Introduction
Digitalization is changing our lives, both by multiplying business opportunities for companies and by extending the range of products and services available to consumers. Many market players in the digital economy act as platforms facilitating transactions between two or more sides. The continuous increase of digital platforms is radically changing the way consumers behave in areas that were previously the domain of offline markets. Mexico is following this global trend with an increase of online businesses which act as platforms most of the time. From social to e-commerce websites, Mexicans are increasingly relying on the digital ecosystem to carry out many of their daily activities.
E-commerce platforms in Mexico are experiencing a huge increase in their business although – for various reasons – the figures of online retail are still way below some of the most developed economies.
With around 40% of the Mexicans buying online in 2020 there is huge potential. Various indicators show however that the trend is going upwards and accelerated because of COVID-19, potentially representing a promising future for the sector.
Strengths in E-Commerce in The Netherlands
The Netherlands is leading the list of UNCTAD’s B2C e-commerce Index because of access to secure internet servers, reliability of postal services and infrastructure (100%) and a large percentage of the population that use internet (95%) and has an account with a financial institution or mobile-money-service provider (99%). The Netherlands holds the technology and services to facilitate e-commerce like payment services, Enterprise Resource Planning (ERP), CRM and marketing and logistics, while focusing strongly on innovation and sustainability.
Many companies were not fully prepared for increased digitalization when the impact of COVID-19 made them realize that their lack of knowledge and adequate technology needed to be fulfilled. As in-house digitalization is a high cost investment many companies opted for the outsourcing option which presented an opportunity for companies offering specialized services and workshops on how to use operational software and payment providers. Companies need the operational software, logistical innovation and payment provided to support them in becoming a digital success. Hence The Netherlands has a lot of experience in the e-commerce sector and is able to share its innovative and sustainable knowledge and services.
E-Commerce in Mexico
Demographic information
The population of Mexico is the second largest population in Latin America with around 130 million residents with an average age of 28 and 85% of them aged between 18 and 45. These millennials, with a medium-high social-economic level, also explain why Mexico is an emerging consumer market with a growing e-commerce sector. Mexico City appears to be the region where online shoppers are more concentrated, followed by Estado de Mexico and Jalisco.
Access to internet
Mexico runs behind some other Latin-American countries and lies below the regional average. The number of online consumers in Mexico is expected to grow exponentially as access to internet becomes more prevalent and the telecom industry supports mobile internet uptake and digital access. Since 2016 internet-usage increased from 57% to 70%. Access to internet from home is around 56% against 75% through smartphones and increasing i.a. because of the pandemic. Mexico’s digital advancement is driven by relatively stable institutions, an innovative mindset and improvements in information and communication technology infrastructure. And COVID-19 also contributed to an accelerated increase of access to and use of internet.
Facts & Figures
Selling in Mexico is a great option for growth-minded online merchants. Launching a store in a new market, there are a number of useful facts and data to consider.
- Six out of ten SMEs sell on internet, which represents an increase of almost 100% compared to 2019.
- Over 50% of SME’s is interested in expanding their business, with a focus primarily on exporting to the USA, followed by Latin America.
- Approximately half of the people who buy online are considered educated with the highest reported levels of income. In 2019 ecommerce represented around 5% of total GDP with 6 out of ten SME’s selling online.
- Several dominant players like Mercadolibre, Amazon and Walmart determine the market. closely followed by others like Linio, Alibaba, Samsung, eBay, Coppel, Liverpool and Apple.
Challenges
Mexicans still prefer off-line sales compared to the level of other countries in the region. Several reasons behind the low level of uptake of online purchases are:
- Fraud: One of the main barriers to the development of e-commerce platforms is the users’ perceived risk of frauds. In Mexico, 14,3% of online purchases are not completed because of a suspicion of fraud; roughly double compared to countries such as Brazil and Argentina. Research identify lack of trust as the main reason why Mexicans are reluctant to buy online.
- Financial inclusion: Another obstacle to the development of e-commerce platforms in Mexico is the low level of financial inclusion. Despite the high number of internet and mobile phone users in the country nearly half of the Mexican population remains unbanked. Credit card penetration is low and most Mexican shoppers prefer to pay using cash-based methods. Customers pay for their items online and print a voucher, which they then take to one of the 18,000+ OXXO locations in the country to pay for example.
- E-security data protection: There is a low level of confidence by customer and retailer in security of e-commerce and a low level of local knowledge on FinTech and digitalization. The lack of proper payment infrastructure and technology can also create a hindrance for some merchants.
- Digital sales strategy: Most SME’s lack knowledge and orientation for digitalization (marketing, webshop, CRM, market places and infrastructure). It is important to increase the knowledge on digitalization of their businesses and data availability by the government and research institutes. And although logistic networks in Mexico are among the best in Latin America, especially in the more urbanized areas, transparency on shipping and delivery still needs improvement.
- Logistics: Although the infrastructure and logistics network in Mexico is considered one of the best in Latin America, especially in het more urban areas, some remote areas in the South and North of the country sometimes face issues with regards to accessibility.
Opportunities
With room for improvement on both website, marketing, payment methods, purchase, and delivery services it’s paramount that Mexico addresses the customer journey experience. For all of its size and its growing connectivity, Mexico is an emerging market that presents some challenges for companies looking to establish a footprint there. But with challenges along come opportunities, especially when taking into account Mexico’s digital advancement is driven by relatively stable institutions, an innovative mindset and improvements in information and communication technology infrastructure.
The digital shopping experience should be integrated with the regular in-person shopping journey, and not treated as an isolated or distinct business alternative solution. Retailers need to change the way they define, execute, and measure their digital strategy, to ensure that the customer’s needs and wants are properly addressed. To succeed in capturing the sale, and ideally increasing the ticket, retailers need to understand their customers shopping cycle, and focus on designing and building customer experiences that play to how their customers are shopping or want to shop for products. Developing a digital strategy and enabling all digital capabilities is an undertaking that will require a considerable amount of time and effort and where Dutch expertise can prove to be very useful.
The speed at which new technologies are evolving makes it even harder to catch up. Retailers need to take into consideration several challenges while selling online: consumers are concerned about providing their personal details through the internet, internet connections are often slow or unreliable, many Mexicans are unbankable and the country has important socioeconomic differences and logistical challenges. In the Netherlands 99% of the people has access to digital financial services, financial institutions or mobile-money-service provider. Dutch companies could bring these experiences to Mexico.
Conclusion
The growing digitalization of Mexico, fueled by an increasing internet and smartphone penetration, is creating an environment for further development of digital platforms. E-commerce platforms are rising in Mexico, although the penetration is still behind that of some other countries in Latin America. Various analyses show an increasing tendency to buy online.
The main barriers identified with regards to the development of this sector are low financial inclusion, lack of trust in the handling of digital payments, privacy issues and logistics. When a significant segment of the population is unbankable, online transactions remain difficult. Some businesses offer payment methods such as cash on delivery; however this should only be a temporary remedy. Hence, it is important to facilitate and increase the access of the population to the financial system.
Mexicans remain reluctant to buy online because their lack of trust in how the system handles digital payments or treats confidential data. Thus, the entire infrastructure of online payments could be reinforced. In this context, Fintech platforms could help improve Mexicans’ financial inclusion and thereby e-commerce platforms growth.
Selling in Mexico is worth considering for many international e-commerce merchants. It’s a large and active consumer market, young and full off opportunities. At the B2C side product variety in luxury goods is a promising topic and B2B service providers in the sectors logistics, payment and operational software have plenty of opportunities to initiate, optimize and innovate the online businesses in Mexico as well.
