn up and buy, for example, a Mercado Livre, which is worth US$ 15 billion? Or buy one of these other companies, and immediately own an entire region? I always found that interesting to look at.

And what I heard is that Amazon doesn’t do that, because it’s not their MO. Amazon prefers to enter a regional market and compete head-to-head with others, and beat them based on their — as they see it — superior logistics, or products, or way of doing business. 

In 2016, Jack Ma from Alibaba came to Argentina and the top management team from Mercado livre were basically told, “don’t talk to him”. If he’s at an event, you shouldn’t be there because it’s not in Mercado Livre’s interest to even open a discussion with him about an acquisition. I’ve always found this interesting, and it wouldn’t surprise me if there were e-commerce mergers and acquisitions at some point here in Latin America. It’s something we haven’t seen on a large scale, and Amazon is coming in strong. As I said, last week we counted 20 million new products in Brazil. But we haven’t seen any mergers or acquisitions yet.

Edmund Ruge: Have you seen any kind of push in terms of digital marketing and privacy? I feel we are hearing this conversation more and more in the US. Do you see any signs of concern in the region, around political discourse, or just around the gulf between digital marketing and privacy issues?

Richard Fenning: There are a few things I can say about this. The first is that I believe the government sees Mercado Livre and others as its best friends. Why? Because so much business in Latin America is done under the table, with no taxes paid. By definition, any business that is done via e-commerce will need to be taxed. As soon as you start selling something on Mercado Livre, as soon as you sell five items, then you will be contacted by the AFIP (Argentine Internal Taxation Authority) to make sure you are paying taxes on all those products.

So, from the government’s point of view, once you have people selling things on Mercado Livre, now you have half a million sellers in Argentina who are automatically paying taxes. The other thing is that the CEO of Mercado Livre, Marcos Galperin, is a close personal friend of Mauricio Macri. We had Macri visiting the Mercado Livre office in July this year, and there is a very close link between the two.

There was a push by the government to help big companies do business here in Latin America. Another thing we have seen is that Mercado Livre opened a new payment system for carpets. Another new payment format that’s been launched recently is QR codes. This is something that Mercado Livre has been doing a lot of research into, and it has taken off in Asia, where all you have to do is scan the QR code with your phone and pay directly via an app.

That’s fantastic, and it’s having a massive impact on Latin America and in Argentina, with a huge amount of people who are “unbanked”. They don’t have bank accounts. Now Mercado Livre is coming in to fill a void that the government has not been able to fill so far. At Mercado Livre we’ve seen a lot of these beautiful stories, from people in Jujuy and Purmamarca… These artisan vendors who only ever dealt with cash, now, with very little administration, can set up a QR code and receive payment that way too. And the other benefit for the government is that this money is taxed.

Edmund Ruge: In Brazil, everyone has card readers. Cielo machines and portable readers are ubiquitous… Every street vendor, even those who sell beer, take any type of card, while here things seem much more cash-based. Do you see Argentina continuing on the app-based payment path, even as these portable card readers become more popular?

Richard Fenning: I think so. Something you see a lot in Africa is that when companies are playing catch-up, they often skip generations. This is something we may  potentially see here in Argentina, with people skipping cards completely and going straight to app-based payments.

Mercado Livre has a number of options. They have a point-of-sale device called Point, which is easy to obtain. You order it through the app and it is sent straight to your place of business. You can use it to make payments via credit card, or via the new QR code payment system.

In all my time working for Mercado Livre, Point is the most innovative project I have had the pleasure of contributing to in some small way. We were really trying to change consumer habits and the team that worked on it was incredibly ambitious. And what they were doing wasn’t innovative at all in terms of the idea, but it was really exciting to change those habits and excel in the execution.

They went out and picked so-called “lighthouses”, which are the well-known businesses like McDonalds, Café Martinez, and Havana, as well as some service stations. These places started providing the new payment method, and offered an incentive for people to start using it — first-time users get a discount.

And understanding the key metrics — digital marketing has always been about understanding how many times you need someone to do something before they develop a habit. Facebook is a famous example of this. At the time of Facebook’s launch, when someone opened a Facebook account, if they had seven friends within a week, then they would carry on using Facebook. They were aware of how the dynamics work and how user behavior works.

At Mercado Livre, with this specific QR code product, we had a very similar thing, where if you made five payments in the first week, you would start to think, you know, “this is so good and so useful and so fast… so much better than the alternative”. And so you’d keep using it.

Edmund Ruge: Let’s talk a little bit about the Irish community; how would you rate the interaction between Ireland and Argentina in terms of the tourism business, and the migrant/expatriate community, etc? What is the overall feeling you get from this interaction over the last few years here?

Richard Fenning: I think the Irish diaspora is amazing. There are Irish people all over the world and here in Buenos Aires is no exception. I was very lucky to meet many of these people and we also have a very strong Irish embassy here in Argentina. The Embassy here provides many services to several countries in Latin America. From Peru down, all these things are taken care of here in Argentina.

Having said that, the commercial connection between Argentina and Ireland is virtually non-existent, for a number of reasons. The main links we have are cultural: there are Irish film festivals held here in Argentina, beer festivals and things like that, literary fairs and people who come to study here. There are strong sporting links too. In Argentina right now, people are playing Irish-Gaelic football. It is the only Spanish-speaking country in the world that is playing these sports. Funnily  enough, these sports existed here a hundred years ago, and now they’re getting a second wind. So, culturally, artistically and sports-wise, there’s a lot of growth. But unfortunately on the business side of things, major successes have been few and far between so far.

Edmund Ruge: On the subject of the economic issues here last year, and looking ahead to elections in October, do you think the industry leaders are rooting for Macri? How are they approaching the October elections?

Richard Fenning: I find it very difficult to say. I think, in general, the consensus is that most people would be in favor of Macri because he’s seen as being very pro-business. I think a lot of that depends on what they can do in the months leading up to the election.

Having been here in Argentina for eight years, and lived through countless electoral cycles, I can say from a personal point of view that generally an election year is a good year in Argentina, because money starts flowing around the economy. I think a lot will depend on whether enough money can flow around, and whether Macri can show enough green shoots from the money received from the IMF last year – $57 billion – to get over the line.

I think trying to predict politics in Argentina is always complicated. Personally, the night Macri entered the second round with Cristina, I was at my house and suddenly there were fireworks everywhere, and I was very surprised. I didn’t see it coming, and I certainly didn’t see it being this close. I think trying to predict politics in Argentina is harder than betting on horses at the Hippodrome in Palermo.

Edmund Ruge: What are the main trends you’ve noticed in the world of e-commerce and digital marketing in Argentina over the last decade or so?

Richard Fenning: So, as I mentioned, one is the lack of mergers and acquisitions. I think this is really interesting, because something like that could really shake up the whole industry. As I said, the prices that these companies are currently valued at are relatively small compared to the major players.

One thing we’re seeing a lot of around the world, and certainly here in Latin America, is cell phone penetration. More and more e-commerce is being done through cell phones, and their web versions. So more and more e-commerce companies are trying to migrate their users to download apps, and have more apps in general.

The interesting thing is that, as cell phones improve, people can have access to more apps. The sticking point in the past was that the phones were not up to the task, and in order to add one app, you had to delete another. But that issue is being resolved now. And the main focus of Mercado Livre this year is to get people to download the app.

One of the other things I see taking off in 2019 is something we call consumer packaged goods, or CPG. This is something that exists in the United States right now: when you run out of toothpaste or other everyday items at home (the famous example is diapers), they are shipped straight to you.

This is something that doesn’t exist here in Latin America right now. Mercado Livre is running tests around this sort of thing to see if they can make it work. I see it being a very strong area, because what’s happening right now is more and more people are on the way, and Amazon is on the way…

So it’s a great way to form a consumption habit, if someone buys every item for their home on Mercado Livre via the app. You can then set up subscription services, so every week they send me this specific package of goods. For this to succeed, the logistics need to be working 100%. So I see logistics as another huge growth area in Latin America. And when I say logistics, I mean the ability to transport the product from the warehouse to the user.

We’ve seen a real explosion here in Buenos Aires in the last few months, with Rappi and Glovo. On the other hand, we have seen a huge amount of investment by Amazon and Mercado Livre in these large distribution centers.

Mercado Livre is building a huge distribution center here in Ezeiza, near the Mercado Central. And both companies are building two large distribution centers in Brazil. Funnily enough they’re right next door to each other, and being built by the same company, which is interesting. Apparently, the Amazon one is a little bigger.

But yeah, that’s exactly how Amazon has done things in the past too. If you look at the Amazon model, they invest a lot in logistics and how they can make the logistics work really well. And two-day delivery, which is a promise that MercadoLivre is now offering, getting things to people within two days. And then once you provide that value, how do you keep people involved? You can use things like subscription services, or you can do Amazon Prime. Mercado Livre has something similar, Mercado Puntos. They’re trying to launch a similar type of offer with different levels, where you can potentially pay for better shipping options like with Prime, you can return items and there’s all sorts of user benefits.

Edmund Ruge: So, assuming all these trends take off and e-commerce ‘explodes’, so to speak, in the next five to ten years… I think one of my favorite things about Buenos Aires are the small bookshops in town. Nowadays in the US you find the occasional Barnes & Noble in every other city, at most. Do you foresee a widespread closure of bricks-and-mortar stores, or do you see Argentina resisting this trend? Or is there any legislation in place that you are aware of that would block this process?

Richard Fenning: As far as I know, that legislation doesn’t exist at the moment. I think it would be a shame if Buenos Aires lost its unique character. There are a lot of these one-of-a-kind merchants here: if you want something done in Argentina, you go to the specific person who cuts keys, or the specific guy who sells this or that. There are a lot of people who have really passed things down from generation to generation.

Edmund Ruge: And now that you are heading for Brazil?

Richard Fenning: I will be leaving for Brazil in the next few weeks. It’s a personal decision. Having been in Argentina for eight years, I love Argentina, but I feel that Brazil is full of opportunity.I find it very exciting, professionally and personally. It’s a new language, a new culture. I’ve worked very closely with Brazil, but I think living there will be an interesting challenge.

Edmund Rouge: Cool! Well, thanks again, Richard – it was a pleasure.