Experts have been pushing for Alibaba to consider purchasing MercadoLibre, the sole e-commerce company with a strong presence across most of Latin America, in a move that could revolutionize the industry in the region.
MercadoLibre has been synonymous with online shopping in most of the continent since 1999. The Argentinian company is a marketplace and online payment platform present in 18 countries in the region. The company remains virtually untouchable at the forefront of the Latin American e-commerce sector.
The region has an e-commerce penetration of a mere 2.7%—but things are starting to change. With a booming middle class, increased access to the banking system, and a large percentage of tech-savvy millennials and Gen Z holding most of the purchasing power, the potential customer base in Latin America is significant and growing fast.
Recently, analysts at Seeking Alpha, InvestorPlace and others like NASDAQ as far back as 2014, have suggested Alibaba should purchase MercadoLibre as a way into this lucrative and virtually untapped market.
Amazon, the first company that comes to mind when speaking of e-commerce hegemony, has not taken on the Latin American market beyond a recent stint in Mexico. The reason, as analyst Dylan Lewis points out, is the highly fragmented nature of the Latin American market as a whole, posses many obstacles, when compared with the relative ease of business within the borders of the US. Specifically, problems for companies in the retail sector who depend on services like delivery, currency exchange, logistics, and have a need for company presence in different jurisdictions. As a consequence, it is highly unlikely Amazon will ever take an interest in MercadoLibre.
MercadoLibre is a highly profitable company that has been touted as the “Amazon of Latin America”, a grossly incorrect title considering it is the region’s alternative to eBay, itself a major shareholder up until 2016 due to similarities in their business model. The region does not yet have an Amazon-like replacement, though there are millions of Latin Americans eager for access to a service with similar convenience, large product offering, and low prices.
Alibaba, unlike Amazon, has significant experience in transnational e-commerce and bringing affordable prices to people in developing countries. The company has expressed an interest in the Latin American market in the past after realizing the opportunities its presence in both China and Latin America would bring, due to two-way trade within Alibaba’s services. In addition, Alipay would merge wonderfully with MercadoPago, both payment platforms tightly connected to each e-commerce website.
While Alibaba has not said a word on the matter, a move of this magnitude is probably what Latin America needs to jump on the e-commerce bandwagon. MercadoLibre’s presence in the region is hard to challenge; however, their eBay-like business model is not living up to what it could be.