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With a distribution centre reportedly bought and several high profile hires made, evidence is mounting that Amazon is preparing to launch full e-commerce operations in Mexico in the coming months, despite the absence of an official announcement.

Amazon has surely learned a lot about international expansion into emerging markets from its experiences in India and China, but Mexico still presents a number of challenges, such as payments, delivery and brand awareness, that Amazon will need to overcome for a smooth entry into Latin America.

Alternative payments are non-negotiable

Mexico had one of the lowest rates of credit card ownership in the world at 21 personal credit cards per 100 people in 2014, compared to 51 for Latin America as a whole. The picture is better when taking into account debit cards (89 debit cards per 100 people in Mexico, still below the global average of 101), but usage of and access to card products is not evenly distributed – in 2014, 51% of the population aged 15+ was considered unbanked. As such, huge portions of Mexico’s population do not have access to a traditional method of payment that can be used to make an online purchase.

Retailers in Mexico looking to boost online sales have two main strategies to make their platform accessible. First, retailers can offer their own card products, either in the form of their own store or pre-paid cards, like movie theatre behemoth Cinepolis has done to promote online ticket buying, or by partnering with banks to offer co-branded credit cards, typically featuring targeted marketing campaigns and fewer requirements for application (and, generally, higher interest rates than simple bank credit cards).

Second, retailers can be open-minded about the methods of payment they accept. The most successful internet retailers in Mexico have largely chosen this strategy. Virtually all major internet retailers offer cash-on-delivery, and alternative payment methods are also widely accepted by internet retailers. Walmart Mexico, for example, accepts both PayPal and MercadoPago. MercadoPago is an especially interesting choice, as it is a service provided by online marketplace MercadoLibre, one of the most significant players in e-commerce across Latin America.

To reach a wide audience, Amazon will need to offer cash-on-delivery as a payment option, as it already does in India. Amazon should evaluate adding an additional payment platform, although it is hard to see Amazon being enthusiastic about adopting its competitors’ payment platforms. MercadoPago is popular with consumers, but partnering with MercadoLibre seems like a tough pill for Amazon to swallow, as its future seems to be in developing its own marketplace capabilities.  MercadoLibre has partnered with MasterCard to launch a rechargeable MercadoPago-branded pre-paid card, which will also facilitate online payments.

Expectations already high for distribution options

Consumers in Mexico might not have had the chance to experience the full Amazon experience yet, but they have heard about Amazon’s delivery magic in other markets. An enormous part of Amazon’s reputation is in its ability to make vast improvements in the delivery process, from free two-day shipping with Amazon Prime in the US to same-day delivery to select addresses in India. With most consumer goods categories are already offered online by other retailers, the product variety Amazon might bring is of less interest among consumers than the improvements in the delivery process they expect. Amazon has surely learned a lot from its experiences in other markets, a lot of which will be applied to the company’s operations in Mexico.

A key driver of the speculation that Amazon is about to launch operations is the fact that the retailer acquired a 65,000 square metre distribution facility in Estado de Mexico, approximately 70 kilometres outside Mexico City. This centre will be a strong base for providing timely deliveries to Mexico City and the surrounding areas but the facility is too far from other population hubs like Monterrey, Guadalajara, or even Cancun to be able to offer the kind of shipping options Amazon offers in other countries.

With its reputation for two-day, one-day, and same-day shipping options elsewhere, Amazon has set the bar quite high for itself. Consumers in Mexico might be patient in the beginning, but they are aware of what Amazon offers shoppers in other markets and will expect these options to eventually appear in Mexico as well. Mexico City is home to just 17% of all Mexicans and there is potential opportunity to sell to inbound tourists familiar with Amazon in their home markets in Mexico’s main tourism spots as well.

To be successful in Mexico, Amazon will need to build out its distribution network to work to avoid disappointing consumers. The bright side for Amazon is that Mexico is nearly as urban as the US and much more so than China or India, so it will be easier to develop a network that can extend expedited shipping options to the major cities, at least.  Amazon has typically built these networks from scratch in other markets, but another option would be to partner with an existing retail chain like Oxxo to instantly gain thorough geographic coverage.

Convincing consumers

Amazon can view its potential audience in Mexico as two groups: consumers who have already made online purchase via another internet retailer, and consumers who will need to be persuaded to make their first internet purchase. The benefits of internet retailing for consumers in Mexico are the same as anywhere else: price, convenience and broad selection. To win over consumers from the first group, who are already comfortable with internet retailing, Amazon will have to be better than its competitors at all these things. Based on its strategies in other markets, it seems like a given that Amazon will work furiously to grow its delivery services. And Amazon has the ability to compete on price if it so chooses.

The second group will be more challenging for Amazon to pursue. Consumers to whom internet retailing is unfamiliar often prefer to make their first online purchase with a retailer they already know – typically one whose brick and mortar outlets they frequent and with whom they perhaps have a co-branded card. Amazon will have to work harder to win over this group, although not as hard as a local pure player would, thanks to its global reputation. Consumers in Mexico and throughout Latin America have long placed orders on Amazon’s US website via courier intermediaries – typically with hefty shipping fees, not to mention the courier’s commission – and Amazon has offered book and Kindle sales through Amazon.com.mx since 2014.

A strong team could lead to big success

Overarching market characteristics like lack of access to financial products and low overall adoption of the internet as a shopping channel will not change substantially in the short-term. Mexico is expected to see an increase of US$4.6 billion in internet retailing sales through 2019, which will make it the 14th fastest growth market globally. However, Amazon already has full presence in most of the countries ranked higher than Mexico, so it makes sense for the company to now choose to build a bigger presence in the country.

Amazon has certainly stumbled in the past when it has entered emerging markets, but the company has reportedly hired several big names in Mexico’s e-commerce sector – like Juan Carlos García Sánchez, former vice president of e-commerce at Walmart Mexico, and Gloria Canales, formerly the managing director of major apparel internet retailer Dafiti. Having experts like these involved from day one will help Amazon make a smooth entry into the market, but it remains to be seen if Amazon will be able to rely on these experts and lessons learned from the company’s past emerging market entrances to conquer e-commerce in the second largest economy in Latin America.

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