Report: Latin American E-Biz Transforming IT Landscape

Businesses in Latin America are beginning to tap their e-commerce potential, according to data released Wednesday by the Yankee Group.

The report, "Latin America's E-Builders," found that corporations throughout the region are investing an average US$1.2 million per project for Web development and online business ventures.

The spending is helping to transform some local Web site developers and Internet technology service providers, or "e-builders," into "pan-regional powerhouses," said Yankee. Similarly, local players are also benefiting from the influx of capital, gaining enough market strength to be able to compete "head-to-head" with top consultants and integrators, the firm said.

"Many e-builders have regionally-based but highly mobile project teams that work closely with corporate clients to strategize and build next-generation Web sites and e-commerce infrastructure," said Yankee Group analyst Andres Broner. "The e-builders' lower cost structures mean they can underbid the competition while providing high-quality design and implementation."

Weak Links

Despite these expenditures, Yankee concluded that industry-wide adoption of e-business initiatives has not been consistent.

Among the heaviest users of Latin American e-builder services are financial, telecommunications and manufacturing companies.

Although corporate firms in these sectors often have a high demand for payment and logistics applications, Yankee said that e-builders surveyed for the study pinpointed payment and goods shipment as the "weakest links" of e-business projects in Latin America.

While demand for buying side software, multilanguage management tools and hosting services is also high, Yankee noted that the majority of equipment and service provider communications currently in use are "far from effective."

Growing E-Government

Yankee also said that demand among wholesale, government and health-care verticals is growing in part because of extended purchase cycles. In fact, the study forecasts that online government services will account for roughly 16 percent of total e-builder revenue by 2003.

"The demand for market-specific, highly customized applications, as well as government impetus to steer projects toward firms perceived as 'local,' are good news for e-builders," said Yankee.

Hurdles Remain

The research firm's findings dovetail with other recent reports that assessed the difficulties in establishing a viable e-commerce force in Latin America.

For instance, a study released earlier this year by eMarketer concluded that low rates of Internet penetration, limited personal computer ownership and a low level of credit card usage are hindering efforts to get Latin American consumers to shop via the Web. For the region as a whole, Internet penetration is only 2.7 percent, compared with 40 percent in the United States.

Other analysts have cited unreliable infrastructure, high connection charges, poor shipping reliability and costly delivery fees as stumbling blocks to growth of e-business in Latin America.

Play or Pay?

Meanwhile, research released last month by IDC said that less than three-quarters of local and regional portals provided consumers with online payment processing capabilities.

Furthermore, IDC warned that the failure of portals to beef up their online shopping features -- and meet surging consumer demand -- will have a chilling effect on the overall growth of e-commerce in Latin America.

Crucial Force

Despite these barriers, Internet business in the region remains crucial to U.S. interests. Speaking before a group of Latin American trade ministers last week, U.S. Commerce Secretary Don Evans said that e-commerce initiatives continue to serve as a driving force in the open marketplace and must play a key role in the creation of any Western Hemisphere free trade agreements.

Additionally, Evans forecast that business-to-business (B2B) and business-to-consumer (B2C) e-commerce in Latin America is set to reach roughly $7 trillion by 2004.