LM123 was informed that e-commerce in Latin America had seen rapid growth in recent years. According to eMarketer, the e-commerce scale of the Latin American market is expected to exceed $100 billion in 2022, and 25% of retail orders in the Latin American market will be completed online in the future.
Costa Rica, on the other hand, has not missed the wave of rapid e-commerce development in Latin America.
The sudden rise of Costa Rica's e-commerce industry has prompted it to become the "new favorite" of the Latin American cross-border market, so is Costa Rica a new blue ocean land in Latin America? What kind of vitality can it bring to cross-border e-commerce?
Market overview
First, Costa Rica's cross-border e-commerce market is rising strongly
LM123 was informed that its e-commerce trade has developed rapidly in recent years due to the good conditions and high acceptance of online shopping by Costa Rican nationals.
At the same time, Costa Rica has a high penetration rate of the Internet, reaching 69% in 2020. Coupled with the development of its educational undertakings, the average level of education of citizens exceeds that of other Latin American countries, the overall education level is high, and it is easier to accept Internet services and e-shopping. Therefore, the Costa Rican cross-border market is showing in front of sellers with a dark horse posture...
Although Costa Rica's share of the Latin American e-commerce market is not as good as that of Brazil, Mexico, Argentina and other economies, its e-commerce market share is higher than that of Uruguay and Ecuador, which have a higher per capita GDP level, and the development potential of e-commerce should not be underestimated.
Second, electronic and health categories have become the favorite of consumers
When it comes to costa Rican consumers' favorite and most interested consumer goods categories, electronics, apparel and media products rank in the top three. Among them, electronic products have maintained the largest market share, and the sales growth rate in 2020 is significantly higher than that of apparel and media products.
In addition, since 2020, consumer health products have also entered the field of online sales, growing rapidly, achieving 70% sales growth in 2021.
▲ Image from: Euromonitor
Third, the mainstream platform takes the lead in layout and seizes the blue ocean market
1. Walmart
Walmart is one of Costa Rica's largest modern grocery retailer brands and offered Costa Rican consumers online shopping services for the first time in early 2020, with food and beverage becoming the strongest item category in terms of sales growth in 2020, with e-commerce sales up 80%.
2, the United States and many customers
As the largest e-commerce platform in Latin America, Meckerduo occupies the position of "top spot" in terms of both website traffic and active users. At present, its e-commerce business has covered 18 Latin American countries, covering electronics, mobile phones and accessories, fashion apparel, home life, beauty and health and toys, etc., and the total value of goods traded (GMV) in the quarter increased to nearly US$7.7 billion.
Fourth, the development of cross-border e-commerce in China and Colombia has welcomed a number of favorable policies
1. Tariffs remain unchanged, and foreign trade is stable and improved
Costa Rica classifies imports goods according to the Central American Tariff System (SAC). Customs duties in Costa Rica are divided into import duties and surcharges. The surcharge is levied on the basis of Law No. 6946, which is levied at a rate of 1% and applies to all imported goods with a few exceptions. Except for some animal and plant products, medical products and food products that require special permission to import, the import tariff of most commodities is ad valorem tax and applies to CIF prices.
At the same time, Costa Rica's tariff rates have remained largely unchanged since 2001. Among them, both domestic and imported goods are levied including ordinary sales tax (IGV, the tax rate is generally 13%), selective consumption tax (ISC), special tax on alcoholic and non-alcoholic beverages, sanitary soap, etc., municipal development promotion tax (IFAM), and farming development tax (IDA).
2. China's status as Costa Rica's second largest trading partner will not waver
Costa Rica was the first country in Central America to establish diplomatic relations with China and is also an important country along the "Belt and Road". Since the establishment of diplomatic relations between China and Colombia, friendly cooperation in various fields has continued to deepen, and the integration of interests has become increasingly close. China has been Costa Rica's second-largest trading partner for several consecutive years.
Fifth, the opportunities and challenges of the Costa Rican e-commerce market
1. Opportunities
a. The proportion of e-commerce share continues to rise
In the context of the slowdown in the growth of global foreign trade, cross-border e-commerce has sprung up in Costa Rica in recent years, becoming a new driving force for the growth of foreign trade, especially with it
LM123 learned that in 2020, Costa Rica's cross-border e-commerce accounted for 92%, far higher than local e-commerce, and it is expected that by 2025, cross-border e-commerce will still maintain a proportion of about 90%.
b. Consumption potential has not yet been fully exploited
Costa Rica, the more economically developed country in Central America, has maintained economic growth over the past two decades, while economic expansion and growth herald a surge in consumer demand.
But so far, LM123 has learned that the San Jose Metropolitan (GAM) region has the highest percentage of people using online trade to transfer money (20%). And only 23.1% of young people over the age of 18 use e-commerce; Among adolescents under the age of 18, the proportion of adolescents using e-commerce is 14.6%. Its market consumption potential is not yet fully exploited.
2. Challenges
A. Consumption is downgraded and consumer confidence is downgraded
Costa Rica's economy has also suffered a serious impact due to the spread of the epidemic in the global region, and its domestic consumption has also shown a trend of consumption downgrading, and the consumer price index released by INEC shows that during the epidemic, 45% of the goods and services in Costa Rica's domestic market have experienced price declines, 42% have risen, and only 13% have remained at their original levels. Inflation in Costa Rica this year is as high as 5.6%.
Costa Rican consumer sentiment also declined when inflation rose overall and savings and investment values shrank. This, coupled with the tense political situation caused by the war in Ukraine, has reduced the desire of many people to buy.
b. Payment is limited and the transaction method is immature
According to Thetemenos survey, Costa Rica has the third-highest degree of banking (68% of the population buys financial products or receives banking services) among Latin American countries, but still faces difficulties in the transition to digitalization, with nearly 40% of Costa Ricans still preferring to trade cash in person.
LM123 understands that 38.6% of Costa Ricans use cash when making transactions (payments), 37.6% use virtual banks owned by banks, 12% go to bank branches to deposit, and 11.8% use third-party electronic payment platforms such as PayPal or Venmo.
In addition, 56 percent of respondents said they don't know how to use digital platforms or financial applications on their phones or computers and are afraid of suffering from cyber fraud.
Therefore, starting from May 1, 2022, the Central Bank of Costa Rica issued a new policy that when purchasing more than 30,000 Colombian coins, merchants need the signature and identity verification of customers to confirm that they are using their own credit card.
"The aim of this measure is to provide customers with greater security to avoid fraud in the event of lost or stolen bank cards," the central bank explains. However, the cumbersome payment process is bound to lead to a decline in the desire to buy.
Overall, Costa Rica accounts for a large share of Latin American e-commerce, cross-border e-commerce advantages are obvious, domestic online shopping groups are far from being fully developed, for cross-border sellers who want to open up the Latin American blue ocean market, it is indeed a relatively high-quality choice!