The pandemic accelerated the digitization of large Brazilian retail companies, which became “super apps”, integrating other stores, services, including financial services, and various producers. The expansion opened a new front for international competition with China and its Big Techs, such as Alibaba (which recently structured local operations in Brazil).
The Chinese presence in e-commerce Brazil fosters new spheres of exchange between Brazil and China and provides more choices for consumers, but it also reinforces Brazil’s trade deficit in the manufacturing sector and the asymmetry of exchanges between countries.
The digitalization that retail companies in Brazil have been going through has transformed their online sales platforms into “super apps”, based on the integration of a series of processes in the applications.
The retail ecosystem model represented by the “super apps” guarantees not only better sales efficiency, but also the possibility of mapping the entire consumer journey, as an important mechanism for generating market intelligence.
Magazine Luiza, for example, aiming to become a super app, inspired by Chinese Big Techs, has made more than 20 acquisitions since 2017, involving e-commerce (Netshoes, Shoestock, Virtual Bookshelf, Época Cosmeticos, tonolucro, aiqfome), logistics (logbee, GLF, sinclog), financial services (Hub Fintech), marketing (inlocomedia) and entertainment (Young Nerd, Canaltech, Steal the Look). The acquisitions in recent years are integrated with the service platforms Magalupay, Magalu Pagamentos, Magalu Entregas, Magalu Ads, Luizacred, Luizaseg, Parceiro Magalu, Consórcio Magalu, Maga+ and Luizalabs.
However, the Chinese giants are making plans to advance in the domestic market in order to reproduce here, at least in part, important elements of their market power.
AliExpress announced that it intends to include its financial services in the package offered to Brazilian customers, as it recognizes that national competitors – B2W, Mercado Livre and the aforementioned Magazine Luiza – have invested heavily in this.
The Chinese company also intends to start registering local sellers and creating conditions for Brazilian entrepreneurs to build their businesses connected to the AliExpress marketplace, “brazilianizing” the service.
While this does not happen, from the consumer’s point of view, provided by logistical and productive factors specific to China, the low price of goods continues as the main competitive advantage offered by the Chinese.
For Brazilian companies, selling a wider range of products from abroad on their platforms, which would be a way to try to level the price with Chinese companies, is still a challenge due to logistical issues – essential to keep the cost of products low – and reliability of the origin of the goods.
From the perspective of general flows between Brazil and China, this trade movement reinforces for Brazil the deficit characteristic of bilateral trade in the manufactured goods sector.
More than 99% of Brazilian imports from China in recent years are centered on products from the manufacturing industry, which reflects the country’s great competitiveness in this productive sector, either because it is the place to which large transnational groups have outsourced their production in recent decades , or by domestic industrial development. So, so far, this new electronic connection between Brazil and China only operates on one side: it brings products from China to Brazil faster and more competitively.
China attaches great importance to the development of companies in the technology sector. The new regulations that the Chinese government has directed at the country’s Big Techs in recent months prove that the area is seen as strategic; on the one hand, the possibility of carrying out IPOs (initial stock offerings) of these companies in the US financial market was limited; on the other, an attempt was made to better regulate issues related to the access and use of data that companies can obtain.
The very entry of the Chinese state in offering means of payment online, through the Digital Currency Electronic Payment (DCEP) aimed at using the newly created e-RMB, the Chinese digital currency, together with regulatory changes in the area, demonstrates the State’s greater interest in controlling the sector’s development.
Meanwhile, in Brazil there are still many challenges to be faced. Felipe Zmoginski, manager of Alipay Brazil, recently pointed out that the growth of e-commerce in the country, the bottleneck is the physical infrastructure. For him, it would be necessary to improve ports, airports, distribution centers, roads and transport security.
He also highlighted that measures such as the popularization of digital accounts for society, the increase in popular credit and the popularization of digital and financial means of payments would be important, in addition to the creation of a greater digital infrastructure in the country, especially with cheaper and more widespread access to regions more precarious.
However, in the Brazilian government and even in institutions that promote national industry, such as FIESP, the belief that voting for ultra-liberalizing reforms, such as administrative reform and various privatizations, is the best way for the country to improve its competitiveness. , which clashes more and more with international experiences and the concern of national states to act more directly to promote advantages to the national market.
Given this, and given China’s great competitiveness, it is difficult to imagine that this open electronic route between Brazil and China becomes a two-way street, capable of taking Brazilian products to the Asian country; the trend, therefore, is that despite increasing the range of options for Brazilian consumers, this route reinforces the asymmetric commercial pattern that exists between countries.
Brazil: a new horizon of possibilities
The uncertainties surrounding US-China trade tensions have served as a motivator for the projection of Chinese e-commerce companies in other markets, aiming to reduce the negative effects arising from restrictions imposed by the US country. In addition, the potential for growth in online sales provided by the pandemic has generated attractiveness. In Brazil – a large consumer market where the volume of online purchases is still low (about 11% of the total in 2020) -, it is estimated that there is great potential for growth.
Over the past ten years, Chinese products have become available across the country through platforms such as AliExpress (which was chosen as the international e-commerce brand Brazilians most trusted in 2020, ahead of Amazon). Brazil presented itself as the fifth largest destination for the Alibaba group’s products, representing a 130% increase in Brazilian orders on the platform in 2020.
The market potential encouraged the company to structure a local operation in the country, with the opening of its own office, in order to improve the offer conditions for the local consumer. Recently, the charter of five weekly flights was announced to shorten the waiting time for online orders -which took about three months-, to just one month (or less, in Greater São Paulo), increasing its competitiveness.
In addition to the Alibaba group, there are currently other Chinese companies that make direct investments in Brazil, such as: internet giant Tencent, which allocated US$ 180 million to the Brazilian startup Nubank, making it the largest digital bank in the world, valued at US$ 4 billion.
In an investment of US$100 million by Ant Financial in Stone Investimentos in the initial public offering of the company’s shares, in addition to being one of the participating companies in the new financial contribution directed to QuintoAndar. Startup 99 was bought by Didi Chuxing, considered the “Chinese Uber”, valuing the company at US$1 billion. Given the new scenario, the marketplaces nationals will have to innovate in order not to fall behind international competition.
Digitization, a Chinese national project
Commonly seen as the “factory of the world”, China has been playing an increasingly important role in different productive sectors. In addition to offering low-complexity goods, China is increasingly becoming an innovative power, positioning itself among the leaders in technological development in applications such as 5G, tools and solutions for e-commerce.
Faced with a scenario of growing tensions with the United States, the existence of a huge Brazilian digital community and new forms of consumption, reinforced by the pandemic, Chinese e-commerce companies began to gain greater presence in Brazil.
The high efficiency and global competitiveness that Chinese retail has developed was felt during the pandemic, when local governments had to restrict the face-to-face access of consumers to physical stores. In China itself, data from the Marketer survey reveal that 52.1% of sales will be made through e-commerce this year, indicating a growth of 20% compared to 2020, that is, the number of online sales will exceed those made in physical stores .
However, even with the restrictions imposed by the pandemic, this huge growth in e-commerce did not happen overnight. By analyzing the country’s panorama, we found that the relevance of Chinese technology and electronic commerce were favored by the immense competitiveness of the domestic market, public investment directed to physical and digital infrastructure – aiming to generate greater reach of companies to the population -, and encouragement to development of technology companies.
China, in terms of digital commerce (e-commerce), emerges as the largest market in the world, with more than 50% of global online transactions coming from the country. Unlike the vast majority of countries, where the e-commerce is mainly a complement to traditional physical stores, in China it is common for manufacturers to sell products online throughout the country without having any physical store.
This allowed the e-commerce gaining popularity as selling on digital platforms is a cheaper and easier way for small businesses to reach a larger market. Among the main companies that make up the Chinese online market are Taobao and Tmall (of the Alibaba group), which dominate about 55% of the market, as well as JD.com, which holds a 16% share of the sector.
Examples of this success can be seen in the figures. Similar to Amazon Prime Day, Alibaba’s Singles Day is a day of rising item sales across the site, surpassing Cyber Monday and Black Friday sales by up to four times. In 2020 alone, Alibaba generated more than $38 billion in sales versus $5.8 billion for Amazon Prime Day.
Edition: Anelize Moreira