Working With Data in Latin America: Challenges and Strategies, SoftBank Leads Financing Round in Brazilian Startup MadeiraMadeira, Revelo Raises $15M Series B, and More from the Region...
Other featured stories include: Ex-Tesla Executive’s Company, MicroPower Bets Big on Batteries, Brazil’s Central Banker Takes On a Stalled Economy, and Analyzing President Bolsonaro’s Threat to Leave MERCOSUR.
Working With Data In Latin America: Challenges And Strategies
Dataplor’s CEO and Founder, Geoffrey Michener, was a guest author this week for Crunchbase News. Read his article below, which discusses the challenges and strategies for working with data in Latin America.
The collection of qualitative and quantitative market data provides critical insights around the globe. Governments, investors, and citizens benefit from the continuous supply of this forward-thinking information. According to ESOMAR and BDO, the global market research industry grew 6% in 2017, reaching a value of $76 billion. Around the world, quantitative research generated 81% of all spending, while qualitative research accounted for 14%, a 1% decline from the previous year. The remaining 5% of industry spending was seen across other research methods.
Companies operating in the market research industry offer an essential service to those that rely on accurate data. The enterprises that use this information are often looking to generate helpful insights such as market competition, size, and consumer behavior, amongst other metrics.
While this process is reliable in developed economies, data collection in emerging regions like Latin America presents unique challenges. It’s important to analyze the obstacles associated with data collection in emerging economies, and what companies can do to overcome them.
Emerging Market Data Challenges
As venture capital continues to flood Latin America, a growing number of companies will need reliable, accurate market data. According to the Latin American Private Equity & Venture Capital Association (LAVCA), venture capital funding in the region nearly doubled in 2018. Reaching a record $1.98 billion, last year’s numbers dwarf the $1.14 billion of capital investment seen in 2017. With this trend forecast to continue, it will become increasingly critical to overcoming existing data collection hurdles.
Photo Courtesy of Crunchbase News
And while the hurdles are many, some remain more problematic than others. Typically, external influences, such as government and corporate interests are hardest to overcome when collecting emerging market data.
There are several ways data can become biased; however, politics remains the primary influence in emerging markets. Unlike developed regions, many emerging markets lack the strong institutions that operate beyond government reach. As such, there are fewer opportunities to challenge information disseminated by government bodies, leaving data susceptible to political interference. Also, many organizations in developing regions pursue stakeholder-driven agendas, resulting in further opportunities for political bias.
Erroneous data can result from many scenarios. Whether incomplete, inaccurate, or irrelevant, corrupt data is of little value. As a result, companies are unable to rely on this information to establish plans or implement long-term objectives. Even worse, businesses may unknowingly act on erroneous data, resulting in faulty strategies and lost capital. In some instances, data can be intentionally altered to present a false reality. For example, back in 2013, the International Monetary Fund issued a “declaration of censure” against Argentina over the quality of its inflation and GDP growth data. This action represented the IMF’s harshest reprimand up until that point.
Although quantitative data is meant to generate leading indicators, a lack of timeliness may diminish the value of these metrics. Because data is often released on a lag in emerging markets, companies operating in these regions often make decisions based on old information. As such, all companies must account for lagging indicators when formulating a corporate strategy. Executives must be aware of broader economic conditions, industry trends, and government regulations to avoid negatively impacting profitability.
Interpreting Emerging Market Data
Most companies cannot independently influence overall market conditions and trends. As such, businesses must learn to adapt to navigate the pitfalls of emerging market data successfully.
To make optimal business decisions, companies must work with quality data. For companies to effectively navigate emerging markets and assess risk, minimizing uncertainty during the decision-making process is crucial. One example of poor quality data relates to inflation figures from Argentina between 2007 and 2016. Following changes to the government’s methodology, many around the globe began to discredit government estimates. As a result, many Argentinian companies began to reference private market data when generating their inflation numbers.
The challenge in these scenarios is figuring out how to uncover low-quality data. For many businesses, this can be done by drawing parallels to regions with similar economic and demographic fundamentals. By cross-referencing neighbouring national data, inconsistencies are easier to spot.
In countries around the world, national definitions are often challenging to navigate. Slight wording variations or lifestyle differences can result in entirely different market research results. In emerging regions like Latin America, these instances can be further exacerbated by diverse socio-economic conditions.
The Future of Data in Latin America
As Latin America evolves to reach new levels of maturation, existing obstacles will become less prevalent. However, in the interim, it remains crucial for businesses to manage the shortcomings of emerging market data proactively. To overcome the pitfalls of biased, erroneous, and outdated information, companies need to develop effective management strategies. Further, market researchers and industry stakeholders must make data accessible by sharing knowledge.
“One thing that I didn’t get to say in the article that I think is really important is that unverified or inaccurate business data can have tremendous implications for Latin American governments and global companies alike,” Michener said.
SoftBank leads financing round in Brazilian Home Goods Platform MadeiraMadeira
Light Street Capital also participated in the funding round, alongside Flybridge Capital, an existing investor in the company. Other notable investors include Niraj Shah, Chief Executive and Founder of Wayfair, and Christian Friedland, Founder of Build.com.
By selling furniture to customers without holding inventory, MadeiraMadeira aims to reduce capital costs. For example, when a client buys a table at its website, that order goes directly to the furniture maker, which has its own inventory. The company currently manages products in 450 third-party distribution centers.
The platform, which offers about a million home furnishing products, said it will use this new capital to invest in technology, logistics and customer services.
Daniel Scandian, chief executive and co-founder of the company, told Reuters that the company plans to expand operations in Latin America, although it will first concentrate investments in the region’s largest economy, Brazil.
MadeiraMadeira, which has just broke even, has already raised $38.8 million in three previous financing rounds. Other investors in the company include venture capital firms Monashees and Kaszek Ventures.
Revelo Raises $15M Series B to Help Companies Source and Screen Knowledge Workers in Latin America
This Wednesday, São Paulo-based recruiting startup Revelo announced that it has raised a $15M Series B round led by the IFC. This funding accounts for the largest round raised by a HRtech startup in Latin America to date, and the first Series B of that sector in Brazil.
This recent investment expands IFC’s venture capital footprint in the region. Previously, it has invested in Latin American companies such as Loggi, Creditas, GuiaBolso and Mandaê.
In comparison to the majority of Latin American job sites, Revelo targets knowledge workers – mid-to-high-income professionals in finance, management, technology and marketing – rather than focusing on the blue-collar and / or entry level workforce.
“Most knowledge workers in LatAm still find their jobs offline. Our goal is to become a go-to online platform to help them navigate their careers” said Lucas Mendes, co-founder of Revelo (PR Newswire).
Revelo’s strategy resembles China’s recent successes in online recruiting. Chinese HRtech unicorns like Liepin, Boss, Zhaopin and 51job have had resounding success in the highly-monetizable domain of knowledge-workers.
According to Revelo Co-Founder Lachlan de Crespigny,
“Candidates and recruiters in China and LatAm are faced with very similar problems, and Revelo’s model is inspired by the success stories of the Chinese players in the space” (PR Newswire).
For companies, Revelo offers numerous online recruiting solutions, utilizing machine learning to make it easier for clients to source and screen talent. On average, companies using Revelo fill their knowledge-worker roles in 14 days, which is 5 times faster than with offline recruiters, and at 20% of the cost.
Despite the high unemployment rate in Brazil, which has resulted in 13 million unemployed, the company has been tripling in size annually.
“This happens because our focus is on knowledge workers. In areas of high demand, such as financial markets and technology, the demand for talent keeps growing, Mendes stated.
Revelo has over 3,000 companies as users, and nearly one million candidates. Over a thousand companies use Revelo to hire knowledge workers across Latin America every month.
Ex-Tesla Executive’s Company, MicroPower Bets Big on Batteries
Krapels is the CEO of São Paulo-based MicroPower-Comerc. The company, backed by Siemens AG, is pushing to use big mobile batteries to wean the Brazilian economy off oil-fired generators during blackouts.
This is not an easy feat, especially when considering Brazil offers almost no government subsidies for renewable energy and imposes stiff import taxes. Nevertheless, Krapels sees opportunity in a country with an occasionally unstable power grid and a robust market for wind and solar.
“This is not for the faint of heart, but I think there’s an advantage on being the first to move into a market,” Krapels told Bloomberg.
Photo Courtesy of Bloomberg
Much of Brazil’s power sector is already carbon-free, with roughly two-thirds of electricity coming from hydropower. In addition, aggressive developments have been made in wind farms in recent years, especially in the windy region of Serra Branca. However, businesses regularly turn to diesel generators during blackouts, which are “endemic in some areas” (Bloomberg).
MicroPower, founded last year, offers delivery of on-site lithium-ion storage systems to big-box stores, hotels and other large commercial and industrial customers to use instead of diesel during a blackout.
These systems, which the company owns and maintains, also allows customers to save money by storing up electricity at night when it’s cheap, then using it during the day when prices rise. MicroPower has already installed pilot systems at a Coca-Cola bottling plant and a local McDonald’s restaurant.
One of the company’s primary challenges is navigating Brazil’s complex tax and regulatory structure. MicroPower does not manufacture its systems, and is therefore susceptible to Brazil’s import taxes; tacking on roughly 65% to its battery costs. To circumvent this issue, the company is exploring buying battery components abroad and assembling them in Brazil, according to MicroPower Co-Founder and COO, Peter Conklin.
“BloombergNEF expects cumulative global battery storage capacity to soar from 29.4 gigawatt-hours this year to 710.6 gigawatt-hours in 2029. The amount of storage in Brazil, however, is negligible, according to BNEF. While investors have begun to take interest in the market, storage companies have not gained much traction.”
A Latin American Brexit? Analyzing President Bolsonaro’s Threat to Leave MERCUSOR
Although not as politically volatile as Brexit, Brazilian President Jair Bolsonaro’s threat to leave MERCOSUR could prove to be almost as complicated and costly.
This move would be a considerable setback for the MERCOSUR trade bloc - comprised of Brazil, Argentina, Paraguay and Uruguay - just as it reached a trade deal with the European Union after two decades of talks.
Bolsonaro has said that Brazil could leave MERCOSUR if Argentina– the second-largest economy in the customs union– has a political shift to the left in the upcoming presidential elections this October.
What is Brazil actually proposing?
Following Alberto Fernandez’s victory in last month’s primary elections in Argentina, the leftwing opposition candidate is on course to beat President Mauricio Macri in the upcoming presidential election. Bolsonaro has explicitly endorsed current President Macri, and has warned of a possible wave of Argentine migrants to Brazil in the event he is defeated.
Following the August 11 primary, Bolsonaro stated that he does not believe that Fernandez wants to follow the principles of liberty and democracy.
“If he creates any problems, then Brazil will leave MERCOSUR,” Bolsonaro said, but has not offered any further details to his proposal.
How would Brazil leave MERCOSUR?
The severity of Bolsonaro’s threat is not yet clear. Similar to Brexit, there would be severe commercial, bureaucratic and political obstacles to leaving the trading bloc.
The process of exiting would be far from easy. Congress would have to approve a bill to end the free-trade agreement, meaning Brazil would have to give up the common external tariffs it shares with its neighbors as well as the visa and passport-free travel its citizens currently enjoy in the area.
Aloysio Nunes Ferreira, Brazilian former foreign minister under President Michel Temer, who worked to boost the strength of the customs union, said that this move “would be a sign of a lack of seriousness and would affect Brazil’s relationship with the rest of the world.”
What would be the economic impact?
In the last decade, Brazil posted a trade surplus of $87 billion over the other three MERCOSUR countries, accounting for a higher amount than China or the European Union for the same period.
Brazil’s surplus with Argentina alone is around $8.5 billion a year. Roughly half of Brazil’s exports to its southern neighbor come from the automotive sector or from manufactured products. In other words, Argentina is one of the few countries that buys Brazil’s value-added products. For this reason alone, leaving MERCOSUR would be an economic blow to the Brazilian economy.
On the other hand, the Brazilian economy is dependent upon Argentine wheat. Half of the grain product consumed in Brazil comes from Argentina, free of duties and export taxes.
Argentina’s economic woes have a direct impact on Brazil. According to a study published this week by the Getulio Vargas Foundation think-tank and business school, the current financial crisis in Buenos Aires could reduce Brazilian economic growth this year by up to 0.5%.
For Brazilian business owners, MERCOSUR represents the second-most attractive destination for future exports, behind the United States. In addition, the trade bloc generates nearly 31k jobs for every $1 Billion Reais in exports, according to a survey by the National Confederation of Industry.
What are the chances of Brazil actually leaving?
Given the sheer complexity of completely leaving MERCOSUR, officials prefer discussions around making the trade bloc more flexible. This process would involve allowing member states to make their own bilateral tariff agreements, provided all MERCOSUR countries agree.
In a recent interview Brazil’s current foreign minister, Ernesto Araujo, struck a cautious tone when asked about Brazil’s possible exit from MERCOSUR.
“Perhaps we might need to think about an exit. MERCOSUR is a reality that’s part of the plan for our country, part of our economic recovery.”
Additionally, the South American customs union is far less politically problematic for Brazilians than the European Union is to the British. This is evident in the fact that none of Brazil’s major polling companies have bothered to ask the public’s opinion of the bloc.
With any withdrawal likely to have significant impact on both trade and jobs for the Brazilian economy, the downsides appear to outweigh the benefits.
Welber Barral, a former foreign secretary of Brazil’s Ministry of Industry and Commerce, said that reforming the bloc would be much better than abandoning it.
“We would have the same problem the U.K. has with Brexit today. We (Brazil) would lose trade deals,” he told Bloomberg.
Roberto Campos Neto, Brazil’s Central Banker, Takes On a Stalled Economy
Brazil’s central bank used to have a favorite phrase it would mention into statements, warning that monetary policy should be conducted with “caution” and “serenity.” Roberto Campos Neto, who arrived at the bank’s top job from a background in foreign-exchange trading, has thrown out this notion.
Campos Neto, accustomed to moving fast and taking risks as head of Banco Santander’s lucrative global treasury division, seems to have brought a similar approach into the world of monetary policy, where the challenges are quite different.
The biggest challenge for him is to jump start the nation’s economy –- which only just avoided falling into recession last quarter – without jeopardizing his predecessor’s achievements in anchoring inflation expectations.
During his first seven months in charge, he’s already delivered two big surprises for investors. Thus far, he has lowered interest rates more than expected – launching what’s likely to be a cycle of cuts – and sold dollars from the bank’s foreign reserves for the first time in a decade.
“From the very beginning, Campos Neto’s attitude has been different. The decision on the currency reserves showed a bolder vision that’s typical of a trader, ” said Sergio Machado, a partner at local money-manager SF2 Investimentos.
Although Campos Neto represents a contrast with his more “cerebral and sedentary predecessor”, the MIT-trained economist Ilan Goldfajn, nobody expects him to run the risk of undermining Goldfajn’s success in keeping consumer prices low.
“After spiking above 10% in 2015 and 2016, when Brazil’s economy was stuck in its worst slump for a century, inflation has come down to 3.4% – well below the bank’s 4.25% goal, and set to stay there” (Yahoo Finance).
According to Mauricio Oreng, senior Brazil strategist at Dutch lender Rabobank,
“Inflation expectations in the short, medium and long term are on target or below. Campos Neto has kept the gains achieved by the central bank under Ilan.”
These gains have allowed Campos Neto to cut the benchmark interest rate to a record low of 6% in July. He’s expected to cut a further half-point, and bring the rate to 5% by year-end.
His “uninhibited” approach isn’t without risks, however, according to Andre Perfeito, chief economist at Necton Investimentos brokerage in Rio.
The new chief has done a “very positive job” so far. As a former trader, “he knows how the machine works. But he may be faster at the trigger… and that could eventually leave him with less flexibility for future moves,” Perfeito said.
Brazil typically has “expensive money”. Unlike most big emerging markets, Brazil has kept the benchmark interest rate above the rate of inflation throughout this century. However, local and international shifts are likely to support Campos Neto’s move toward reduced borrowing costs.
Domestically, Brazil’s central bankers have signaled that they think President Jair Bolsonaro’s pension reform will lower the so-called neutral rate of interest, or the rate that keeps growth and inflation stable. Furthermore, dimming prospects for the global economy have been pushing borrowing costs lower almost everywhere.
Steady inflation may give Campos Neto some room to pursue other goals. His main mandate is price stability, and the unusual status of Brazil’s central bank – it’s not fully autonomous from the government, and its chief has the right to propose legislation –- could open the way to a wider role.
Spanish Banking Giant Santander Using Ripple’s xCurrent Solution for Upcoming Remittance Service in Latin America
Spanish bank Santander is preparing to launch a new remittance service in Latin America, using Ripple’s xCurrent solution, which does not use XRP cryptocurrency like its xRapid solution.
“xCurrent is Ripple’s enterprise solution that is responsible for facilitating the instantaneous settlement and end-to-end tracking of cross-border payments between RippleNet members” (MyCryptopedia).
This Monday, CoinDesk reported that the bank is building a “payment corridor” to enable its Latin American customers send money to the U.S. instantly and for free via the bank’s One Pay FX app, which uses xCurrent solution.
Currently, the One Pay FX app only enables money transfers only between the U.K. and Spain. The bank will launch the new corridor country-by-country in Latin America, but is not yet clear when and which country would begin first. Santander currently serves Brazil, Uruguay, Chile and Mexico, according to The Block.
Last week, there were reports that Santander has blocked users’ payments to crypto exchange Coinbase, but the bank clarified to The Block that it was “not the case,” and some exchange payments are subject to checks.
Driving Impact in Latin America via Venture Capital: Interview with Johanna Posada, Managing Director and Founder of Elevar Equity