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Copycats versus disruptors in Latin America

Copycats versus disruptors in Latin America
From TechCrunch - September 8, 2017

When a company expands to Latin America, it requires a great deal of effort to adapt the language, operations and marketing strategies in order to find acceptance in the local market. In Spanish, the process of adapting a product or service to the local market is called tropicalizacin, or tropicalization.

Because tropicalization is often a significant undertaking, there are countless business models in the United States and other English-speaking markets that have not yet been fully implemented in Latin America, leaving real opportunities for startups in the region. In fact, up until now, a majority of the most successful startups coming out of Latin America have fallen under the copycat business model. In other words, local entrepreneurs have been the ones replicating successful business models crafted by U.S. startups and launching them locally. A few examples include MercadoLibrethe eBay, OLXthe Craigslist and Despegarthe Expedia.

The copycat business model has some favorable attributes. For one, startups can easily explain their concept to local investors using the well-known Uber for X phrasing, allowing investors to quickly identify the problem and understand how this could be a notable solution. This tends to make securing investments in a traditionally risk-adverse region a whole lot easier.

On the other hand, theres been a rise in truly disruptive ideas coming out of Latin America, as well. Before going into which business model is more advantageous in the region, it is also important to point out the difference between innovation and disruption.

Certainly, copycat startups can be innovators, but not all innovators are disruptors. After all, implementing an existing business model for a local market does require creativity and a serious commitment, but true disruption uproots everything consumers currently understand, how they behave and how they do business.

According to Harvard Business School professor and disruption guruClayton Christensen, disruption displaces an existing market, industry, or technology and produces something new and more efficient and worthwhile. It is at once destructive and creative.

Its worth exploring which model has been more effective in Latin America and in which way will startups continue to progress. Will they continue reshaping known business models for the Latin American market? Or, are we witnessing a steady influx of ideas that are entirely brand new? To answer that question, its important to first explore some of the startups born from each approach, and what the advantages and disadvantages of each approach are for entrepreneurs in Latin America.

Copycat successes in Latin America

The risk-averse nature of investors in Latin America has a lot to do with why so many VCs have felt much more confident investing in ideas that mimic successful companies in the U.S. or Europe. However, as the saying goes, an idea alone is not always the key to success; what matters is execution.

Replicating an existing business model can be extremely challenging in a complex region like Latin America. In some cases, startups find adapting relatively easy. However, most of the time it can be a tough path. Nicolas Szekasy, an investor and board member of Restorando, Latin Americas OpenTable, argues that most copycats in the region are simply variations using the same technology. He goes on to say, that if the companies initially appear to be copycats of their U.S. counterparts, they often adapt and adjust along the way to successfully serve the local market, and ultimately end up with very different business models.

The true definition of a copycat is still very much open to interpretation. However, what really matters is that this approach does have its advantages, and, many times, Latin American startups are implementing existing ideas in a better wayor creating more value than how the original model was designed.

Take Brazils Dafiti, for example. Now part of Berlin-based Rocket Internet, which is famous for applying proven ideas in other countries in emerging markets, Dafiti based its original business model off of U.S.-based Zappos and tailored the business model to fit the Latin American market. In doing so, it became quite successful in the region and joined Rocket Internets global fashion group, which is now valued at $1.1 billion.

Brazilian technology-powered freight broker CargoX also found considerable success with its Uber for trucking business model. Brazil reportedly has an excess of between 300,000 and 350,000 vehicles, with trucks running empty 40 percent of the time. The goal of CargoX is to reduce the number of empty trucks on the highway, increase revenue for truckers and reduce costs for freight owners.

Between its launch in 2013 and last year, CargoX added 100,000 members, equivalent to 10 percent of self-employed truck drivers in Brazil. In a single day, the company once registered 5,000 downloads, according to the companys CEO, Argentine Federico Vega. Fast-forward to today, and CargoX has raised an additional $10 million in Series B funding from Goldman Sachs, established a network of more than 150,000 trucks and has laid the foundation for a sustainable transportation company with great potential for expansion throughout the rest of the region.

A few other examples of the applied business model, or copycat successes in the region include:

The disruptors in Latin America

Which approach is more effective in Latin America?

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