Internet companies see great potential market in Latin America

RIO DE JANEIRO, Brazil (Reuters) -- You would not know it from the flood of radio ads and garish billboards hyping just about everything "puntocom" and "pontocom," but computers are still few and far between in Latin America.

The Internet is available to only the small fraction of the population in the upper middle class and less than 1 percent of Latin Americans shop online. But that has not daunted Internet upstarts who see millions of would-be cyberconsumers lurking behind the barriers to electronic commerce: low computer access, fear of credit card fraud and unreliable mail delivery.

Homegrown players like Brazil's Submarino and Miami-based Fiera are jockeying with Amazon.com and eBay as they thunder into what industry insiders hope will be one of the world's hottest emerging Internet markets.

"This is going to be an excellent market," Murillo Tavares, CEO of Brazil operations for Submarino online retailer, said. "There's pent-up demand, little competition ... and Latinos love to buy."

In 1999 only 8.4 million Latin Americans used the Internet; by 2003 that number should soar to 29.4 million, according to California-based International Data Corp. E-commerce is growing even faster: Total online purchases should reach $10.9 billion by 2003 from just $600 million in 1999.

"The base is very small but Latin Americans have caught the fever and are realizing the potential of the Internet," analyst Marc Alexander at IDC said. "Internet use in Latin America is growing at 41 percent a year, behind only Asia."

Of course, it has a long way to go. In 1999 fewer than 2 percent of Latin Americans used the Internet, compared to more than 40 percent in the United States, severely limiting the region's potential for online buying and selling.

"Basically the problem with e-commerce is that in Latin America it doesn't exist," said an executive at an Argentine e-commerce site. "Everything we do is for this 2 percent."

As a result, only a few winners are likely to emerge from the war for consumers, analysts say. But online companies are fighting to break down the barriers to Internet and e-commerce growth and lure Latin America's shopping masses onto the Web.

The first, and by far the biggest, obstacle is the lack of a computer culture south of the U.S. border, where only 5 percent of more than 500 million Latin Americans own one.

In a bid to get more online, Internet companies from Mexico to Brazil are extending loans to would-be computer consumers that include deals to sign up with particular Internet access companies or use firms' services.

"It's no use having free Internet access if the user can't afford to buy the means to access (the Web)," Luis Carlos Boucinhas, executive director of Brazil's Globo.com, said recently at a news conference to announce computer credit.

While high Internet connection fees and phone bills have kept some computer owners offline, prices are coming down, luring more residents onto the information highway. Free Internet access has also boosted online users.

But the problems for e-commerce do not stop there. Low credit card penetration -- and fear of fraud among those cybersurfers who do have them -- as well as poor infrastructure for long-distance purchasing have all been stumbling blocks.

"The buying culture in Latin America is different," Lucas Graves, an analyst at Jupiter Communications in New York, said. "In the U.S. it was built on a long tradition of mail order and a multibillion-dollar catalog industry."

Sales channels for long-distance buying and delivery, as well as basic consumer trust, flow from this legacy. In Latin America, the idea of buying something without seeing and touching it first is a novelty.

As a result, regional Internet firms are developing their own credit systems and working with banks to promote card use as well as launching new mail delivery companies in an attempt to fill in the gaps that exist in the local retail infrastructure.

But they have also had to tackle consumer perception. "The obstacle is getting past the consumer mistrust," Graves said.

Many of the region's intrepid cyber entrepreneurs turn these roadblocks on their head and see the barriers as opportunities for massive growth potential. The lack of catalog culture and even limited retail options allow Submarino, for example, to offer everything from CDs to Pioneer stereos to Brazilians who used to travel all the way to the United States to buy them.

In the past, Brazilians flocked to Miami and New York, spawning entire shopping districts where "Portuguese spoken here" signs dominated.

"All of the problems to breaking into this market mean there is little competition and lots of unmet demand," Tavares said. "The problems are really opportunities."

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