Aug 28, 2020

LATAM Weekly: Mexican Used Car Startup Kavak Announces Expansion into Argentina and More…

By dataPlor • Issue #85 • View online

Mexican Used Car Startup Kavak Announces Expansion into Argentina

Kavak, an online used car platform, is expanding from Mexico into Argentina in a merger with secondhand auto company Checkars, Kavak’s Chief Executive Carlos Garcia said in an interview on Tuesday.

The New York Times reports that despite the fact that Kavak’s sales in Mexico fell 28% in April from the prior year, they recovered to pre-pandemic levels in June and began to pull even higher in August.

As part of the move into its first market outside Mexico, the SoftBank-backed company will invest $10 million in Argentina.

Buenos Aires-based Checkars, founded in 2018, has recorded 1,500 transactions and last year posted $8 million in sales, Kavak said in a statement.

In addition to ensuring a smooth merger, CEO Garcia’s next challenge is boosting inventory. He hopes to capture a bigger share of the used car market- which he says is worth $60 billion in Mexico and $20 billion in Argentina- and also meet rising demand from budget-conscious shoppers hit by the pandemic.

“Now with the pandemic, economics are more important for customers than ever,” Garcia said.

Garcia plans to offer 20,000 used autos in Mexico in the next 12 months, up from 2,000 now available.

Some buyers come from households that already have one car, and opt for a second as an alternative to the subways and buses where passengers are more vulnerable to picking up the virus, he noted (The New York Times).

Property Tech Startup Habi Raises $10M to Drive Expansion in Latin America

Bogotá-based Habi, a property tech startup, has now raised $10 million in a Series A round led by Inspired Capital, with participation from 8VC, Clocktower, Homebrew, Vine Ventures and Zigg. The round included angel investments from Flatiron Health and Looker. The company has raised $15.5 million to date.

The startup’s founders, Brynne McNulty Rojas and Sebastian Noguera, built a centralized database of residential real estate prices and trends (basically a multiple listing service, or “MLS”) and used that information to create an automated pricing algorithm to buy and sell homes quickly and efficiently.

Habi buys, renovates, then sells homes, generating revenue off the margin. Their platform also offers a tool that lets sellers estimate the value of their homes, and provides access to a robust database that buyers can use to search for listings. The foundation of the business is Habi’s automated pricing technology, which was built using data from its real estate, financial and government partners.

“You can think of it as an MLS plus Opendoor model,” Rojas said in a recent interview.

Since launching in 2019, the Colombian startup has scaled rapidly. According to Tech Crunch, Habi has picked up speed during the city’s strict lockdown during the COVID-19 pandemic.

Transaction volume has increased threefold since March, Rojas noted. He believes the data-driven approach works, allowing the company to sell a home three times faster than the market average.

Habi currently covers all of Bogotá, and plans to use its new capital injection to expand to Medellín this month, then eventually spread to other Latin American markets, according to Noguera; who previously ran the digital transformation at Banco de Bogota and co-founded Marqueo.

Habi’s founders intend to eventually expand Habi’s services to become a “one-stop shop for everything related to the home,” Rojas said. In the long term, this could mean connecting consumers with moving, storage, furnishings and other services.

Apple Manufacturing Partner Foxconn Contemplates New Factories in Mexico over China

Taiwan-based electronics manufacturers Foxconn and Pegatron are among companies eyeing new factories in Mexico, as the U.S.-China trade war and COVID-19 pandemic have prompted companies around the world to reexamine the global supply chains.

Fox Business reports that Foxconn and Pegatron are known as contractors for several phone manufacturers including Apple.

According to two sources close to the matter, Foxconn has plans to use the factory to make Apple iPhones. However, one of the sources explained that there’s been no sign of Apple’s direct involvement in the plan yet.

Electronic manufacturing company Pegatron is also reportedly in early discussions with lenders about an additional facility in Mexico to assemble chips and other electronic components.

The two sources noted that Foxconn will likely make a final decision on the location of a new factory later this year, and work would commence after that, although there is “no certainty” the company would stick to the plan (Fox Business).

Foxconn has five factories in Mexico, which primarily manufacture televisions and servers. The potential expansion would underscore a broader and gradual shift of global supply chains away from China amid the China-U.S. trade war and coronavirus pandemic.

The plans come as the idea of “near-shoring” gains ground in the White House. The Trump Administration is investigating possible financial incentives to encourage firms to move production facilities from Asia to the United States, Latin America and the Caribbean.

Brandishing a new deal locking in free trade with the world’s biggest consumer market, Mexico also has geography, low wages and time zones in its favor. Despite the global recession and concerns about the business climate under President Andres Manuel Lopez Obrador, government data shows foreign investment largely holding up so far this year.

“The company indeed has contacted the (Mexican) government,” a source said about Foxconn, adding the talks were at an early stage and rising cases of coronavirus in Mexico were a major concern for the possible investment.

In a statement, Taipei-headquartered Foxconn said that while the company continued to expand global operations and is an “active investor” in Mexico, it had no plans to increase those investments.

“The world factory no longer exists,” he said, adding that about 30% of the company’s products were now made outside China and the ratio could increase.

The Taipei Economic and Cultural Office in Mexico, which represents Taiwan’s government in the country, said it had heard Foxconn was interested in building another factory in Ciudad Juarez, in the northern border state of Chihuahua.

“Pegatron, I also understand, wants to move a production line from China to Mexico,” the office’s Director General Armando Cheng told Reuters. He said he did not know details of either company’s plans. “Mexico is one of the ideal countries for companies considering readjusting their chain of suppliers,” Cheng said.

Mexico has engaged in talks with various foreign companies in an effort to lure business from Asia to capitalize on the trade deal and was preparing to speak to Apple about relocating manufacturing, Economy Minister Graciela Marquez told Reuters in July.

“It could have been a tidal wave,” said Eduardo Ramos-Gomez, a partner at Duane Morris & Selvam, a law firm working with Taiwanese and Chinese companies looking at Mexico.

Samuel Campos, an executive managing director of real estate brokerage Newmark Knight Frank, said his company is currently helping two Chinese companies, one in the autos sector and the other in manufacturing, relocate to an industrial cluster in Mexico. According to Campos, electronics, medical and automotive firms in Asia are likely to help encourage investments into Mexico in the fourth quarter this year.

Alan Russell, Chief Executive and Chairman of Tecma Group- a company managing factories in Mexico- believes that manufacturers in China that hope to keep market share in North America have few choices.

“They’re going to have shorten their supply chain and be more regional,” he said. “It seems the virus has tipped the scale.”

Amazon Expands Fraud Prevention Program to Brazil

Amazon will expand Project Zero- a program for counterfeit products prevention- to seven new countries, including Brazil. The program will also roll out into Australia, Holland, Saudi Arabia, Singapore, Turkey, and the United Arab Emirates.

Project Zero uses machine learning to continuously scan Amazon’s online stores for suspected counterfeits. Using key data provided by brands, Project Zero can scan over five billion daily listings to identify false products.

As reported by LatAm List, the program also gives brands the ability to remove counterfeit listings from the stores, using its self-service tool. Project Zero also scans listed products and compares them to a brand’s individual manufacturing or packaging code to verify the product.

According to Amazon, the system has been very effective in detecting fraudulent activity in its stores.

Argentina’s Henry Bets on 100,000 New Programmers by 2025

After participating in Y Combinator’s Summer 2020 Batch, Argentinean startup Henry has obtained new funds through both the accelerator, in addition to investments pitched by Tim Draper and Mike Santos, totaling $300,000 USD.

According to Contxto, the startup has a definitive goal for the future: preparing 100,000 developers within the next five years.

“We have an ambitious goal…We want to become the biggest development hub in all of LatAm, by enhancing people’s digital skills regardless of their socioeconomic status,” Martin Borchardt, Founder and CEO, told Contxto.

Henry after screening applicants, the chosen candidates partake in the company’s “bootcamp program”, eventually becoming full-stack developers.

“Nowadays there are many digital academies across Latin America and that’s great news,” the startup told Contxto. “But at Henry, we believe that there’s more room to improve graduate’s technical skills by nurturing their talent. We seek to resolve one part of the problem: helping people who couldn’t pay for the necessary education to take on a new career path. Education is the best way to solve inequality, but only if it’s high quality and within everyone’s reach,” Borchardt added.

The startup operates with its students under a shared income agreement, in which alumni are not charged until they’ve graduated the program and secured a job (preferably in software development) that adheres to Henry’s basic income bracket.

Upon completion of the bootcamp program, Henry’s team helps graduates land a job in the industry; providing assistance such as advising participants’ LinkedIn and Github profiles and editing their CVs.

Mexican Economy Slumps to 'Great Depression' Lows as Central Bank Slashes Forecast

Mexico’s economy could contract by almost 13% this year, the central bank warned on Wednesday, after GDP data showed the pandemic had thrown the country into the deepest slump since the Great Depression.

After lowering its economic forecast for the year, the Banco de Mexico suggested in its quarterly report that a recovery could happen more quickly next year than previously thought.

Reuters reports that even in the bank’s most optimistic scenario, Latin America’s second-largest economy will be smaller at the end of 2021 than it was before the coronavirus hit.

“It is too soon to say when we will return to pre-crisis levels,” central bank Governor Alejandro Díaz de León said.

The central bank said there was “a high degree of uncertainty” in providing economic forecasts during the ongoing pandemic, and therefore provided three possible economic scenarios.

In the best case, the economy would shrink by 8.8% this year, and rebound by 5.6% next year, the bank said. In a more dismal (second) scenario, growth would be a mere 1.3% next year.

“The government previously estimated a recovery of the Mexican economy to pre-pandemic levels could be reached in one or two years so long as no new coronavirus outbreaks strike.The Mexican S&P/BMV IPC stock index was down 1.3% on Wednesday, deepening its losses after the central bank report” (Reuters).

Gross domestic product fell 17.1% (in seasonally adjusted terms) in the April-June period from the prior quarter, data from the national statistics agency showed on Wednesday. Compared with the same quarter last year, GDP contracted 18.7%.

By contrast, the region’s largest economy, Brazil, is predicted to have contracted 9.4% in the second quarter after President Jair Bolsonaro launched a fiscal spending program to deal with the impact of COVID-19.

Mexico’s fiscally conservative President Andrés Manuel López Obrador has resisted pressure to borrow to support the economy, while creating tension with some businesses.

“Data for the second quarter confirms the Mexican economy had its worst quarterly decline of the last eight decades, after the crash in 1932 caused by the Great Depression,” said Alfredo Coutino, an economist at Moody’s Analytics.

The pandemic, which has infected 568,621 people and killed 61,450 in Mexico, has hit the Mexican economy harder than those of its Latin American peers due in part to “the absence of stimulus measures to mitigate the effects on companies and families,” said Coutino.

Díaz de León said in a radio interview following the central bank report that both public and private investment are needed together in order to generate growth.

However, President López Obrador insists the country is on the right track.

“We’re already recovering, workers are already being rehired and we’re going to get out of this without getting over-indebted,” he told a regular news conference on Wednesday.

In a glimpse of optimism, Mexican economic activity advanced 8.9% in June from May, apparently confirming the president’s view that the economy “hit bottom” in April and May. The economy contracted 13.2% in June compared to the prior year.

A breakdown of the adjusted quarterly GDP data showed primary activities- which include farming and fishing, secondary activities comprise manufacturing, mining and construction, and tertiary activities- slipped 2.0%, secondary activities plummeted 23.4% and tertiary activities contracted 15.1%.

Chilean Referendum Campaign to Amend Pinochet Constitution Takes Off

On Wednesday, Chileans began campaigning for a referendum on amending their dictatorship-era constitution. For many, the Pinochet Constitution represents a symbol of rooted social and economic inequality in Chile.

The referendum to decide whether to change the constitution established under the military rule of General Augusto Pinochet (1973-90) was originally due to take place in April, but was postponed by the coronavirus pandemic.

When violent protests broke out last October, one of demonstrators’ key demands for greater social justice was a change to the constitution.

For those in favor of a “yes” vote- particularly the leftist opposition- a new constitution would encourage the establishment of a new and fairer social order in Chile: a country previously marked with economic and social inequality.

Those in favor of a “no” vote- markedly conservative groups- feel that change can occur without tearing up a document that they say “helped bring stability to Chile” (Merco Press).

On October 25, over 14 million Chileans will vote on the decision to amend the constitution. The poll comes more than three decades after Chile’s historic 1988 referendum that opened the way for an end to the Pinochet dictatorship and a “path towards democracy” (Merco Press).

“The most relevant political fact is to remove the legacy of the dictatorship that continues to act like a straightjacket on the possibility of political and social change in Chile,” Claudia Heiss, an academic at the public affairs institute at the University of Chile, commented. She added that a new constitution could open “a conversation that has been closed until now,” such as on the necessity for public policies aimed at redistributing wealth and increasing democratic participation.

On November 15, 2019, one month after the social unrest that left 30 dead broke out, the government and opposition parties agreed to hold the referendum.

Voters will face two questions: one being the decision to rewrite the constitution, and the other on who should do so. The second question will determine whether existing legislators will join a specifically elected body to write the new charter.

“There are two paths and what I want is that whichever is the chosen path, we arrive at a constitution that effectively recognizes and protects the fundamental rights of Chileans, like the right to life, freedom and equal opportunities,” said President Sebastian Piñera in an interview on Sunday with La Tercera daily newspaper.

Fears remain, however, that the referendum could fuel a surge in coronavirus cases. Confirmed cases have recently stabilized after leaving more than 400,000 Chileans infected and 11,000 dead.

“As opposed to what happened in March, now we have a lot more experience in relation to managing the pandemic and we also have the internationally accumulated experience,” Jose Miguel Bernucci, the general secretary of the Medical College, said.

Both The President and Congress have the power to postpone the referendum up to one day before it takes place if the health conditions demand such a move. The election campaign will take place primarily on social media and radio announcements. This week, polls showed that most Chileans intend to vote, although around half the population fears that by doing so, they could catch the virus.

“We’re all working to hold a safe referendum,” said Patricio Santamaria, The President of the Electoral Council.

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By dataPlor

A collection of the week's best articles about doing business in Latin America

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