The Social Media Secret’s Out! Now, Share It!

January 21, 2011

I have recently been considering the marketing applications of the ‘dictator’s’ dilemma as coined by Clay Shirky*. It strikes me that social media, which has been used so successfully by the masses politically in the Philippines, China, Spain and Thailand and is feared by the governments there, is exactly the application and embodiment of effective marketing that is also being pursued by Facebook; recently Venezuela enacted a new law to tighten control of the internet and this could be a sign that President Hugo Chavez fears the power of social media.

Facebook in particular is proving to be a phenomenal hit in the Americas, and here are recent figures for Facebook usage in selected markets in the Americas:

Country Users Dec 2009 Rank Users Dec 2010 Rank Growth
US 101,303,240 145,749,580 44%
Mexico 6,505,040 18,488,700 184%
Argentina 7,387,120 12,359,260 67%
Colombia 7,243,520 11,665,860 61%
Brazil 2,413,900 8,821,880 266%
Chile 5,808,020 7,586,060 31%
Venezuela 4,952,340 7,552,760 53%
Peru 1,510,480 3,888,560 157%

Note that all of these countries are in the top 30 global markets for Facebook, demonstrating a real interest in social media in the region. The main social networking site in Brazil remains Orkut (owned by Google) for the moment, but the explosive growth of Facebook there may threaten this status as happened with MySpace elsewhere.

Targeted advertising to Facebook accounts, which is how the social networking site earns revenue, sees friends having the choice whether to recommend the ads to other friends. Facebook has been one of the first to pick up on the power of this advertising technique in a big way. Conveyance by social media is good, but not always enough; real effect comes in the two step process, where the message is seen via social media, but then importantly transferred to a close associate, friend or family member. A recommendation from someone known is far more influencing than from a stranger and the fact that it is being conveyed through an admired medium, technology, is also legitimising.  This has the effect of both media influence and then conversational influence.

It is like learning: when it is reinforced and engaged with, it is remembered and embedded. It is in this second step that opinions about buying or not buying are formed. Mass texting of shared communications saw this second conversational step form political opinions and action in China, Thailand or the Philippines. This social ratification and recommendation is very powerful. In the commercial world it is what every brand is hoping for; it creates an intense bond between the product and the consumer and then potential friend of the consumer. This is the essence and aim of viral marketing and social media is the mechanism by which it happens.

There are clearly lessons to be learned from modern political struggles and regimes who have tried to clamp down on access to media like Google and The New York Times online. Some have even closed down whole networks to avoid viral response, but in so doing, they have also closed down their business communications and negatively impacted their economy.  Such lessons convince me of the power of viral marketing especially when you want to reach distant/remote populations such as in the Andean regions. Although, it has to be noted that effective viral marketing often takes place in compacted populations. Then products can most easily be located and distributed to large concentrated populations e.g. in Sao Paulo, Mexico City or Bogota. Concentrated populations, being touched by viral communications, offer rich pickings potentially, but the message has to be targeted, clear and meaningful.

It has to be remembered that social media is not only the Internet, but probably more importantly for Latin America, and arguably for the rest of the world as well, cell phones, especially smart phones. Vodaphone has seen this opportunity and it has introduced a fairly simple phone in India in July 2009, marketed at an accessible price point, and has determined relevant features for the target market including text, calculator and radio. This then gives a greater population improved communication and obvious personal and business benefits; it also provides access to information which is socially relevant and even health related and urgent. This however presupposes a certain amount of numeracy and literacy. Still, it gives marketers an opportunity to reach distant and dispersed segments of society in a very economic and personal way and a way which may well encourage a sharing of this marketing information for compounded effect!

This also means that viral marketing – using social media – is creating a fairer playing field for SMEs as it has been doing for uniting opposition to unfair political practices around the world. As authoritarian or conservative governments fear social media, so do large corporations and oligopolies with huge marketing budgets.  Introducing a product which is clearly superior to theirs, and which begins to erode their market share, will no doubt generate a backlash. Social media is however not only a good marketing mechanism in order to introduce a product; it is also a relatively cheap defence mechanism against such corporate responses. In the past, prohibitive marketing and advertising costs, especially in order to reach remoter less concentrated markets, would have made this impossible for SMEs. Today this is not the case. The question then is which products or services lend themselves to viral marketing in Latin America, America or elsewhere for that matter of fact. Is there any that do, more than others? Are there any limits? I’m not sure that there are.

Another question again is culture; does it raise its head? Personally, I think not. From my experience of living and working on four continents, I think that technology not only physically crosses all borders, but social media communications, through the means of technology, is also more trusted than many face to face communications with ‘strangers’. Technology is not a strange bed-fellow; in fact it is a desirable one which is part and parcel of marketing targeted at people who aspire to be ‘more’. People want to improve and be seen to be improving; technology facilitates that and social media messaging for viral marketing can benefit from that receptiveness.

*Sirky, C. (2010) The Political Power of Social Media Technology, The Public Sphere and Political Change Foreign Affairs Volume 90, No.1, pp. 28-41.

Authored by Pam Mason

Is Doing Business in Latin America Getting Easier or Harder?

January 20, 2011

As always with Latin America, we do not think that there is one single answer as the region is not one homogenous unit but a myriad of different markets and cultures.

The Doing Business Project, launched by the World Bank in 2002, publishes an update each year with objective measures of business regulations and their enforcement across 183 economies, including all of the LatAm markets. It offers measurable benchmarks for reform, and serves as a resource for everyone interested in the business climate of each country.

The recently published Doing Business in 2011 Report has significant detail on all of the markets measured, and also gives good examples of reforms achieved. One example quoted that demonstrates the effect of red tape is for a business in Kenya that wished to export to the UK:

Consider the story of Bedi Limited, a garment producer in Nakuru, Kenya. After spending 18 months pursuing a trial order for school items from Tesco, one of the largest retail chains in the United Kingdom, Bedi lost out on the chance to become part of its global supply chain. Bedi had everything well planned to meet a delivery date set for July. But the goods were delayed at the port. When they arrived in the United Kingdom in August, it was too late. The back-to-school promotion was over. Changes to regulations and procedures can help improve the overall trade logistics environment, enabling companies like Bedi to capture such growth opportunities.

In terms of regional performance, Latin America & the Caribbean had the lowest percentage of economies in which at least one reform  was made that make it easier to do business (47% vs. 84% of economies in the Eastern Europe & Central Asia area). Many of the reforms introduced have involved simplified online procedures.

The following table gives the respective 2011 and 2010 ranks for ease of doing business for selected countries:

Country DB2011 Rank DB2010 Rank
US 5 5
Mexico 35 41
Peru 36 46
Colombia 39 38
Chile 43 53
Panama 72 62
El Salvador 86 80
Guatemala 101 100
Paraguay 106 105
Argentina 115 113
Nicaragua 117 119
Uruguay 124 122
Costa Rica 125 121
Brazil 127 124
Ecuador 130 127
Honduras 131 128
Bolivia 149 148
Venezuela 172 170

The ranks are relative to the 183 markets measured, so a drop in the rankings does not necessarily mean that business has become more difficult but rather that other countries have reformed more. In fact over the last 5 years, only two LatAm markets have in fact become more difficult in which to do business: Argentina and Venezuela; unfortunately these were also the lowest ranked two countries globally in which doing business has become harder.

Over the same 5 year period, several LatAm economies have made significant reforms to make doing business easier: Colombia, Peru and Mexico. Chile, which is now ranked #4 in LatAm for ease of doing business, made few reforms over the period, but the Chilean President, Sebastian Pinera, has made it clear that it his government’s intention to be more business friendly. Brazil, which has potentially the most to gain from reform, has made some progress, but it needs to do more and faster if it is to make real progress.

In terms of ease of importing goods, the averages for the region are as follows:

Documents required to import: 7.5

Time to import: 22 days

Cost to import (US$ per container): $1,441 (excluding any tariffs or duties)

These figures of course mask wide variances within the area. In Venezuela the report estimates that a typical imported container will take 71 days and cost US$2,868, as opposed to 9 days and US$915 in Panama.

In terms of ease of exporting goods, the averages for the region are as follows:

Documents required to export: 7.1

Time to export: 19 days

Cost to export (US$ per container): $1,310

Again, looking at the same countries as an example, in Venezuela it takes 49 days to export a typical container and costs US$2,590, whereas in Panama it takes 9 days and costs US$765.

The protection for investors shows some of the highest variance in the region: Colombia is ranked #6 globally, but neighboring Venezuela is a very poor 179, perhaps not surprising given the arbitrary expropriations made by the Venezuelan President, Hugo Chavez.

Registering property in the region is generally complex, taking 7 procedures and 69 days on average; often it is because visits to different agencies and in Brazil there are 14 separate procedures required. Brazil could also benefit from tax reform; at present the project calculates that a typical entrepreneur in Brazil takes 2,600 hours each year to process the tax payments.

Our own experience with trade in the region typically correlates with the information provided by the Doing Business Project, and certainly it is generally far easier doing business in countries such as Mexico, Colombia, Peru and Chile as opposed to Venezuela in particular, but as we have noted it is Brazil that has the most potential to gain from fresh initiatives and cutting red tape. With elections due in a number of countries we hope that new administrations will take bolder and wider reforms and push LatAm forward faster.

Is Peru the Cheap Chile?

January 13, 2011

Peru has come a long way since the dark days of the insurgency led by the Shining Path movement that, although still not entirely ended, significantly wound down around ten years ago after 20 bitter years of internal conflict. It now represents an excellent example of what Latin America can achieve with thoughtful, progressive reform and a will to break with the past; together with Colombia, Peru represents perhaps the most improved Latin American country since 2000, and a positive counterbalance to unorthodox policies of Chavez’s Venezuela.

The country has a rich, almost magical history, perhaps best symbolized by the glorious Incan city of Machu Picchu. The famous Nazca Lines, left by a long-vanished civilization, have evoked theories as exotic as the use of hot air balloons hundreds of years ago to a runway for extraterrestrials.

The estimated GDP growth in 2010 was 8.7%, and is forecast to be at or above 5% p.a. over the next five years, with inflation in a 1-3% band, and the current account is only -0.2% of GDP; despite these positive numbers and the fact that its 30m citizens represents a population almost double that of Chile, Peru often appears to be overlooked by multinationals looking to business in the region, even exporters that struggle with the duties of the Mercosur trading group, and the cost of entry to the market is generally more favorable, especially with a concentrated central population in the capital, Lima.

Key indicators include the following:

GDP (PPP) per capita $8,626, 87th out of 181 markets measured (Source: IMF 2010)

Ease of doing business: 36th out of 183 nations (Source: World Bank 2010)

Human Development Index: 63rd out of 169 (Source: UNDP 2010)

Economic Freedom: 45th out of 179 (Source: Heritage Foundation 2010)

Corruption Perception: 78th out of 178 (Source: Trasparency International 2010)

Competitiveness Rank: 73rd out of 139 (Source: World Economic Forum 2010)

Peru compares favorably to Chile on many of these indicators, and generally ranks ahead of Colombia, which appears to be getting far more positive press than Peru. Only in competitiveness does Peru rank outside the first or second quartile of the markets measured by each respective indicator, a long way from Venezuela, which more often than not ranks in the fourth quartile.

Since 2006, Peru has signed trade deals with the US, Canada, Singapore, and China, concluded negotiations with the European Union, and begun trade talks with Korea, Japan, and others, and the country has committed itself to endorsing free trade.

A wide open presidential election in April 2011 and a run off likely in June perhaps do not help with the markets, which always dislike volatility and the unknown, but the current incumbent, Alan Garcia, has managed to sustain growth following the reforms made by his predecessors, Alberto Fujimori and Alfredo Toledo, despite a previous term as president in 1985-1990 that is accepted generally as disastrous. In the last election, President Garcia narrowly beat Ollanta Humala, a left leaning ex-army Lieutenant Colonel supported openly by Venezuela’s Chavez, which gave rise to concerns about the true political progress made by Peru and was a reminder of its “flawed” democracy.

The country still needs to make progress in a number of areas, particularly its over dependence on commodity exports, and education as more than one-third of 15 year olds are classified as borderline illiterate by the OECD, but an orderly transition to the next government and a continued independent and orthodox central bank should ensure that Peru continues to grow faster than the rest of Latin America and together with at least Colombia will join Chile in a group of truly emerging nations. As with similarly placed markets it is the emerging middle class that offers the greatest opportunities in the medium to long-term, particularly as many of the presidential candidates are pledging to reducing the current 35% poverty rate (down from 44.5% in 2006).

A Tale Of Two Cities: Bolivia

January 6, 2011

Bolivia, a landlocked country in the heart of the South America land mass, perhaps represents the popular image of old of Latin America best: it has struggled with political instability (and more coups than any other nation), conflict with its neighbors in which it has lost more than half its territory, a diverse multi-ethnic population, and economic difficulties best represented by mega inflation that hit 60,000% on an annualized basis in mid-1985. To put the inflation in context, we heard the anecdote that the rate for a taxi ride from the La Paz airport to the city center would double on the return trip. A friend once told us that he was in a restaurant in La Paz at the time and when it came time to pay a fellow diner took a stack of notes and a ruler and measured out the payment.

It is here that Butch Cassidy and the Sundance Kid met their end, Che Guevara perished at the hands of the CIA and the local police, and Klaus Barbie and other Nazis fled to after WWII. Many of the indigenous women wear bowler hats as part of their “traditional” costume, yet these hats were introduced to them from Britain by an enterprising company in the 1920s.

Bolivia itself is divided politically between its two largest cities, La Paz and Santa Cruz, and the contrast between these two could not be greater. Visitors to Latin America often remark on the differences between cities in the same country, such as Sao Paulo and Rio de Janeiro in Brazil, or Quito and Guayaquil in Ecuador, but La Paz and Santa Cruz are far more polarized and diverse, both geographically and culturally.

La Paz is the highest capital in the city in the world at around 3,800 m, approx. 1,000 m higher than the second highest, Quito, and visitors arriving at the airport in El Alto are often plagued by ferocious headaches. It is the seat of most of branches of government, ethnically has a highly indigenous population, a relatively cold climate in the oxygen starved altiplano, and economically has a large informal sector and on the whole light industry. There seems to be little dynamism and many parts of the city often appear to be mired in its colonial past.

In comparison, little visited Santa Cruz is a hot, dusty new-town, a melting pot of ethnic and cultural diversity and famed for the beauty of its women. It’s a brash, often chaotic city that is proud of its zestful nature and the wealth generated by its proximity to the gas fields; its inhabitants want everyone to know that they are independent of La Paz and often tell you that their town is now the largest and most important in Bolivia (which is technically true but La Paz and neighboring El Alto form a larger overall urban conurbation). Santa Cruz appears to want international trade to succeed, and perhaps with other cities such as Cochabamba seems to offer Bolivia a real hope for the future; international brands are everywhere and many of the businessmen ask foreign visitors why no one has heard about them.

On paper perhaps Bolivia does not appear to offer very much: a population of 10 m, one of the lowest GDP per capita in Latin America (approx. $4,700 on a PPP basis), and a populist president, Evo Morales, that appears to often get his cue from the economically incompetent president of Venezuela, Hugo Chavez. In addition there has been strife with the US over its willingness to tackle the drugs trade (not helped by the fact that President Morales was previously head of the coca farmers union), which has led to the removal of certain trade preferences, and the government has often mishandled political challenges (and its reputation is not helped by the botched attempt to cut fuel subsidies recently).

Nevertheless, despite the frequent political turmoil a surprisingly orthodox fiscal policy and strong commodity prices have allowed economic growth to continue, hitting around 6.1% in 2008, with forecast growth just below 4% p.a. for 2011 and the medium term; no China or India indeed, but comparable to that forecast for most of the rest of Latin America. We would also expect the middle class in more dynamic areas such as Santa Cruz to grow much faster than that, offering modest but real potential for an exporter willing to brave trade with this distant market.