ANALYSIS OF MERCADOLIBRE AND ITS INTERNATIONAL PRESENCE

INTRODUCTION

With the rise of the internet the intensification of communications was made possible, which
also allowed the economic agents in general to see a great opportunity in the new
technologies and the speed to exchange that they offered to develop businesses, this
phenomenon with the passage of time gained relevance and is a fact that is imposed, both by
the greater facilities that contribute the new technologies, as for their greater availability and
lower cost. Example of this is the Argentine company Mercado Libre, which is a sample of
this boom, so in the present work will address the history of E-commerce for understanding
the form of marketing of free market and the basis on which this started is founded. In
addition, there will be a presentation on the free market, its presence in the national and
international market and its internationalization strategies in the market, with this study is
expected to understand from the academy the meaning of E-commerce and the operation of
the free market. Finally, some conclusions and recommendations will happen for the
company that has a model Ecommerce implementing knowledge in internationalization
strategies.

Main objective

Identify the form of work of free market, its presence in the international market and their
strategies in this.

Specific objectives

1. Describe the electronic market and how it has been implemented by Mercado Libre.
2. Identify the internationalization strategies used by Mercado Libre.
3. Make an analysis of the presence of the Mercado Libre in the different countries in
which it is located.
4. Make recommendations that may be useful for free market.

Methodology
For the realization of this work we used a qualitative approach, in which its main
characteristic is the use of information not numeric found in electronic and with this was
done an analysis to the company Mercado Libre. The search for information focuses on
electronic commerce, history and characteristics that differentiate from real trade; Also, the
history and characteristics of the company known as Mercado Libre was taken into account,
and with this a detailed analysis of the company and its current market model was made.

STATE OF THE ART

On account that MercadoLibre, is the most important e-commerce company in Latin

America with “presence in 19 Latin American countries and Portugal, more than, 191 million
registered users, nine million vendors, 27 million of active buyers and more than six
purchases every second, with these numbers, it is, without a doubt, the main reference of e-
commerce in the region” (Portafolio, 2018) considering that company manages as a type of
platform, the E-commerce it is pertinent to clarify what is the (Electronic commerce or EC)
originally the term applied to the conduct of transactions by electronic means, such as
electronic data interchange. However, with the emergence of the Internet in the decade of the
years 90, the concept of sales of services by the network began, using as a form of payment
electronic means like the credit cards.

Thereby the electronic market is constituted as the buying and selling of goods and services,
or the transmitting of funds or data, over an electronic network, primarily the internet. These
business transactions occur either as business-to-business, business-to-consumer, consumer-
to-consumer or consumer-to-business. The terms e-commerce and e-business are often used
interchangeably. The term e-tail is also sometimes used in reference to transactional
processes for online shopping.

The history of trade has evolved, sometimes in a leisurely and slow way and on some
occasions with leaps and bounds. What we now understand as e-commerce is the last phase
that has come in this progressive development, the exchange of goods and services is a first
indication of evolution, without this exchange could not ensure the subsistence or
development of humans.

For the year 1960 it is possible to track the beginnings of electronic commerce is in this year
that invents in the United States an important form of electronic data interchange the EDI.
(Electronic Data Interchange) that allows companies to conduct electronic transactions and
trade information exchange. It was not until the 1970s that the first commercial relations that
used a computer appeared, but they offered a very limited service. It was not until 1980 that
the commerce by catalog was modernized with the help of the television with the telesales,
that provided to the catalog trade a greater realism of the products since they could be
exhibited highlighting their attributes and characteristics more Important. This type of direct
sale was done by means of the use of telephone calls and the payment was made by means of
the credit cards. (Lynkoo, 2017)

It is the year 1989 a service emerges that turns out to be decisive for the technology and also
for the electronic commerce later. World Wide Web appears, the Web was created by the
Englishman Tim Berners-Lee while it was employed at the CERN in Geneva, Switzerland.
This method of transmitting information between computers would completely change the
way of communicating and also of marketing. Already at the end of the years 90 with the
Internet operated electronic commerce grew as never before had done, portals were created
exclusively dedicated to this activity such as EBay and Amazon. (Lynkoo, 2017)

The last step to consolidate e-commerce was in the year 1995 when the G7/G8 members
created the initiative of a global market for SMEs, this platform was aimed at increasing the
use of E-commerce among companies around the world , and it worked, so currently social
networks, mobile communications, Web 2.0, smartphones, tablets are the means to search,
compare prices and of course buy online so this trend is imposed and people often opt for
companies that sell online, given the speed and ease of search and speed of payments.

The electronic commerce sites can be found alone or be part of a larger sales site, commonly
referred to as shopping mall, which has a standardized appearance, within which many
companies have a presence within a single site Website and where visitors can access
information from different companies. On the other hand, it also constitutes an option in
which people have seen in this new way of doing business a great opportunity to undertake
and to have a commercial activity of their own, because in the e-commerce there are no
barriers or borders, and that the space Geographic is not the one that determines the target.
( Marketing digital, 2015)
E-commerce has allowed firms to establish a market presence, or to enhance an existing
market position, by providing a cheaper and more efficient distribution chain for their
products or services. One example of a firm that has successfully used e-commerce is Target.
This mass retailer not only has physical stores, but also has an online store where the
customer can buy everything from clothes to coffee makers to action figures. (investopedia,
n.d)

E-commerce has attracted attention because it reduces costs, enhancing quality, and speeding
operations. The innovation of transactions by electronic means have greatly facilitated
international trade and also hand in hand with globalization which facilitates the barriers
between the customers and the manufacturers. It reduces the intermediaries which can
include transporters, storage or distributors. However, in e-Commerce, the agents involved
can be reduced to four: the Internet user who refers to the consumer, the company that
offers the service or product, the employees of the company and the administrators also
considered the electronic government. (Canlla, 2017)

According to Jank & Shmuel E-Commece “transformed the economy, eliminated borders,
opened the door to many innovations and created new ways in which consumers and
businesses interact. Although many predicted the death of eCommerce with the "burst of the
Internet bubble" in the late 1990s, today eCommerce is thriving more than ever.” (Jank &
Shmuel, 2006). However, it also has a difficulty in terms of statistical measurement:
"Theoretical results, founded in economic and game-theoretic models, and derived for the
offline, brick-and-mortar world, have often proven not to hold in the online environment.
Possible reasons are the worldwide reach of the Internet, its unlimited resources, constant
availability and continuous change." (Jank & Shmuel, 2006) and it has represented a setback
in the collection of taxes because in the particular case of United States for example, “The
growth of ecommerce in the U.S. economy has created a problem for state and local
jurisdictions that have historically relied upon sales and use taxes as an important component
of their revenue stream.” (Armstrong, 2004)

It is important to keep in mind when there is the possibility in Latin America of an electronic
commerce. For it Warf says that “Worldwide submarine fiber optic links today straddle the
globe. Starting in the early 1990s, Latin America's fiber infrastructure evolved over multiple
generations of lines put into place by different public and private actors, often via consortia”.
(2009)
For 2008, 166’312.300 people in Latin America and the Caribbean used the Internet. The
number of Internet users is closely associated with total population, with Brazil constituting
the largest single group (67.5 million), followed by Mexico (23.8 million), Argentina (20
million), and Colombia (13.7 million), (Warf, 2009) which represents for Colombia around to
31% of population in 2005 (44,451,000), current that goes hand in hand with E-commerce. It
is noteworthy that the more the population grows with the Internet, the more viable it is to
promote an online sales business.

Plant, R. (2000) raises that for the success of ecommerce it is necessary to take into account:

● Ensure the Project is backed by a senior executive.

● Develop a strategy before developing a Web presence
● Develop a strategy by focusing on technology, branding, marketing, and service.
● Develop an IT infrastructure capable of matching the strategic objectives.
● Identify and use knowledge in the organization.
● The strategy must add value for customers, and it must change as the requirements of those
customers change. (Plant, 2000)

So as mentioned by Gariboldi (1999), electronic commerce is today an undeniable and irreversible

fact, with great impact on economic activities and on the social framework in which they develop.

ANALYSIS, PRESENCE AND EXPANSION

Mercadolibre is a company that is dedicated to the intermediation between its registered users for
purchases, sales, payments and auctions. It is an E-commerce platform through which millions of
users buy and sell products over the Internet.

The company has operations in Argentina, Brazil, Chile, Colombia, Costa Rica, Ecuador, Mexico,
Panama, Peru, Portugal, Dominican Republic, España, Nicaragua, Paraguay, Salvador, Honduras,
Guatemala, Uruguay and Venezuela. Its headquarters are located in Buenos Aires, Argentina.
(Mercado Libre , S.f)

Mercadolibre has been successful in the market thanks to his service of “Shops journal”, which
consists in an exclusive space for retailers within your web site; thanks to its high traffic of consumers
which daily surf the page the service of official shop has been very useful, especially for large
retailers that have their own website for online sales, however for small retailers the company also
offers opportunities as delivery services. This market has experienced rapid acceptance since two
years after launching the service already had around 300 companies. (Mercado Libre , S.f)

Mercadolibre was founded in August 1999, its co-founder, president and CEO is Marcos Galperin of
Argentina; “came up with the idea of a Mercado Libre in March 1999 at Stanford University” (Cosoy,
2011). The company went through two rounds of financing, the first in November 1999 and the
second in May 2000, where its main financiers were Morgan Partners, Flatiron Fund, Hicks, Goldman
Seachs and GE Equity among many others.(Paspport, 2016)
In October 2001, they signed a strategic agreement with eBay through which they became the
main shareholder of the company and both became partners for the entire continent. Two
years later, Mercado Pago emerged, a secure payment tool for both individuals and legal
entities. Mercado Pago is also one of the main competitors of PayPal.(Movistar , 2018)

In the 2002, an important fact that should be highlighted was that: “Mercadolibre has signed a
strategic Alliance with ISP and content provider Universo Online (UOL) to act as the exclusive
auction cannel for UOL’s operations in Brazil, Colombia and Argentina, said Mercadolibre Brazil
director Stelleo Tolda.” (Brazil Telecom Newsletter, 2002) also The company will be featured in the
shopping sections of the UOL sites for 18 months, Mercadolibre banner ads, pop ups and e-mail
marketing will also appear on all UOL domains.
The company expects to boots its monthly transaction volumen and revenues by 20%, and receive
30% more visits to the site monthly according to Tolda. The amount of the deal was not diclosed,
partly because it is based on the percentage increase in traffic volumen and registered users resulting
from the deal (Brazil Telecom Newsletter, 2002)

Mercadolibre is currently negotiating similar agreements in Mexico with other companies. Mexico
was not included in the UOL deal because the Brazilian ISP is not as strong in the market as it is in
Brazil, Argentina and Colombia. Colombia was chosen solely as “a bonus”, because UOL has a large
footprint in that country, while Mercadolibre does not consider it a key market, Tolda said. (Brazil
Telecom Newsletter, 2002)
For the 2008 the company acquired the 100% Classifies Media Group, which sold www.tucarro.com
cars in Colombia, Venezuela, the United States, Costa Rica, the Canary Islands and Panama; in the
same way that year Mercado Libre acquired DeRemate.com in Argentina and Chile, and Dereto.com
in Mexico and Colombia. In 2009, launched a publicity program for the company to promote its
products and services online, so it by means of a Mercadolibre advertising advertisers began to
display messages or pictures advertising to promote their brands.(Paspport, 2016)

Also in 2014, they launched Mercadolibre Fashion, their approach would be the sale or
commercialization of clothing, on the exclusive website www.mercadolibre.com.ar/moda, new and
used articles will be found. During the second half of 2014, the company conducted an email
advertising campaign and in major magazines to promote this new business.

The company's intention was to continue expanding its business in different areas through online
retail sales, which is why in 2015 the company began offering mobile internet retail service, which
had excellent performance. For this reason, many companies that have their own online sales platform
also use official stores, such as Fravega within the specialized electronics and home appliances
retailers, staples in office supplies stores and 47 Street in retailers specializing in clothing and
footwear. For small retailers, it is an excellent solution to dabble in online sales, as Mercadolibre also
offers logistics solutions and payment services through market shipping and market payments,
respectively.(Paspport, 2016)

In 2016 the company grew even more since it sold “almost 182 million products, which is equivalent
to a 41% growth compared to the previous year. e to 2015, while net income was US $ 136.4
million.”(Dinero, 2017)

Then to finish this part, to sell on the Mercadolibre, it is necessary to register on the site and complete
a sales form with all the details and photos of the products that will be offered. The page has two
options to publish, basic (the publication is free), which has higher sales charges, and normal (the
publication has a cost), which allows to highlight the products, and the Commission is paid for sale.
Buyers must also be registered on the site to purchase the products or services they need. By clicking
the "Buy" button, both the seller and the buyer “”receive the data by email to contact in order to
complete the transaction.

Competitive Positioning

Mercadolibre in 2015 led the retail sale of the Internet since registering a participation of value of
42%. Achieving the leadership position by being the first company that offered the purchase and sale
of products through the Internet in Argentina, from this the value of the company in the sale of retail
Internet increased significantly. Several factors explain this performance, especially the new services
offered through official stores and Mercadolibre Fashion.

The retail trade by Internet is without doubt the channel more dynamic in the Latin American
countries. The growth in the total number of Internet users and the significant increase in broadband
connections are driving the dynamism of this channel. The Mercadolibre has the advantage of being
one of the companies Internet retailers more established in America

MERCADOLIBRE’S STRATEGIES

Mercado Libre since its creation in 1999 1 has shown significant growth, thanks to the use of strategies
such as the acquisition in the countries where it has a presence, especially in Latin America, these
acquisitions are linked to the theory defined by Kojima (1973) as the Macroeconomic approach that is
based on direct investments abroad by Mercadolibre, in this case the company makes investments in
the countries where it has a presence using this as a comparative advantage in order to obtain greater
economic benefits and form alliances with companies national Another model used by

Mercadolibre as a strategy is the Model of competitive advantage of nations (systemic

competitiveness) developed by Porter, in this the company acts as a specialized factor in its country of
origin, uses specialized labor and promotes competition in its market sector to improve its offer
according to the needs of customers and thus maintain the loyalty of the same over other companies
(Cardozo, Chavarro & Ramírez, 2006)2.

In addition, Johanson and Vahlne (1990) talk about the Uppsala model - Nordic school specified by
the establishment chain: first, sporadic activities of export; second, exports through independent
representatives; third, establishment of a commercial branch in the foreign country; fourth,
establishment of productive units in the foreign country (Cardozo, Chavarro & Ramírez, 2006); The
previously mentioned stages applied to the Mercadolibre company would be: first, product orders for
countries without physical branches of the brand; second, all deliveries of their orders are made
through external transport companies depending on the country; third, the company has presence
through branches in the most important countries according to its market strategy; Fourth, by making
direct investment abroad and alliances with new companies in each country where it is located, it can

1 Historia de Mercado Libre: conocé todo sobre la compañía. (2017). Retrieved from
https://ideas.mercadolibre.com/ar/noticias/historia-de-mercado-libre/
2 Mercado Libre: Estrategias virtuales con calidad probada. (2015). Retrieved from
https://marketingynegocios.wordpress.com/2009/08/11/mercado-libre-estrategias-virtuales-con-
calidad-probada/
guarantee that it has productive unities in foreign countries to improve the service it is providing, with
each of the stages mentioned above the company acquires experience and information 3.

Apart from academically known internationalization strategies, Mercado Libre has developed
international advertising strategies such as the use of paid advertising on websites and social
networks, promotional times are made (hours, days, weeks or months) in which competition for price,
service, product and quality, and periodically the company sends electronic messages with promotions
and relevant information for each client registered in its platform. With this, it has generated an
increase in its annual economic results and positioned itself among the new generation of companies
in the E-commerce sector.

Mercadolibre's Entry Modes

Mercadolibre has two entry modes to the international market that are: first, exporting by merchandise
distribution, Mercadolibre makes international distribution of products using external transport
companies. It follows that this entry mode is a vertical action since it makes use of companies with
different economic activity to get the products to their final destination; Second, It was identified that
Mercado Libre has a horizontal integration through the acquisition forward, in countries like Brazil,
Argentina, Mexico, Chile and Paraguay it ha to increase its economic benefits and attract more new
clients.

CONCLUSIONS

Throughout the research on Mercadolibre it was identified that among its main strategies is the
acquisition as a strategic investment in market sectors in countries such as Brazil, Argentina, Mexico,
Chile and Paraguay where it has branches; Another strategy not recognized by the academy is to mass
publicize the service by electronic means such as websites and emails attended by people and those
registered on the platform. This allowed the significant increase in sales because it gave more
recognition in the market to the company and attracted the attention of new customers in different

3 Nueva estrategia de Mercado Libre aumenta sus ganancias en un 209%. (2011). Retrieved from
http://www.america-retail.com/destacado/nueva-estrategia-de-mercado-libre-aumenta-sus-ganancias-
en-un-209/
countries, also, the entry to the E-commerce sector of other countries that helps the increase in sales
and international recognition.

Finally, Mercado Libre is chosen by the mass consumers for its aglidad in the service, the facility to
place orders and the guarantees that it offers both to the people who make a sale using its platform and
to the consumers, who currently have little time free to do these activities, showing that E-commerce
is the new ideal market model for a society that is in constant progress and becomes more dependent
on technological advances to facilitate the simplest activities such as shopping.

RECOMMENDATIONS

● Mercado Libre needs to maintain its expansion process to maintain its position.
Although it is not directly affected by the product's vital cycle, it is important to keep
in mind that expansion and innovation are the most efficient methods to prevent to its
competition taking advantage.
● Mercado Libre should take into account the expansion of its shipping logistics, ally
with more companies that allow faster and more accurate deliveries. In the same way
consider making transactions by Pay U to be measured directly by the company.
● The company must maintain its Goodwill, in favor of preserving its prestige in front
of its competitors And still be the option to choose between buyers and sellers.

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