Chinese technology companies have grown in scale and confidence and are increasingly looking to influence internet revolutions in other regions across the world. Much has been said about China’s increasing forays into Southeast Asia and India, as these nearby regions are experiencing similar increases in mobile internet penetration to China’s recent evolution. However there remains another frontier of the digital economy that while geographically distant from China, represents a significant opportunity for Chinese tech firms and venture capital. Latin America boasts a population of over 650 million that has experienced significant and continuing alleviation from poverty, and substantial increases in broadband penetration. In fact, between 2000 and 2012, 56.2 million citizens moved out of poverty and the middle class grew from 100 million to nearly 150 million individuals. Meanwhile, the region will account for 10% of all new mobile internet users from now until 2025. While the region might not boast the scale of regions in Asia, there is one less barrier to entry, which is localization.
While India has over 20 unique languages in the country, and Southeast Asia consists of many different countries with different languages, Latin Americans speak Spanish with the only exception being Brazil, the region’s largest market where Portuguese is spoken. While there are dialectic differences throughout the various countries, when it comes to localizing technology products, the lack of language barriers segmenting the market makes the region all the more appealing to overseas tech firms. China’s language landscape is similar, with a dominant Mandarin, and Cantonese spoken in the south.
In Latin America’s largest market, Brazil, where internet users spend an average of over 9 hours on the internet, there have been significant initiatives launched by some of China’s tech giants. Namely, Tencent has invested $180 into Nubank to augment its fintech capabilities, while ride-hailing giant Didi acquired Brazil’s major ride-hailing service, 99, in 2018. 99 in Brazil. Brazil’s mobile internet penetration has reached 66%, and 61% of Brazilian use mobile banking applications, validating Tencent’s investment in Nubank. However, the penetration of mobile payments has only reached 38%, meaning there is significant room for growth. Tencent President Martin Lau said in a statement that the company’s investment in Nubank aims to “build a full-service personal finance platform.” Nubank, founded in 2013, is pioneering the fintech revolution in Brazil by signing up 2.5 million customers to digital payment accounts.
Meanwhile, Huawei is intent on building the first trans-Pacific fiber optic cable connecting Asia and South America. The proposed project would connect Chile, on the western coast of the South American continent, with China. Huawei has praised Chile as the “digital center of Latin America”, and has backed up such rhetoric by establishing a $100 million data center in Santiago earlier in 2019. Huawei has not limited its Latin American ambitions, as the company also began implementing 5G network capabilities in Peru this year. The Chinese telecom giant also announced plans in November to invest $50 million in Latin American developers, along with the opening of a research lab in Mexico.
Many Mexicans experience Chinese technology products first hand in their daily life. Noticias Aguila, Spanish for News Eagle, is a Shenzhen-based news aggregator founded by Tang Xin, a former Tencent employee, that has garnered huge popularity. In fact, it has become Mexico’s top news app on the Google Play store with more than 20 million active users.
In Colombia, Medellin has entered a period of rejuvenation. Tthe provincial capital that gained notoriety as the home of Colombia’s inglorious drug cartels is now becoming an innovation hub for the fourth industrial revolution. Ruta N is a startup accelerator based in Medellin with the goal of promoting Colombia’s digital evolution. Sin Kit, from the Centre of Business and Innovation of Ruta N said, “I think Colombia has a lot to learn from China, and obviously the other way around because if there is no mutual understanding, we don’t know each other there is no action. So, this kind of exchange in terms of technology and innovation. What do you have? What do we have? It is a first step.”
The relationship between Latin American startups and the Chinese VC community is also strengthening. For example, The Inter-American Development Bank (IDB) also acknowledges the value of the exchanges in innovation between China and Latin America. Vanessa Li, who works at the IDB’s China desk, and is responsible for giving strategic guidance for China activities said, “LAC is witnessing the emergence of a new generation of dynamic entrepreneurs that are seeking financial returns and focusing more and more on solving pressing problems. We believe China-LAC partnership will be the new fuel for innovation and an economic engine for development.”
Managing Partner at Magma Partners Nathan Lustig stresses the importance of this relationship between Latin American and China, commenting, “We believe that China will be a growing influence on the region, especially on series B and forward deals along with acquisitions. Latin American startups should have China on their radar, which is why we’ve opened a Beijing office and are working with Chinese companies and investors to help them thrive in Latin America.”
While the United States and China are engaged in an ever-intensifying competition economically, and more specifically technologically, developing regions like Latin America will be defining areas of competition for influence and value. China has advantages in emerging markets like Latin America due to the country’s recent experience in modernization and digitization. Because the United States experienced their economic development at an earlier point in history, their companies are less adept at facing the challenges of a relatively low-income consumer environment that seems primed to jump straight from a cash-based economy to a digital payment one.
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