At first glance, Latin America and Southeast Asia appear to be two vastly different regions separated by geography, language, and culture. These perceived differences have hindered many Southeast Asian businesses from even considering Latin America when scouting for new markets to scale. However, take a closer look and we will realise that these two regions have much more in common than it seems. The shared similarities between these two emerging economies highlight the potential for Latin America to be the next hotbed for Southeast Asian business ventures, particularly in the area of tech.
Latin America: A knowledge-hungry economy
With a population of 652 million, a growing GDP half the size of China’s, and a valuation twice that of India’s USD 10.5 trillion economy, Latin America presents itself as a region bursting with growth opportunities and potential. It is home to a growing mobile-minded middle class and a knowledge-hungry workforce that is open to embracing tech solutions to advance their societies. While the region works to push past the low levels of entrepreneurship, tech companies can capitalise on the relatively low CAC (Customer Acquisition Cost) and the high CLV (Customer Lifetime Value) to scale their businesses and contribute to Latin America’s growth.
Southeast Asia: A knowledge-intensive economy
Southeast Asia is home to 667 million inhabitants and boasts a USD 9.1 trillion economy and GDP that is expected to grow at an average of 5% in 2019. The region is dedicated to high growth innovation and cultivating its entrepreneurial ecosystem, and this is supported by its access to knowledge-intensive services brought about by the vast reserves of human resources from China and India.
Where two emerging economies meet
The economic realities in Southeast Asian countries mirror that of the economic realities in Latin America. As such, solutions that have been proven effective in Southeast Asia could be applied in Latin America to make a similar impact. Southeast Asia has seen a rapid growth in its internet penetration rate, from 25% in 2014 to 63% in 2019. Part of this growth involves countries like Indonesia, Thailand, and Singapore leading the way in terms of e-commerce, mobile banking, and ride-hailing. As GSMA Intelligence estimates mobile internet penetration rates in Latin America to increase from 53% in 2018 to 64% by 2025, the trend proves to follow in the footsteps of Southeast Asia. With Latin America forming some of the largest markets for social media and countries such as Mexico and Brazil dominating e-commerce and ride-hailing, Southeast Asian tech solutions may prove highly adaptable to the Latin American market and can expedite its digital transformation.
Southeast Asia possesses the technological capabilities and know-how that Latin America is ready to embrace, while Latin America serves as a largely untapped market that can provide raw materials and human capital to fuel the growth of Southeast Asian businesses. The Pacific Alliance is a prime example of Latin America’s economic and political openness to collaborating with Asia.
As the interests of the two regions continue to converge and more Southeast Asian tech entrepreneurs start turning their heads towards Latin America, a viable strategy is needed to help first-time business ventures navigate the political, economic, and social elements of the Latin American market. This can be best achieved through a concept known as soft-landing.
Soft-landing as a strategy for business expansion
Expansion to distant and untapped markets is often accompanied by a host of risk factors and obstacles. Soft-landing is a concept that aims to minimise these risks by supporting a controlled launch with limited resources and connecting the company to a network of local stakeholders. The soft-landing process is best led by soft-landing facilitators, whose role is to help companies scale in far-flung and foreign markets.
The main characteristic of soft-landing facilitators is that they understand how to scale in new markets given the information asymmetry. Soft-landing facilitators offer a broad knowledge of the socio-political, regulatory, and financial contexts of a market. They provide key tools such as talent acquisition and network and business alliances to support processes such as customer acquisition and the tropicalisation of strategies.
Some significant benefits of business deployment through soft-landing include:
- Cost reduction: Normally, costs of entry to other markets can be significant and exceed business budgets. Having reliable information and the support of locals can avoid cost overrun.
- Time to market: The time it takes for each company to position itself within a new market will depend on the level of preparation it has and the knowledge of the entry barriers into the new market. The soft-landing facilitator has local resources that accelerate the operational, commercial and legal establishment, providing access to strategic information, decision-maker contact networks, and talent.
- Cultural adaptation: The cultural and business practices in each market determine the way of doing business. Language, communication peculiarities and specific local knowledge within each country are keys for a successful landing into a new ecosystem.
- Deployment and reputation: Having a well-reputed local facilitator vouching for the new entrant is crucial when it comes to accessing institutions, local businesses and potential customers. This is why having local professional teams becomes critical for business development and facilitates integration from the beginning.
Soft-landing Southeast Asian tech companies in Latin America
With the Latin American economy thirsting for knowledge-intensive and technological solutions and Southeast Asia equipped to provide them, successful deployments of Southeast Asian tech companies in the Latin American market proves crucial. The concept of soft-landing provides a viable strategy that can help bridge this gap and advance the knowledge sharing process that contributes to the overall growth of both economies. Soft-landing facilitators are well-positioned at the forefront to promote deeper cooperation between these two emerging economies and take their growth to greater heights.
Contributed by Stefan Tobias Krautwald, General Partner of Latin Leap
About Stefan Tobias Krautwald
Stefan is a digital entrepreneur that is passionate about building and scaling tech ventures in the Latin American region. He graduated in 2007 from the WHU-Otto Beisheim School of Management with a Master of Science Business Administration and Economics, and completed the PDD Executive Program at Inalde Business School in 2017. Today, he is Co-
Founder and Board Observer at Farmalisto, Co-Founder or Fluz.app, Board Member of BITPoint Latam and General Partner at Latin Leap. He is also an angel investor of Habi.co and Prazer SAS, and continues to be on the look out for promising tech ventures to play a part in the digital transformation of Latin America.