Tech ecosystems in Latin America (Latam) have a lot of potential as they innovate the region’s growing economies. Yet their regional focus, while beneficial in fostering local growth, restricts them from achieving broader global influence. This localised approach limits the future scalability and international aspirations of Latam’s tech hubs.
The vast majority of start-ups in Latam remain regionally focused, mirroring a pattern observed in other parts of the world, such as south-east Asia, where start-ups like Grab have become greatly successful by focusing on local markets. While regional success stories are commendable and contribute significantly to local economies, they also hint at the potential for global expansion that remains largely untapped in Latam.
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The predominance of Spanish populations — notably excluding Portuguese-speaking Brazil — has indeed streamlined regional communication and product development. This linguistic unity has propelled the rise of localised solutions, catering specifically to the needs of the Latam market. This is a smart initial approach, as targeting the region is a very big, low-hanging fruit. However, it also creates a risk of becoming addicted to staying local, especially considering that the role models of the region, like Rappi and Mercado Libre, are completely regional.
Therefore, Latam policy-makers should think about how they can create more start-ups like fintech DLocal, which has successfully breached global markets and set a textbook example for Latam start-ups to open their minds to global opportunities, taking advantage of the low cost of Latam markets and sharing the same time zone with the biggest market in the world — North America. When you innovate for North America, you have to innovate in English, so you enter the global market.
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One of the most glaring challenges is the two different languages within the region itself. Brazil, a giant both geographically and economically, remains somewhat isolated from its Spanish-speaking neighbours, reducing the total addressable market to those start-ups not venturing beyond Spanish. Brazil’s largest innovator, NuBank, is focused on the Brazilian market, which creates a situation where Brazil and the rest of Latam run in parallel, limiting the growth of both. Although this strategy has its merits, Latam markets need to pivot from this strategy to achieve their full potential.
Moreover, the correlation between gross domestic product (GDP) growth and start-up success suggests that economic prosperity in Latam is closely tied to the vibrancy and innovation of its tech ecosystem. However, the isolation of the region’s highest GDP country, Brazil, from the other markets contracts the potential markets for start-ups.
The path forward for Latam’s tech hubs requires a shift in mindset, with an emphasis on adopting a more global perspective among entrepreneurs. This means not only encouraging innovation in English, but also fostering an environment where success stories of global expansion become the norm rather than the exception. Additionally, improving English proficiency across the region can lower one of the significant barriers to global market entry.
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Despite these challenges, the future of Latam’s tech ecosystem is bright. The economic potential of the region, combined with its increasing start-up activity, lays a solid foundation for growth. Once they decide to venture outside their comfort zone and regional markets, Latam start-ups are set to produce world-class innovation.
Eli David Rokah is the CEO of StartupBlink, a research consultancy that tracks and advises on the development of start-up ecosystems. Additional research for this column was undertaken by Sengul Enginsoy, a marketing manager at StartupBlink.
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This article first appeared in the April/May 2024 print edition of fDi Intelligence.