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Tech Roundup: Brazilian giants on startup-hunting spree

. Sep 04, 2020
startup hunting Photo: GenerationClash/Shutterstock

You’re reading The Brazilian Report’s weekly tech roundup, a digest of the most important news on technology and innovation in Brazil. This week’s topics: Brazilian big retailers on startup-hunting mode; old problems prevent Brazil from becoming a leader in innovation; and how poor internet access is increasing inequality in Latin America. 

Amid e-commerce boom, big retailers hunting for startups

This week, two e-commerce giants went shopping

in the local startup market, as the battle for dominance in a burgeoning sector becomes fiercer by the day. On Tuesday, <a href="https://brazilian.report/tech/2020/08/26/latin-america-tech-firms-leaving-commodities-rearview-mirror/">Mercado Livre</a> announced it had <a href="https://neofeed.com.br/blog/home/mercado-livre-compra-fatia-da-kangu-e-aquece-a-disputa-na-ultima-milha-do-e-commerce/">acquired</a> a minority stake in last-mile logistics startup group Kangu, after a year of using its services. Two days later, Magazine Luiza <a href="https://g1.globo.com/economia/noticia/2020/09/03/magazine-luiza-compra-aiqfome-e-estreia-em-encomendas-de-refeicoes.ghtml">made its entry</a> into the food delivery market, purchasing startup AiQFome. </p> <ul><li>According to a report by Distrito.me, big companies were responsible for 58.1 percent of 44 startup mergers or acquisitions reported in H1 2020. The number is almost 52 percent larger than 2019 rates.</li><li>Still, investments halved to USD 691.7 million — a sign that companies may be beefing up their portfolios at a lower cost amid the crisis.</li></ul> <p><strong>Last-mile meets click-and-collect. </strong>Mercado Livre’s investment in Kangu is part of its strategy to reduce its reliance on state-owned postal service Correios, a company riddled with crisis and currently facing a <a href="https://brazilian.report/tech/2020/08/21/how-brazilian-e-commerce-survives-postal-workers-strike/">nationwide strike</a>.</p> <ul><li>But Kangu is also a gamble on improving the consumer experience. The startup connects customers to small brick-and-mortar shops near their homes, giving Mercado Livre a way to implement click-and-collect delivery modes. So far, that strategy has been a competitive advantage of traditional retailers such as Via Varejo and Magazine Luiza.</li></ul> <p><strong>Super-apps. </strong>Magazine Luiza openly talks about its aspiration of becoming “Brazil&#8217;s <a href="https://brazilian.report/podcast/2019/09/18/amazon-prime-disruption-retail-brazil/">Amazon Inc</a>.” Startup AiQFome will be the first food delivery service on its one-stop-shop super-app, which already includes e-commerce household names such as Netshoes (sporting goods and footwear), Zattini (clothing), and Época Cosméticos (cosmetics). The goal is to increase customers&#8217; recurrent use of the app.&nbsp;</p> <ul><li>AiQFome has 2 million customers and 17,000 restaurants in 350 cities, generating BRL 700 million in revenue. Unlike services such as UberEats or iFood, the platform only connects customers with restaurants who take care of delivery themselves.&nbsp;</li></ul> <hr class="wp-block-separator"/> <h2>Brazil rises in Global Innovation Ranking, but still below 2011 levels</h2> <p>The <a href="https://www.wipo.int/edocs/pubdocs/en/wipo_pub_gii_2020.pdf">Global Innovation Index (GII) released by WIPO</a> puts Brazil as the 62nd most-innovative economy globally, gaining four positions in comparison to 2019 levels. Despite the improvement, the country is still far below its <a href="https://agenciabrasil.ebc.com.br/economia/noticia/2020-09/brasil-fica-na-62a-posicao-o-indice-global-de-inovacao">2011 peak</a>, when the country sat in 47th — a sign of the country&#8217;s underwhelming ability to innovate and produce.</p> <div class="flourish-embed flourish-scatter" data-src="visualisation/3657172" data-url="https://flo.uri.sh/visualisation/3657172/embed" aria-label=""><script src="https://public.flourish.studio/resources/embed.js"></script></div> <p><strong>Where Brazil stands. </strong>Latin America&#8217;s biggest economy ranks 16th among 37 upper-middle-income economies. It is also the fourth most-innovative Latin American nation, behind Chile, Mexico, and Costa Rica. Per WIPO, Brazil’s performance matches expectations for its level of development, relative to GDP, compared to the 131 economies analyzed.</p> <p><strong>Old habits. </strong>According to WIPO, Brazil produces fewer innovation outputs relative to its level of innovation investments. The main problems are hardly new issues:</p> <ul><li>It is hard to start a business;</li><li>There’s a lack of graduates in science and engineering, poor performance in primary education (as seen on the PISA test);</li><li>Suboptimal levels of general infrastructure and low indicators of gross capital formation;</li><li>Difficulties to get credit and high bank fees;</li><li>Sluggish growth of public-private partnerships;</li><li>Poor performances from national feature films and printing and other media.</li></ul> <p><strong>Who will fund innovation? </strong>The theme of this year’s GII report presents a challenge for Brazil, as noted by the president of the National Confederation of Industry, Robson Braga de Andrade.</p> <ul><li>“The fiscal crisis jeopardizes the progress made by different governments in recent decades. The level of public investment in R&amp;D is lower than it was 20 years ago, and many of the public policies for financing innovation are decreasing or at risk of suspension,” he wrote.</li><li><a href="https://brazilian.report/newsletters/brazil-daily/2020/09/01/breaking-down-brazil-2021-budget/">Brazil’s 2021 budget proposal</a>, submitted this week, foresees only BRL 96 billion for non-mandatory expenses, including research grants. The amount is below the BRL 100 billion necessary to avoid a shutdown or freezing, as seen in 2019.&nbsp;&nbsp;&nbsp;</li></ul> <hr class="wp-block-separator"/> <h2>Latin America’s lack of internet access increases inequality during pandemic</h2> <p>The <a href="https://brazilian.report/latin-america/2020/07/27/understanding-latin-america-wave-informal-employment/">high level of informality in Latin America’s job market</a> and poor internet access prevents more people from working from home during the pandemic, expanding the inequality in the region, according to a <a href="https://repositorio.cepal.org/bitstream/handle/11362/45938/4/S2000550_es.pdf">report</a> by the Economic Commission for Latin America and the Caribbean (ECLAC). Only 21.3 percent of Latin American workers were in a position to perform their activities remotely. In Brazil, that percentage rises to roughly 25 percent.</p> <ul><li>Still, remote work solutions increased by 324 percent in the second quarter, while online learning increased 60 percent versus Q1 levels.</li><li>As of 2019, only two-thirds of Latin Americans had internet access; in higher-income households, that share rises to 81 percent, while it plunges to 38 percent among the poorest sections of the population.</li></ul> <p><strong>“Offline” learning.</strong> As of June, 44 percent of Latin American countries experienced average internet speeds inferior to 25 Mbps, preventing users from performing multiple tasks simultaneously. As a result, say the researchers, people had to choose between online work or learning.</p> <ul><li>To make things worse, 46 percent of Latin American children aged between 5 and 12 — a total of 32 million youths — live in homes without an internet connection.</li><li>Among higher-income students, 70 to 80 percent have laptops, while only 10 to 20 percent of lower-income students own such devices.&nbsp;&nbsp;</li></ul> <p><strong>Trends</strong>. Despite the struggle, the digitization of Latin American economies during the pandemic is remarkable. From March to April 2020, the number of corporate websites skyrocketed by 800 percent in Colombia and Mexico, while Chile and Brazil experienced a 360-percent increase.&nbsp;</p> <ul><li>To support that trend, the ECLAC suggests creating a “digital staples basket,” granting a laptop, smartphone, and tablet to homes that do not have such devices. According to the study, most Latin American countries would spend less than 1 percent of their GDP to afford such a program, with the exception of Bolivia and El Salvador.</li></ul> <hr class="wp-block-separator"/> <h2>Take note</h2> <ul><li><strong>Payment methods. </strong>A <a href="https://www.dinero.com/economia/articulo/crecio-el-uso-de-tarjetas-de-credito-durante-el-confinamiento/297829">report</a> by Kantar showed that, in the second quarter, the use of credit cards grew by 13 percent in Colombia, reaching a 27-percent market share in the payment methods market, the best performance in Latin América. However, in Mexico, credit card use dropped by 10 percent, to a 36-percent market share.  </li><li><strong>Fundraising.</strong> Fintech Neon Pagamentos raised BRL 1.6 billion on a C-series investment round led by General Atlantic. The company also attracted new investors such as Black Rock, Vulcan Capital, PayPal Ventures, and Endeavor Catalyst. After experiencing a 26-percent jump in the number of users since March, the company now aims to use the money to escalate its credit offer and expand products for individuals and individual entrepreneurs.</li><li><strong>Telecom.</strong> President Jair Bolsonaro signed a <a href="https://www.in.gov.br/en/web/dou/-/decreto-n-10.480-de-1-de-setembro-de-2020-275411259">decree</a> regulating the “Antenna Law” this week. As we anticipated in <a href="https://brazilian.report/tech/2020/08/28/the-end-of-brazils-data-protection-law-soap-opera/">last week&#8217;s Tech Roundup</a>, the measure was highly awaited by the private sector, as it allows companies to move forward with the installation of antennas if municipal administrations do not greenlight operations within a period of 60 days. Plus, antennas smaller than 3-meters tall will no longer require licenses, which means that up to 90 percent of the equipment required for 5G signals will not face bureaucracy barriers.</li><li><strong>E-government</strong>. The Brazilian Senate <a href="https://agenciabrasil.ebc.com.br/politica/noticia/2020-09/senado-aprova-mp-que-amplia-uso-de-assinatura-digital">approved</a> a provisional decree that makes it easier to have access to public services using digital signatures. Besides public key infrastructure (PKI) issued by accredited companies — known as qualified signatures — the government will now accept simple and advanced digital signatures. The first applies to situations that do not include sensitive information, while the latter only requires users to confirm their identity. The federal government believes that Brazilians will be able to access 48 percent of services with a simple signature.

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Natália Scalzaretto

Natália Scalzaretto has worked for companies such as Santander Brasil and Reuters, where she covered news ranging from commodities to technology. Before joining The Brazilian Report, she worked as an editor for Trading News, the information division from the TradersClub investor community.

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