Uber began operating in Mexico’s capital in 2013 with 20 drivers. Today, it is approaching 500,000 drivers and an estimated 12 million customers across Mexico, or 13 percent of all Mexicans over the age of 15. In the U.S., with four times the per capita income of Mexico, Uber has reached an adult customer penetration rate of 15 percent, after ten years of service. The success of Uber in Mexico and across Latin America’s largest markets is not an aberration. Today, Latin America is the world’s fastest-growing region for other disruptive business models like Airbnb, Coursera and Netflix.
Why is Latin America so ripe for disruption? To begin with, its moribund service sectors have remained untouched by globalization. That is a stark contrast to much of Latin America’s manufacturing and agricultural sectors, which go to work each day competing on a global scale thanks to close to 100 trade agreements signed by Latin American countries over the last three decades.
Embracing the gig economy
Disruptive new business models, most of which are imported, are compelling because they attack and exploit many of Latin America’s greatest economic weaknesses. Mexico has long boasted official unemployment levels far lower than the U.S., Japan or Europe but in fact, an estimated 25 percent of adult Mexicans who do work do so less than 40 hours per week, and not by choice. Furthermore, the rigidity of labor laws in countries like Mexico, Brazil, Argentina and Colombia means that 30-50 percent of workers operate informally without receiving legislated benefits and often paying only partial taxes. As a result, gig-economy business models that offer flexible employment are met with enthusiasm. Long before Uber, multilevel marketing firms like Avon, Amway and Herbalife achieved massive success in Latin America by empowering the most underemployed demographic: women.
Another structural weakness ripe for disruption in Latin America is that of oligopolies and monopolies. Mexico and Brazil have tightly controlled the number of television companies ruling the airwaves. This created media giants like Televisa and TV Azteca in Mexico and Globo in Brazil. The result was limited programming, too many ads for the viewers’ liking and excessive rates for advertisers. Little wonder then that Netflix is taking both markets by storm. In 2017, Mexicans watched more Netflix content per user than any other of Netflix’s 190 worldwide markets. In fact, five out of the top 10 Netflix binge-watching countries in the world are found in Latin America: Peru (3rd), Chile (5th), Brazil (6th), and Argentina (7th). When customers are suddenly presented with choices for the first time, they tend to glom. The same thing happened in the U.K. with the arrival of cable and satellite TV after decades of operating with four television channels.
Often the thing that is facilitating monopolistic practices is Latin America’s greatest structural vice: corruption. People arriving at Mexican airports who want to take a taxi are normally obliged to use the nationally controlled airport taxi monopoly service, which is priced three to five times the cost of Uber. Little wonder that Mexican legislators (who many speculate share in the excessive profits of the national taxi service) have fought hard to prevent Uber’s access to airports.