Latin America's Copycat Startups: Thieving Or Innovation?

Across the region, entrepreneurs have been hailed for taking innovative ideas inspired elsewhere and applying them nationally or regionally. But the business and ethical dynamics involved are not so simple.

Latin America's Copycat Startups: Thieving Or Innovation?

Peru's Chazki, the "Uber of logistics", developed its own technology and practices to meet the needs of Peruvian customers

Sol Park

SANTIAGO — When Chazki, a Peruvian courier startup, entered the market in 2015, its founders described it as "the Uber of logistics." It made sense. The firm initially recruited freelance collaborators, not to carry passengers, but deliver purchased items in their "last mile."

The Uber tag stuck though, as tags have done with other regional startups: Mercado Libre was "Argentina's eBay," Nubank the "Revolut of Brazil," and Rappi was the WeChat of Colombia. Indeed, many Latin American firms are termed copycat startups for replicating successful business models conceived in developed hubs like the Silicon Valley.

This isn't new in the business world. Popular Latin American e-trading platforms like Linio and Dafiti were created by the German incubator Rocket Internet, which replicates successful digital startups for developing markets and often ends up selling them to the original developers.

Some see this as crass thieving (a charge thrown at Rocket Internet in 2012), but not everyone. Is the retailing giant Falabella just a copy of Macy's, asks Federico Antoni, a co-founder of the Mexican venture capital firm ALLVP? Is Mexico's Banorte a knock off Wells Fargo?

"The important thing is not what inspired the founders of Cornershop (a Chilean version of the U.S. delivery app Instacart) or Nubank, but how they adapted to the market and became a giant company," he says.

In the case of Chazki, founder Gonzalo Begazo himself described it as the Uber of logistics, but also pointed out in an interview that it had developed its own technology and practices to meet the needs of Peruvian customers.

It's not because you did things well in one country that you can go next door and do exactly the same.

Today the firm allows clients to send and receive packages in a day or sooner, and to track them. This is new in a region where customers might wait weeks, if not months, for an online purchase to arrive. The firm has partnered with Falabella in Chile, Peru and Colombia, and its customers include Mercado Libre, Walmart, Amazon and Nestlé. Its sales increased 600% in 2020, and the target for 2021 is to increase sales from $10 million to $35 million.

Latin flavor

Chazki's country manager in Chile, Felipe Rivas-Struque, worked with firms based outside the region like Rappi, Cabify and PedidosYa, and says the "natural mistake would be to want to bring the way they do things outside to the region." Part of Chazki's success, he says, is that "we're Latinos and work for Latinos."

In fact, local markets will likely prevent a "cut and paste" solution as their needs will force entrepreneurs to "tropicalize" their product. As Claudio Barahona, managing partner of the Chilean venture capital firm Alaya Capital, explains: "Consumer cultures and habits" and the purchasing power of customers differ sharply between the United States, Chile and other regional countries.

Alaya's portfolio includes Rocketpin, an Uber-type firm that provides services for customers (like checking a site or getting a document signed). Barahona says that in the United States, people may work with such firms to supplement their revenues. In Latin America, in contrast, it's their job. That completely changes the business model and how users view its services and workers.

Rivas-Struque points to differences between Latin American states. Paying in cash for example, remains a sensible option in Peru, but less so in Chile, where banking services are pervasive. The right strategy for expansion, he says, "is not to be complacent."

"It's not because you did things well in one country that you can go next door and do exactly the same, because it won't work as well," Rivas-Struque explains. "That's why local market knowledge is so important, as are local good practices and 100% local implementation."

Delivery app Rappi was described as the WeChat of Colombia — Photo: Sebastian Barros/NurPhoto via ZUMA Press

Andrés Sarrazola is the founder of Ayenda, a reservations platform for small hotels, often termed a copy of Oyo, the Indian version that grouped small hotels under a brand that brought them business and assured quality for guests. Sarrazola says Ayenda's model arose from conversations with newcomers in the hotel business, and attributes its success to "our being Latin Americans."

Ayenda has a team of 50 people visiting independent hotels to persuade them to join the project. "They have coffee and spend time creating a relationship that goes beyond just a number," he explains. "Foreign executives could not relate to local partners this way."

Copycats compete efficiently with original brands, not just by expanding geographically but through more services attuned to local needs. Mercado Libre, which took its inspiration from eBay, did this, and its services now include digital payments, advertising and property sales and rentals. The firm emerged in the 1990s.

"eBay launched into Latin America in that period and could never compete," says Federico Antoni. "Today, Mercado Libre is not just very different but much bigger."

We can't underestimate the impact a copycat can have on people's lives.

Ayenda's Sarrazola says local versions may not be the first with an idea, "but what we can do is to be the best."

"I" for innovation

Fernanda Cahen, a professor at the private FEI University in Sao Paulo, says the innovation of copycats from Brazil or Latin America should be assessed in the local context, not in comparison with advanced economies. She cites different types of innovation. First, scientific, which transforms objects and creates disruptive products — like the iPhone — and requires big investments. These generally happen in advanced economies.

Then there are "frugal" innovations, derived from local needs, Caheln explains. This leads firms to even transform a high-tech product to meet local needs for people with less money. "It's not an iPhone, but a good enough," she says.

The third type is what copycats do: innovating with and adapting software or business models. Cahen says that in a "young ecosystem, with a difficult institutional environment, if a technological firm, even one that copies, can grow and develop into a big firm, it's impressive."

Such firms are particularly attractive to investors. "We like startups that are resolving some of the region's big problems. We don't ask if it's a copycat or not," says ALLVP's Antoni.

With Ayenda hotels, Sarrazola says the firm linked numerous, small hotels with a digital reservation system that brought them business. Few had this before.

"We made hundreds of thousands of guests loyal customers of our chain, which benefits our hotel partners as they start receiving a large volume of clients," he explains. Ayenda now has more than 300 hotels in Colombia, Peru and Mexico, and grew 150% in 2020, in spite of the pandemic.

Claudio Barahona points out that copycat startups can have a "vital" impact locally. Nubank, for example, "isn't a digital bank just to be cool, but solves the problem of access to finance for millions of people in Latin America," he explains. "We can't underestimate the impact a copycat can have on people's lives."

Conservative investment attitudes in Latin America tend to favor copycats, as investing in a new firm is seen as risky or slow to yield returns. But this may be changing, with big regional firms more willing to invest in scientific or biotechnology firms.

In time, the copycat model may even lose steam. But by then, these same firms may be well placed to act as the region's technological innovators or investors in home-grown science and biotechnology, giving a further boost to the consumer markets they understood and served with intelligence.

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At the Mango Festival held in Aswan, Egypt

Nada Arafat

ISMAILIA – Every year during the month of July, crowds gather in the mango farms of Ismailia, in northeastern Egypt, to pick the delectable summer fruit during its relatively short harvest season. But this year, as a result of erratic weather patterns throughout March and April, the usual bountiful mango harvest was severely affected with farmers witnessing a precipitous drop in yield. Some 300,000 farms saw an 80% decrease in productivity, leading to a supply shortage in the market and a corresponding 40% increase in the price of mangoes.

The effects of these climate fluctuations could have been mitigated by farmers, yet according to experts who spoke to Mada Masr, the agriculture minister failed to play a role in raising awareness among farmers and in providing agricultural guidance services.

Heatwaves kill crops

Mangoes are highly sensitive to changes in temperature. For germination to occur, the ideal temperature should be between 10 °C at night and 28 °C during the day, according to agricultural consultants. In Egypt, this weather pattern usually occurs in February. Mango trees then flower and the flowers turn into fruits that take 40 days to grow and be ready for harvest, according to Karam Suleiman, an agricultural engineer.

This year, however, according to mango farmers in Ismailia who spoke to Mada Masr, the beginning of the winter farming season experienced a sudden heatwave followed by another heatwave at the end of March. In both March and April, the temperature dipped to as low as 5 °C at night and as high as 25 °C during the day. Due to these erratic weather fluctuations, the mango flowers that develop into fruit fell before they could mature.

The typical average mango yield from one feddan (approx 1.03 acres or 0.40 hectares) ranges between 6 to 8 tons. This year however, the yield per feddan averaged between just 1 to 2 tons, according to several sources.

Frozen mango suppliers multiply purchases

A farm owner in Al-Tal al-Kebir on the Ismailia Desert Road, who spoke to Mada Masr on condition of anonymity, said that his farm produced approximately 35 tons of mangoes last year, whereas this year his yield did not exceed 4 tons. He added that many farmers in the surrounding area, which is famous for mango cultivation, experienced the same steep declines in yield.

The limited mango yield and the subsequent hike in prices has also prompted frozen mango suppliers to multiply their purchases from farms in order to capitalize and sell them next year at an even higher price, according to Ali Saqr, an agricultural engineer in a fruit export company, along with a number of other farm owners who spoke to Mada Masr. Mangos can stay frozen for up to two years.

Khaled Eweis, who buys mangoes and stores them in rented freezers then later sells the frozen mangoes to juice and dessert shops, explained to Mada Masr that juice shops usually use the Zebdia variety of mangoes, whereas dessert shops use Keitt mangoes. The latter is expected to be priced at 25 Egyptian pounds ($1.5) this year after having been sold for half the price at the same time last year.

Last year, Eweis bought Zebdia mangoes for 10–12 Egyptian pounds ($0.6–$0.7) per kilo then resold them for 16 ($1) after freezing them. This year, the Zebdia prices ranged from 17–21 ($1–$1.30) per kilo, and Eweis expects that the price after freezing will reach as high as 25 ($1.5).

Photo of an Egyptian man shouldering a basket full of mangoes

The typical average mango yield from one feddan (approx 1.03 acres) ranges between 6 to 8 tons


Threat to water security

This is not the first time that mango production has been hit hard as a result of fluctuating weather patterns. A similar crisis in the mango harvest took place in 2018, and other crops, such as olives, potatoes, wheat, rice and cotton, have also been adversely affected over the last few years, according to Mohamed Fahem, the head of the government Climate Change Information Center. And human-induced changes to global weather patterns as a result of climate change point to increased agricultural challenges in the future.

The deadly heat waves, fires, hurricanes and other extreme weather events that have dominated headlines in recent years will only become more frequent in the coming decades, according to a United Nations report on climate change released in August. In its sixth assessment report, the UN's Intergovernmental Panel on Climate Change called human-induced changes to global climate systems "unprecedented." While the report calls for drastic cuts to the global emission of greenhouse gases, much of the effects of climate change are already locked in for decades to come.

Among the areas most vulnerable to climate change is agriculture. A 2018 report titled Sustainable Agriculture and Climate Changes in Egypt found that climate change can have drastic effects on agriculture through changes in temperature, rainfall, CO2 levels and solar radiation. Meanwhile, a 2020 European Union report also found that climate change will pose a threat to global food production in the medium to long-term through projected changes in daily temperature, precipitation, wind, relative humidity and global radiation.

According to various studies, climate change gradually reduces the duration of spring, autumn and winter, which in turn affects the crops that are cultivated during those seasons. In Egypt in particular, the country's agricultural crop map will likely change as a result of a prolonged summer season, according to a study by former Agriculture Minister Ayman Abou Hadid, published in 2010 when he was heading the Center for Agricultural Studies. The study predicted that grain cultivation will gradually move north from Upper Egypt due to increases in winter temperatures, though it did not give a projected timeframe.

Cold and heat waves

Climate change also increases salinity levels in soil due to rising sea levels, which in turn renders the soil only suitable for crops that can handle high salinity yet still require intensive irrigation to mitigate the salinity levels. At the same time, Egypt is currently facing a threat to its water security due to the changes in rain patterns and droughts as well as the potential effects of the Grand Ethiopian Renaissance Dam.

According to Fahim, the increased cold and heat waves Egypt has experienced has led to the emergence of new, mutated varieties of pests and fungal diseases that are resistant to chemicals. For example, in 2018, aphids and whiteflies spread due to the shortened winter season, and the accumulation of these pests led to huge losses in potato and cotton yields. Meanwhile, palm trees were harmed due to the appearance of red palm weevils.

How farmers counter mango losses

The severe losses in the 2021 mango yield were hard to avoid, but is there a way to counter them?

Karam Suleiman, an agricultural engineer, believes that better methods of agriculture, irrigation and fertilization, along with raising awareness among farmers about the dangers of climate change and how to monitor weather fluctuations could succeed in mitigating such outcomes.

However, Egypt appears currently incapable of providing sufficient safety networks to farmers in order to enable them to confront the effects of climate change.

An example of this is apparent in the failure to enforce mechanisms for warning farmers about potential difficulties in upcoming farming seasons. In June, a report by the Center for Agricultural Studies warned about a decline of as much as 85% in the productivity of farms in Ismailia, where mangoes are mainly cultivated, as well as farms in Sharqiya, Suez and Beheira, due to climate change. However, this report only reached about 13 farmers and owners of mango farms, according to agricultural sources who spoke to Mada Masr.

Ahmed Asal, a mango farmer in Qantara in Ismailia, told Mada Masr that there has been no guidance from authorities in helping farmers understand climate change and how to respond to it. "No one told us what to do and we never received any compensation for our losses," Asal said.

Photo of a hand picking a mango from the tree in Egypt

Mangoes are highly sensitive to changes in temperature

Ahmed Gomaa/Xinhua/ZUMA

Agriculture engineers must become climate engineers

Agricultural guidance is a service offered by the Agriculture Ministry to raise awareness and educate farmers about all aspects of farming. The service is usually provided through agricultural engineers who are based in the agricultural cooperatives that exist in every city and town.

Fahim, the head of the Climate Change Information Center, works to play a similar role through his Facebook page and, at times, on various TV channels and newspapers, by raising awareness about weather fluctuations and their effects on agriculture. However, his insights do not have a wide enough audience, particularly at a time when the agricultural guidance is dwindling despite the opening of the Agricultural Guidance Center in Qantara earlier this year under the auspices of the Agriculture Ministry.

"Agricultural guidance has been doing a good job lately, but only in the media, not on the ground," said Alaa Khairy,* an engineer at the Central Laboratory for Climate Change. "If they were really working on the ground, farmers would not have lost as much as they did."

More important crops like wheat will be next

What exacerbates the crisis is that those who are harmed the most are small farmers — those who have between 10 to 20 feddans of land — who cannot afford to take preemptive precautionary measures to mitigate erratic weather patterns nor hire experts who can help them make better decisions about how to handle sudden climate fluctuations. Those farmers also cannot afford to provide covers for their fruits during hot seasons, which is one way to prevent crop damage that is quite costly.

This year's crisis is expected to be repeated in the coming years due to the rapid consequences and effects of climate change on global food security. Aside from mangoes, the effects of climate change are projected to affect far more important crops, such as wheat, with reports showing global wheat crop losses due to heat and drought, a particularly worrisome development for Egypt — the largest importer of wheat in the world.

"In the coming period, agricultural engineers must become climate engineers as well," Suleiman said.


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