Silicon Valley Turns to Mexico for Talent & US Doubles Latin America Financing

Silicon Valley uses Mexico as a resource for talent, US increases Latin America (LATAM) investment & Nubank CEO discusses emerging markets fintech

Silicon Valley Turns to Mexico for Talent

For decades, American outsourcing across the border has conjured images of factory assembly lines in the electrical appliances and automobile industries. Today, however, an increasing number of U.S. tech companies are moving their engineering and other technical operations to Mexico in search of intellectual talent.

This high talent outsourcing shift is feeding Mexico’s startup ecosystem, effectively changing the working culture of companies on both sides of the border. In the first half of this year alone, Startup GDL- a non-profit committed to growing Guadalajara’s tech industry- interacted with 25 U.S.-based tech companies who had expressed interest in setting up their engineering operations in the city. Last year, that number was 11 for the entirety of 2018.

Bismarck Lepe, Stanford graduate and President / Chief Executive of Wizeline, a global product development company that moved to Mexico in 2015, told OZY that over a hundred U.S. companies have opened offices in Mexico over the past 12 months. Amazon is one notable example. The company a research and programming facility just last year.

Big firms and startups alike are heading south in search of affordable engineers, designers, programmers and other specialists: a talent pool that’s been increasingly difficult to find at home. Mexico’s proximity to Silicon Valley makes it a lucrative competitor to other tech outsourcing destinations such as India.

“The problem in Silicon Valley is that Google, Facebook, Twitter and Apple suck up the vast majority of talent and companies have to look outside of Silicon Valley in order to be able to scale their business,” Lepe told OZY.

According to Roberto Martinez, Chief Executive of software development firm Nearsoft, it’s not just U.S. industry that could stand to benefit. Martinez expects the employment of Mexican talent at home by largely foreign companies will help Mexico establish itself as a major innovation hub with its own home-grown unicorns.

United States Aims to Double Financing in Latin America to $12 Billion

A new agency, The U.S. International Development Finance Corporation, has been created to promote development around the globe, with a particular emphasis on Latin America.

David Bohigian, acting President and CEO of the Overseas Private Investment Corporation, said the agency will begin operating on October 1st.

In addition to loans, loan guarantees, and political risk insurance, the Development Finance Corporation (DFC) will have the authority to make limited equity investments with a $60 billion cap (Miami Herald).

More specifically, the United States expects to double its financing in the Western Hemisphere to $12 billion.

An official statement on OPIC’s website stated:

“DFC will help countries sidestep opaque and unsustainable debt traps being laid by Beijing throughout the developing world and help more American businesses invest in emerging markets, including many places that are of key strategic importance to the United States.”

Since President Donald Trump took office, Chinese state banks have financed $14 billion worth of development projects in Latin America.

Bohigian told reporters it would be a mistake to look only at government-to-government transactions because the United States is the primary source of the $237 billion Latin America received in direct foreign investment as recently as 2017.

“Private sector investments from the United States far outstrips” the funds provided by the Chinese government, Bohigian said (Miami Herald).

Nubank CEO Interview: LATAM Fintech

Although Fintech was once a primarily local game, the evolution towards regulatory openness has encouraged the rise of fintech enablers and a shift towards a more international outlook.

To dive deeper into this growing trend, Forbes’ Alex Lazaro sat down with David Vélez, Founder and CEO of Nubank-an emerging markets financial services provider- to get insights on his experience with successfully navigating multi-market expansions.

Lazarow: What factors went into the decision to expand?

Vélez: In one sentence: affinity with our mission and the opportunity to impact people with our products and services. Nubank was born out of one very simple - yet not easy to achieve - mission: we wanted to give people the control of their financial lives back. In Brazil, the beginning of our operations sparked a revolution: we have encouraged more competition and pushed for transparency in what used to be an extremely concentrated industry. Even though we are still far from done, we realized that it was time to take the next step towards other markets. Mexico and Argentina seemed to be our first natural choice.

Lazarow: How did you know it was the right time? How did you prioritize your next couple of markets?

Vélez: We are continuously seeking opportunities to expand access among people to relevant and uncomplicated financial services.

Over the past years, we have been studying the Mexican and Argentinian financial ecosystem, and what we found resonated with a lot of pain points we also heard in Brazil. Today, over 36 million Mexicans do not have access to the banking system. In Argentina, 51% of the adult population is unbanked - and we want to help change this scenario.

We believe that everyone is ready to gain full control over their finances with more transparent, human, and simple services, making their lives more practical. With the impact that we had in Brazil, it seems like it was time to take that next step.

Lazarow: What were some of the biggest challenges in expanding to new markets?

Vélez: The largest challenges have been around systems — we built Nubank initially to be a one-country bank. When we decided to go global, we had to repurpose a lot of our infrastructure to make it international. We set ourselves up to build entirely local autonomous teams, so recruiting, onboarding and finding the best type of governance that allows for significant autonomy and speed have required some iterations.

Lazarow: What fintech enablers do you work with to scale more easily into other markets?

Vélez: Brazil and Latin America are some of the most concentrated banking markets in the world. This lack of competition has translated for Latin America’s +700 million consumers into some of the highest spreads and fees in the world, with one of the worst customer experiences. This market structure creates an excellent opportunity for a consumer-centric, tech-first startup such as Nubank. Thus, we can bring new alternatives to hundreds of millions of banking consumers and help disrupt the stronghold that legacy banks have in most countries in the region.

Nubank is based on four pillars: technology, design, user experience, and data science. The combination of these four enables us to grow organically and independently, and I mean grow not only in terms of the customer base, but also by verticalizing uniquely. We created and deployed proprietary systems and processes, ultimately gaining the wisdom that comes with the best use of big data.

Lazarow: If you were to give one piece of advice to other entrepreneurs looking to expand to another market – what would it be?

Before expanding to another market, make sure you really “own your destiny” in your base market. That way, expanding towards a new market will be less of a “bet the company” type of bet and more of buying a “call option” on a new market that can bring significant enterprise value.

Brazil's Economy Minister Threatens to Quit Mercosur if Populist Opposition Wins Argentina’s Presidential Elections

Brazil’s Economy Minister Paulo Guedes stated that Brazil will pull out of the Mercosur trade bloc if the populist opposition party wins Argentina’s presidential elections later this year, which would “close the economy” with protectionist policies.

After 20 years of negotiations, the Mercosur trade bloc- which consists of Brazil, Argentina, Uruguay and Paraguay- recently signed one of the world’s largest trade deals with the European Union.

“Guedes said Brazil should remain relatively insulated from the U.S.-China trade war, which is souring economic prospects and financial markets globally (Reuters).”

On the topic of Brazil’s growth prospects, Guedes insisted (in a customarily bullish tone, nonetheless) that the government must press ahead with its economic reform agenda. One of the government’s top priorities in the second half of the year will be reforming the complex tax system. “This will include simplifying income tax,” he added.

Brazil’s tax burden, currently around 33% of GDP, will not be immediately affected by the government’s proposals. Guedes said he would ideally like to see the burden reduced to 20% over the next 15 years.

BBVA to Roll Out Biometric-enabled Digital Account Opening to all Markets This Year

BBVA recently announced that it will expand its digital onboarding process based on biometric identification — provided in collaboration with BBVA’s 2017 joint venture with Spanish startup Das-Nano, Veridas — to all markets by the end of 2019.

The online enrollment service- which first became available in Spain- is already accessible in Mexico, the U.S., and Colombia, and is slated to roll out to Peru, Argentina, and Turkey soon.

According to Business Insider,

“For 80% of BBVA’s footprint, the widespread deployment is only made possible through the use of components that enable biometric identification to be easily adapted for the specific requirements of different countries. For example, in Colombia, customers don’t have to download or install an app to use digital enrollment and can instead sign up on the web.”

As digital account opening gains popularity worldwide, biometric authentication could help the bank offer digital enrollment for more complex financial products.

A study by Temenos reports that “globally, 57% of accounts can be opened digitally, but this percentage runs higher for personal banking accounts (76%), while wealth management and business banking accounts lag behind (49% and 37%, respectively)”.

Adoption of brazil bank biometric features
Photo Courtesy of Business Insider

Although mostly personal accounts are currently being opened online, BBVA is working to bring account opening via digital channels to its other banking products such as loans and mortgages. Successful implementation of this new technology could make it easier to upsell digitally engaged customers to more complex account types, deepening their loyalty to the Spanish-based bank.

Brazil’s “Silent Revolution” to Drive Mergers-and-Acquisitions Business for the Next Three Years

As the Brazilian government privatizes state-owned assets at an increasingly rapid rate, a “silent revolution” in Brazil will inevitably drive the mergers-and-acquisitions business for the next three years.

When President Jair Bolsonaro took office in January, he brought in an economic team pushing for a full-scale sell-off of state-owned holdings in efforts of balancing the nation’s budget. Although some analysts were skeptical of Bolsonaro’s commitment to the policy, the government’s recent privatization efforts have made it crystal clear that the President’s goals are aligned with those of his economic team.

“President Jair Bolsonaro has asked economy ministry’s secretary for privatization and divestment, Jose Salim Mattar, to sell at least one state-owned company a week” (Bloomberg).

Brazil’s government has already unloaded numerous assets, including the $8.6 billion sale by the state-owned oil giant Petroleo Brasileiro SA of a natural-gas pipeline unit called TAG; which according to data collected by Bloomberg, is the biggest transaction announced this year.

The imminent sale of other Petrobras subsidiaries and oil fields still loom overhead. The sale of which will contribute to the government’s goal of raising at least $20 billion from privatizations this year.

Bolsonaro’s privatization plans have proven beneficial to Brazilian business, however.

Bolsonaro’s privatization plans have proven beneficial to Brazilian business, however.

Ricardo Lacerda, CEO of investment-banking boutique BR Partners, told Bloomberg,

“The quality of the economic team and its ideological determination to privatize, to reduce the state size, are creating very positive conditions for business. This consensus is very calming for entrepreneurs.”

So far this year, the number of acquisitions in Brazil has jumped to 339: a 13% increase from the same period last year. Meanwhile, the value of the transactions is 6% lower, at $34.4 billion.

U.S. Shipments from Chile Drop Amid Extreme Drought

Central Chile, home to the capital city of Santiago- which accounts for roughly fifty percent of the country’s population of 18 million people- is suffering its worst drought in 60 years. Experts predict that climate change, over-exploitation by agriculture, and other various factors mean that this water shortage will be permanent.

According to Freight Waves, Santiago and surrounding areas are in the midst of what scientists have called a Mega Drought (MD), or an uninterrupted period of dry years since 2010. Chile’s Minister of Agriculture, Antonio Walker, recently announced that the government has declared an agricultural emergency in the Region of Valparaiso due to the extreme water shortage.

Not only is this changing the lives of Chilean farmers and ranchers, but it’s also slashing revenue from agricultural products sent on cargo ships from Chile to the United States. The U.S. Customs and Border Protection reported that the number of maritime shipments from Chile’s Port of Valparaiso to the United States from January through June has dropped by more than half year-over-year from 2018 to 2019.

Although the ongoing drought may not be wholly responsible for diminishing business between the U.S. and Chile, it’s likely playing a substantial role. From March through June of 2018 and March through June of 2019, maritime imports from the Valparaiso region to the U.S. followed a declining trend. However, the total number of shipments has been much lower in 2019 compared to 2018.

A recent report by scientists at the University of Chile gave minimal hope of recovery anytime in the near future. The report points to indicators in climate change models, as well as El Niño and La Niña models, stating “…we anticipate only a partial recovery of central Chile precipitation in the decades to come.”

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