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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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Pasta v. Fascists: How Italy's Staple Dish Became A Symbol Of Resistance

Pasta may not be considered controversial today, but it played an important role during Italy's fascist years, particularly in one family's celebration of community and liberation.

Photo of the Cervi family.

Photo of the Cervi family, whose seven children were shot by the Fascists on December 28, 1943, at the Reggio Emilia shooting range.

@comunisti_alla_ribalta via Instagram
Jacopo Fontaneto

ROME — Eighty years ago — on July 25, 1943 — the vote of no confidence by the Grand Council of Fascism, leading to Benito Mussolini's arrest, set off widespread celebrations. In Campegine, a small village in the Emilian province, the Cervi family celebrated in their own way: they brought 380 kilograms of pasta in milk cans to the town square and offered it to all the inhabitants of the village.

The pasta was strictly plain: macaroni dressed with butter and cheese, seen as more of a "festive dish" in that period of deprivation. As soon as the Cervi brothers learned about the arrest of Mussolini, they procured flour, borrowed butter and cheese from the dairy, and prepared kilos and kilos of pasta. They then loaded it onto a cart to distribute it to their fellow villagers. Pastasciutta (dry pasta) specifically regards dishes with noodles that are plated "dry", not in broth. That would disqualify soup, risotto, ravioli...

Even though pastasciutta is the most stereotypical type of pasta today, it had a complicated relationship with the government during Italy's fascist years.

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