MSc Artificial Intelligence for

Business Transformation

Strategic Report
Mercado Libre 2040
Luis Lovotrico, Anton Batbedat, Min Han Soe, Tanguy Hauchecorne
 The Consulting Team

Tanguy Hauchecorne Anton Batbedat Luis Lovotrico Min Han Soe

 Other Countries

The Market
4.8%

Mexico
17.7%

Data from 2022, December 31 (in millions, except

percentage)
Brazil
53.8%

$ 3,072 (Commerce)

1. Brazil
Argentina
$ 2,594 (Fintech) 23.7%

$ 5,666 (Total)
Repartition of Net Revenues by
$ 1,085 (Commerce) Countries (2022)
2. Argentina $ 1,415 (Fintech)
$ 2,500 (Total)

$ 1,282 (Commerce)

3. Mexico $ 582 (Fintech) Fintech

44.9%

$ 1,864 (Total) Commerce

55.1%

$ 369 (Commerce)
4. Other $ 138 (Fintech)
countries $ 507 (Total)
Repartition of Net Revenues by
Consolidated Net Revenue by Revenue Stream Revenue Stream (2022)
(2022)
 Mercado Libre in Argentina
(2023)
01 02 03

Growth in Commerce Revenues Growth in Fintech Growth Merchandise Volume

between 2022 and 2023 Revenues between 2022 and 2023 (GMV) between 2022 and 2023

+ 26.8% + 109.6% + 31%

SOURCE: MERCADO LIBRE Q3 2023 SOURCE: MERCADO LIBRE Q3 2023 SOURCE: MERCADO LIBRE Q3 2023
EARNINGS REPORT EARNINGS REPORT EARNINGS REPORT

04 05 06

Percent of Argentina's Digital

Number of users in Argentina Market Share
Payments

28 millions 80%
of Argentina’s online marketplace 50%
62% of the total population market
SOURCE: AMERICAS MARKET SOURCE: AMERICAS MARKET
SOURCE: STATISTA, 2023
INTELLIGENCE, 2022 INTELLIGENCE, 2022
 Pestel(l) Analysis
Economic: Economic factors involve the broader economy and
include economic growth rates, interest rates, exchange rates,
inflation, and economic policies. These factors affect
purchasing power, cost of capital, and demand for products
and services.

Political: This factor examines how government actions Social: This point analyzes how societal trends and
and political realities, such as laws, regulations, and cultural aspects can impact a business. It includes
government policies, can influence an organization's demographic shifts, lifestyle changes, education levels,
operations and strategic decisions. It includes elements cultural norms, and shifts in consumer behavior and
like tax policies, trade tariffs, political stability, and attitudes.
government regulations.

Legal: Legal factors involve the legal environment in which Technological: Technological factors pertain to
an organization operates, including labor laws, consumer innovations and advancements in technology that may
laws, health and safety regulations, and antitrust laws. affect operations, products, and market dynamics. This
Compliance with these laws is crucial for any organization's includes R&D activity, automation, technological
operational and strategic planning. incentives, and the rate of technological change.

Environmental: Environmental factors consider the ecological

and environmental aspects that can impact how organizations
operate and the products they offer. This includes climate
change, environmental regulations, carbon footprint
considerations, and waste management practices.

And we added a seventh point to our framework for this analysis : Lobbying: Lobbying refers to the efforts and activities undertaken by organizations to
influence governmental policy and regulations in a way that is favorable to their interests. This includes engaging with policymakers, participating in policy
formulation, and advocating for legislative changes that could benefit the organization's operations, market positioning, and competitive advantage.
 Political
As a multinational e-commerce and online marketplace company, MercadoLibre is subject to various political factors that can impact its operations.

Highly dynamic policies : The highly dynamic policies in Argentina present significant challenges that increase the operational costs of MercadoLibre. Argentina's volatile regulatory
environment, characterised by frequent changes in policies related to taxes, import/export regulations, currency controls, and labour laws, creates uncertainty and complexity for
businesses operating within the country. Adapting to these evolving policies requires continuous monitoring, legal compliance efforts, and adjustments to business strategies, all of
which incur additional administrative and operational expenses.

Growing taxation rate : MercadoLibre has to pay growing income taxes for its activities in Argentina. The subsidiaries in Brazil, Argentina, and Colombia under MercadoLibre are
subject to specific taxes on revenues, categorised as a component of net revenues costs.Mercado Libre disclosed in its quarterly report for the first quarter of 2021 that its income tax
expense amounted to $43.5 million (from $4.4 million a year earlier), attributed primarily to elevated income tax expenses in Argentina and Brazil. This increase was a consequence of
higher pre-tax gains in the company's Argentine and Brazilian segments in 2021, coupled with a rise in withholding tax on dividends. [1]

Political changes : The election of the new president, Javier Milei, will change the current political landscape of Argentina. Indeed, in the economic realm, Milei identifies as an
anarcho-capitalist and champions a platform aimed at drastically reducing the state's influence: he intends to abolish the Argentine central bank, replace the Argentine peso with the
US dollar, eliminate social welfare programs, restrict the number of ministers to sovereign functions, and cut public spending in half.
 Economic
Seasonality : Like most retail businesses, Mercado Libre experiences the effects of seasonality across all the countries in which it operates throughout the calendar year. While much
of this seasonality stems from year-end promotional campaigns and the Christmas holiday season, the geographic diversity of its operations helps offset seasonality related to summer
vacation time (in both the southern and northern hemispheres) and national holidays.
Typically, the fourth quarter of the year emerges as the strongest period in every country where Mercado Libre operates, especially Argentina, driven by a significant increase in
transactions before the holiday season. Conversely, the first quarter of the year tends to be the slowest period. In countries like Argentina, Brazil, Chile, Peru, and Uruguay, the
months of January, February, and March coincide with summer vacation time. Additionally, the Easter holiday falls in March or April. Furthermore, commercial campaigns like Hot
Sale, Black Friday, and Cyber Monday drive an increase in transactions across the board.
There is also a yearly seasonality to take into account : The Argentine economy experiences boosts in odd-numbered years, which are politically significant due to elections occurring
every four years for the president (with the last election taking place in 2023), and legislative elections for a portion of the congress and senate every two years, also in odd-numbered
years. These electoral periods are crucial for policymakers, as they prioritise economic growth during these times.

High inflation : The high inflation rate in Argentina poses significant challenges to MercadoLibre's cash flows. As inflation erodes the purchasing power of the Argentine peso, the
company faces increased costs for its operations, including employee salaries, infrastructure maintenance, and other expenses denominated in local currency. Moreover, fluctuating
exchange rates and inflation-induced volatility may impact the company's ability to accurately forecast revenues and expenses, leading to uncertainties in cash flow projections.

Fluctuations in interest rates : Fluctuations in interest rates disrupt credit services and could significantly impact MercadoLibre's operations and financial performance. As a provider
of financial services through Mercado Pago, including credit services, the company relies on stable interest rate environments to manage its lending activities effectively. Sharp
fluctuations in interest rates can lead to increased borrowing costs for MercadoLibre, affecting its ability to offer competitive loan products and potentially reducing demand for credit
services among consumers and merchants. Moreover, volatile interest rates may introduce uncertainty into the credit market, leading to higher default rates and credit risk exposure
for MercadoLibre. Even if these points have to be continually addressed by the company, and Argentina has a history of volatility, their business has been doing great over the last
couple of years. Despite the country’s economic problems, the business sectors of MercadoLibre are experiencing significant growth in Argentina. Furthermore, MercadoLibre holds a
dominant position in these sectors, allowing them benefit extensively from this growth (for your attention, graph 1 on the next slide).

Market Size and Growth: Despite economic challenges, Argentina remains a significant market for e-commerce in Latin America, with potential for growth as more consumers shift to
online shopping.
Net revenue generated by MercadoLibre, Inc. in Argentina from 2015 to 2022

Source : Statista 2024

 Social
Digital Penetration: Access to the internet and penetration of smartphones are
two essential elements concerning the society of Argentina that determine the
operational environment of Mercado Libre. This digital penetration not only Penetration rate of the smartphones market in Argentina from 2019 to 2029
becomes a metric of connectivity but indicates the scope of the potential
customer base the company is going to reach. A giant in e-commerce and fintech,
Mercado Libre's potential is directly tied to its ability to access an increasingly
connected population. The company's business revolves around digital
engagement with consumers, meaning the barometer of forecasting and
developing Mercado Libre's business is a measure of Internet and smartphone
penetration in Argentina.

Consumer Behaviour: The changing nature of consumer behaviour within

Argentina provides a very good field for Mercado Libre to expand and grow in. It
is important because it shows a marked change in the way that consumers will
start interacting with markets, perhaps with an increased preference for online
shopping and digital modes of payment. It is no longer a change in consumer
habits, but a trend that is paired with this cultural shift towards digital
convenience, especially after the covid crisis, much more in line with Mercado
Libre's strengths. If MercadoLibre manages to leverage that change, it can only
improve its offer, personalise the user experience, and optimise its platforms
toward a better response to the growing demand for solutions to digital
commerce. Consumers are the base of success for any company, and hence the
understanding of consumer behaviour ties directly into the company's ability to Source : Statista 2024
take advantage of these behavioural trends.
 Technological
Intellectual property and patents : Mercado Libre actively pursues the registration of its intangible assets in every country of operation. While the main trademarks and domain
names are appropriately protected in key operational countries, effective protection may not be universally granted by regulatory authorities in all regions where MercadoLibre's
services are available online. This scenario could compromise the company's ability to safeguard its brands against third-party infringements, potentially leading to claims by third-
party trademark owners.

Innovation and Tech Adoption: At the centre of Mercado Libre's competitive advantage is innovation, more so with fintech solutions such as Mercado Pago. This is still more
important considering the competitors which appeared in the last couple of years. In a market environment where people are fast embracing the use of digital means to make
payments, the company's capability to remain ahead on the technology curve is hence very vital. It reflects not only the commitment to innovation that backs up Mercado Libre within
the competitive landscape but also corresponds to the expectations its user base has been developing. The introduction of digital technologies by consumers and businesses creates
the need to initiate the rapid development of and integration of the latest solutions. At Mercado Libre, the focus will be on serving as a critical growth enabler via innovation in
financial technology, to ensure the company is well-positioned to seize the broadening opportunities of the digital economy in Argentina and beyond.
Mercado Libre has been leveraging AI to enhance customer experience, improve operational efficiency, and provide personalized shopping experiences. AI algorithms are used for
product recommendations, search optimization, fraud detection, and customer service automation, significantly impacting the company's competitive edge in the Argentine e-
commerce market. This strategic use of AI not only positions Mercado Libre as a tech-savvy leader in the region but also aligns with global e-commerce trends towards more
intelligent and user-centric platforms. Indeed, the global trend is actually focused on the new opportunities created by the rapid evolution of this field.

An important factor for Mercado Pago to continually innovate is the relatively static banking sector in Argentina, which is not widely used by people for daily transactions. This makes
Argentinians more receptive to fintech solutions compared to other countries.

Cyber Security Threats: Integrity and security are of much importance to any given platform in this digital world. Investment in cybersecurity lies not in technology but as an
underpinning element of maintaining the pace with user trust and reputation of the platform. The organisation is operating in an environment that is constant, ever-threatening data
security, which constantly varies and, therefore, requires constant vigilance and constant investment in cybersecurity. It adheres to the standards set in place by the regulators, and it
protects users' data—it is a safe harbour for doing e-commerce and digital transactions. This dedication to cyber-security is thus a key determinant for keeping and building
confidence with users, something very vital to ensure the sustainability and stability of the platform on the digital market in the long term.
 Environmental
Sustainability Practices: Living in an era where environmental consciousness gets higher amongst consumers, the dedication towards the practices of sustainability does a lot to shape
the brand image of an organisation. The initiatives comprise several things, from eco-friendly packaging solutions to the provision of carbon-neutral delivery options – in unison with
growing consumer demand for responsible corporate behaviour. Integrating sustainability into its business model is not only helping to save the environment but also increasing
attractiveness to the more environmentally conscious customer base, hence strengthening one’s position in the market and brand loyalty.

E-Waste and Packaging Regulations: The ability to underpin e-waste management and reduction and packaging sustainability capacity is essential for firm operational efficiencies and
corporate responsibility. This alignment with environmental standards will further fuel the reputation the company holds as a responsible player in the digital economy, providing an
edge to its competitiveness and confidence among the stakeholders.
 Legal
E-Commerce Regulation: The framework within which Mercado Libre works, combined with those associated with matters related to e-commerce regulation and with consumer
protection and digital rights in Argentina, greatly influence operating strategies and protocols. Laws and regulations in this area vary from transaction security to privacy of data and
have great influence on the decision of Mercado Libre in the way of setting up the transactions and interaction with its user base. Being able to effectively navigate these legislative
landscapes not only ensures the proper and legal operation of Mercado Libre but, more importantly, strengthens the reputation of the company as a reliable and customer-centred
business—a most important component to maintain the current advance they have.

Intellectual property rights: The model of Mercado Libre to serve as a channel to a host of sellers involves the complex issues of intellectual property rights, including the production
of fake goods.The platform has not only to mediate between this business of transactions but also to be sure that those goods, sold through that platform, respect the intellectual
property rights of creators and manufacturers. This involves vigorously applying policies for identifying and, therefore, preventing counterfeiters from listing in order to protect
consumers and those genuinely a part of it. Further, it reduces legal exposure and assures the maintenance of marketplace integrity.
 Lobbying
Unions : In Argentina, some employees at Mercado Libre are represented by the Commercial Labor Union ("Sindicato de Empleados de Comercio"), while their employees involved in
logistic operations are represented by the "Sindicato de Carga y Descarga". The formation of a union within the Mercado Libre employees may cut across various areas of the
organisation as a whole, from labour costs to operational effectiveness. For example, bargaining with the unions would come with modifications in the structure of pay, conditions of
work, and terms of employment with a resulting impact of raising operational costs. Moreover, through these unions, work stoppages or even strikes could appear that directly affect
the possibility to keep the service levels at the optimal point, mainly in logistic and delivering aspects that are vital for proper e-commerce activities. Other factors may depend on
such contacts within such labour unions, such as a reputation of a company and its relation to employees. Good relations are going to be a way of assuring a motivated workforce and
smooth operations, while disputes may cause public relations challenges and service delivery issues. One final element to consider regarding unions, is that many have used MELI as a
scapegoat over the years. This company has been seen as one of the “winners” which represent capitalism and all the “evils” it implies for the workers (if we take the union’s
perspective). In this sense, it is not good for MercadoLibre when these entities have a lot of power or a strong relationship with the government in power.

Banking : The involvement of the Argentine central bank in a political dispute over a change in its payments regulations that has had a negative impact on Mercado Pago, the online
payments division of Mercado Libre, can significantly affect the company's activities in the country. This regulatory change, perceived as an attack on the competitive positioning of
Mercado Pago versus traditional banks, brings with it important operational and strategic challenges for the company. furthermore, one element which makes the situation worse s
that the Central Bank, which is supposed to be independent of the government in power, historically hasn’t been so. Being a crucial part of the Mercado Libre ecosystem, Mercado
Pago provides integrated payment solutions to facilitate transactions on the e-commerce platform. Therefore, any challenge in its operation could impair the efficiency of transactions
and the overall user experience. Lower transaction volumes and revenues will, in turn, negatively impact the attractiveness of the platform not only for buyers but also for sellers.
Besides, such a regulatory challenge can lead to more compliance costs, more lobbying expenses, and strategic changes to be made in order to cope with the changing face of the
financial services industry in Argentina—these would be drained from other growth efforts and could impact the market position and the growth strategies of Mercado Libre .
 SWOT Analysis
Strengths (1)
Market Leadership: MercadoLibre holds a dominant position in the Argentine e-commerce market, benefiting from first-mover advantage and a strong brand recognition among
consumers and sellers. In their 2022 annual report, Mercado Libre articulated the intensely competitive nature of a market characterized by regulations that are exceedingly
advantageous for internet-based enterprises, emphasizing the necessity for constant vigilance in the face of formidable competitors that have already established a strong foothold.
Furthermore, they pointed out that Mercado Pago, their online payment platform, is encountering significant competition. This challenge arises not only from traditional financial
institutions, which are expanding their digital offerings, but also from a surge of innovative fintech companies entering the space. The allure of the e-commerce and online payment
sectors, driven by their robust and consistent growth, continues to attract a myriad of new entrants eager to capitalize on these expanding markets. Despite the cautious tone
adopted in their public statements, which underscores the potential threats and competitive pressures within their operating environment, our investigative efforts have revealed a
contrasting scenario for Mercado Libre, particularly in the Argentine market. Our findings suggest that Mercado Libre's dominance in Argentina is exceptionally pronounced,
establishing a leadership position that, at least for the foreseeable future, appears to be unrivaled. This discrepancy between the company's outward expressions of caution and the
actual market dominance they enjoy raises interesting questions about their strategic positioning and the dynamics of the competitive landscape in which they operate.

Diverse Services: MercadoLibre's diverse service offerings, including MercadoPago, MercadoEnvios, and MercadoCredito, create a robust ecosystem that significantly enhances the
user experience and fosters loyalty within the Argentine market. MercadoPago, as a comprehensive payment solution, simplifies and secures online transactions, accommodating
various payment methods and thereby reducing transaction friction, which in turn encourages user confidence and repeat transactions. MercadoEnvios, the shipping and logistics arm,
ensures efficient delivery of products, addressing one of the most critical aspects of customer satisfaction in e-commerce by taking over the logistical complexities, which allows
sellers to concentrate on their core business activities. This integration of payment and logistic services within the MercadoLibre platform not only streamlines the e-commerce
process but also strengthens the relationship between the platform and its users by providing a seamless, hassle-free shopping experience, thereby enhancing customer satisfaction
and building a loyal user base in the competitive Argentine market.
 SWOT Analysis
Strengths (2)
Technologies : On December 31, 2022, Mercado Libre had 13,856 employees on its information technology and product development staff, marking an increase from 9,471
employees on December 31, 2021. This growth was attributed to new hires and improvements in Mercado Libre's ecosystem products, which expanded its information technology
and product development staff. The following is part of the official strategy published by MercadoLibre : continuously striving to enhance both the MercadoLibre Marketplace and
MercadoPago mobile apps and websites, MercadoLibre allocates a significant portion of its information technology resources to these endeavours. Maintaining a balance between
introducing new features and enhancing existing functionality and architecture remains a priority. Effective management of the MercadoLibre Marketplace and MercadoPago
software architecture and hardware requirements is crucial to accommodate the company's rapid growth. Thus, engineers focus on optimising processes and equipment to ensure the
platform can handle increased volume efficiently. Mercado Libre designs, develops, and operates most of its software and technology in-house, with development centers throughout
Latin America. The company believes that its diverse team provides an advantage in building products tailored to unique markets.
Past acquisitions and outsourcing projects to external developers have bolstered Mercado Libre's software development capabilities. The company values interactions with
technology suppliers and attendance at technology-related events to stay abreast of innovations. Undertaking a deep technology overhaul in the past, Mercado Libre transitioned
from a closed and monolithic system to an open and decoupled one, organising teams into decoupled and autonomous "cells." Opening the platform to third-party integration has
resulted in significant adoption and the creation of companies centred on Mercado Libre's APIs and services.
During this overhaul, Mercado Libre developed a proprietary Platform as a Service (PAAS) product, streamlining infrastructure and network management for its development team.
The PAAS remains an area of continual investment, expanding to facilitate the development of mobile applications, software development kits (SDKs), and predictive Machine
Learning models.
 SWOT Analysis
Weaknesses
High Production and Logistics Costs: In Argentina's e-commerce sector, companies face high costs related to making or sourcing products and getting them to customers. For a big e-
commerce player like Mercado Libre, these costs include paying for the import of goods, manufacturing, storing items, and managing complex delivery networks. High import taxes,
inefficient production processes, and the need to overcome infrastructure gaps all add to these costs. Additionally, Argentina's large size and varied population distribution make
logistics even more challenging and expensive. These high operational costs are a major hurdle for maintaining competitive pricing and profitability. For Mercado Libre, finding
effective ways to manage and reduce these costs is crucial for staying ahead in Argentina's competitive e-commerce market. (Emerald Expert Briefings, 2020)

Poor consumer grievance practices : Mercado Libre have been criticized for poor consumer grievance. It can significantly affect Mercado Libre's market reputation and customer
loyalty. Studies suggest that how a company handles customer complaints is crucial for customer satisfaction and retention. For instance, research indicates that effective grievance
resolution can turn dissatisfied customers into loyal ones, whereas poor grievance handling can lead to negative word-of-mouth and customer churn (Lee & Turban, 2001; Yang et al.,
2019). If Mercado Libre does not address consumer grievances effectively, it risks damaging its customer relationships, which can lead to decreased trust and loyalty, impacting the
company's long-term profitability and growth.
 SWOT Analysis
Opportunities
Digital Penetration: While being already a large market, the trend towards digitalization and the increasing preference for online shopping in Argentina present a
lucrative opportunity for MercadoLibre to broaden its customer base. As more consumers turn to the internet for their shopping needs, driven by the
convenience, variety, and competitive pricing offered online, MercadoLibre stands to benefit from this shift in consumer behaviour. By leveraging its established
platform, trusted brand, and comprehensive ecosystem of services, MercadoLibre can attract a larger segment of the Argentine population to its platform. The
company can further capitalise on this trend by enhancing user experience through personalised recommendations, seamless mobile experiences, and expanded
product offerings, thereby solidifying its position as the go-to e-commerce destination in Argentina.

Fintech Expansion: MercadoPago, MercadoLibre's fintech arm, is positioned to tap into the substantial growth potential within the fintech sector, particularly
through services like digital wallets and micro-lending. As financial technology continues to evolve and gain acceptance among the Argentine public,
MercadoPago can expand its offerings to meet the growing demand for convenient, secure, and innovative financial solutions. By providing digital wallets,
MercadoPago makes it easier for users to transact on the MercadoLibre platform and beyond, fostering a cashless economy and enhancing financial inclusion.
Furthermore, micro-lending services can address the credit needs of individuals and small businesses that may be underserved by traditional banks, thereby not
only driving revenue for MercadoLibre but also supporting economic activity and entrepreneurship in Argentina.
 SWOT Analysis
Threats (1)
Legal : Mercado Libre was listed on the United States Trade Representative’s (USTR) Notorious Markets List for 2020 and the European Commission’s 2020 Counterfeit and Piracy
Watch List. It was also nominated for both lists for the 2021 report. However, in February 2022, Mercado Libre was removed from the USTR's 2021 Notorious Markets List Report,
and in December 2022, it was removed from the European Commission's 2022 Counterfeit and Piracy Watch List. Although nominated again for the USTR Notorious Markets List
2022 report in October 2022, Mercado Libre was ultimately not included when the report was published in February 2023. There is an anticipation that Mercado Libre may continue
to receive nominations or inclusion in similar lists, potentially leading to legal claims from content and IP owners alleging violations of their IP rights. Such claims could result in
significant monetary awards, penalties, or costly injunctions against Mercado Libre, thereby impacting its reputation adversely. Additionally, the adoption of new laws and regulations
concerning intermediaries' liability or mandatory out-of-court procedures to resolve disputes related to intermediaries' liability could potentially have a material adverse effect on
MercadoLibre's operations. Third parties may potentially file claims against Mercado Libre for defamation, libel, invasion of privacy, negligence, or other legal theories based on the
nature and content of materials disseminated through the platforms, especially by users. Several other online services companies are currently contending with similar liability claims.
If Mercado Libre is found or potentially found liable for information conveyed or disseminated through its platforms, it may incur monetary damages, face enforcement actions,
injunctions, fines, or penalties, all of which could adversely affect its business model and increase exposure to liability. Implementing measures to mitigate such exposure may require
significant resources or even discontinuation of certain services, which could materially impact Mercado Libre's business, financial condition, and results of operations. Moreover,
public scrutiny regarding liability issues, lawsuits, and legislative proposals may negatively influence Mercado Libre's business model and reputation, consequently affecting its
business results.
 SWOT Analysis
Threats (2)
Competitors : The online commerce market is undergoing rapid evolution and is characterised by intense competition. Large, well-established internet companies face relatively low
barriers to entry, enabling both existing and new competitors to launch new sites at a modest cost using readily available software. While MercadoLibre currently holds a market-
leading position in numerous markets, it contends with other marketplace operators, businesses offering business-to-consumer online e-commerce services, and entities focusing on
specific vertical categories. Additionally, it faces growing competition from brick-and-mortar retailers venturing into online offerings. Competition has intensified in recent years as
local players expand their e-commerce operations, alongside international players entering markets like Brazil and Mexico, that could soon aim at Argentina. However, there have
been indications of both local and international players scaling back operations in the year 2022 .The financial services market is also witnessing heightened competition, driven by
the emergence of several fintechs across Latin America. In the payments sector, MercadoPago competes with established digital and offline payment methods, including banks and
providers of traditional payment services catering to merchants and individuals. Mercado Pago also faces competition in the rapidly evolving fintech arena from both local and global
players offering digital financial services such as credit access, virtual and physical cards, insurance, savings accounts, and asset management .
In the classifieds and advertising market, MercadoLibre competes with regional and local players with diverse or specialised focuses. Additionally, it contends with large online
communities and service providers with expertise in e-commerce development, online interaction facilitation, or both. Other prominent companies with strong brand recognition and
e-commerce experience, such as major newspapers or media companies, also vie for market share in the online listing sector in Latin America.

Economic Instability: Persistent economic challenges in Argentina, notably inflation and currency devaluation, directly impact consumer buying power, which in turn can lead to a
downturn in e-commerce transactions. Inflation erodes the real value of money, making goods and services more expensive for consumers, while currency devaluation decreases the
purchasing power of the Argentine peso on the international market, affecting the cost and availability of imported goods. This economic environment can lead consumers to
prioritise essential over discretionary spending, thereby reducing the volume and frequency of online purchases. For an e-commerce giant like MercadoLibre, this situation could
result in lower sales volumes, increased pressure on pricing strategies, and a potential shift in consumer behaviour towards seeking more affordable alternatives or delaying non-
essential purchases, ultimately impacting the company's revenue and growth prospects in the Argentine market . One final element where inflation complicates matters is in terms of
wages of their own employees. In 2023 prices rose over 10% per month, so salaries had to be adjusted monthly. With the thousands of employees they currently have on the payroll
this is an issue to keep in mind.
 Porter's Generic Competitive
Cost leadership
Strategies
As the biggest e-commerce player in Argentina, Mercado Libre might not strictly pursue a cost leadership strategy. As an intermediary between
the vendors and customers, the main goal of Mercado Libre is to facilitate both sides with seamless e-commerce solutions, payment processing,
logistics, and financial services. Mercado Libre leverages Mercado Pago, its fintech platform, to create a robust ecosystem that boosts its market
competitiveness. This high adoption rate enables it to potentially lead to cost competitiveness. The company also focuses on enhancing
operational efficiencies and achieving economies of scale across logistics, payment processing, and customer service. These strategies help
minimize costs for both sellers and buyers, reinforcing Mercado Libre's position as a leading e-commerce platform in Argentina.

Differentiation
This is a key area that Mercado Libre excelled in the market. The platform differentiates itself through a broad range of services that go beyond
simple e-commerce transactions. This includes Mercado Pago, a fintech platform that offers a secure way to pay online, with options for credit
and debit cards, bank transfers, and in-store payments. It also includes digital wallets, QR code payments, and installment payment services,
catering to the diverse needs of consumers in Argentina; Mercado Envios, a logistics solution that ensures reliable and fast shipping; and Mercado
Crédito, which offers credit options to buyers and sellers. Its comprehensive ecosystem, which integrates online retail with payment, logistics,
and financial services, offers a unique value proposition that is hard to replicate.

One final key difference which MELI has to their advantage is network effects. They are the biggest and most established player in E-commerce.
This means that buyers go here because there is the highest number of sellers, and the same logic applies to sellers who choose to be here
because this is where most buyers will go. Therefore, there’s a virtuous cycle. This also allows Meli to try new things in Mercado Pago, leveraging
their E-commerce business. Moreover, this experimentation allows them to always have new features which in its turn attracts more users to
their fintech services. In a sense we could say that success begets more success for them.
Focus Strategy
Mercado Libre's focus strategy in Argentina emphasizes its dual role in e-commerce and fintech through MercadoLibre and Mercado Pago,
respectively. Argentina accounts for a significant portion of its revenue, particularly in the fintech sector, highlighting Mercado Pago's integral
role in the Argentinian economy. The platform's services have become essential, and recent legislative changes may further integrate Mercado
Pago into daily financial activities, underscoring its importance in Argentina's financial landscape and its potential for growth in response to
evolving regulations and economic conditions.

Cost leadership Differentiation

Broad

Mercado Libre

Cost focus Differentiation focus

Narrow

Mercado libre as of 2024 has placed itself on the differentiation box on Porter’s Generic Strategies graph by having a robust ecosystem that
supports every aspect of online commerce and finance, tailored to the unique characteristics of Argentina’s market. This ecosystem approach
not only locks in users but also creates multiple revenue streams for Mercado Libre, from transaction fees and financing interest to advertising
revenue. It's a model that has been instrumental in the company's growth and success, making it a leader in Argentina’s e-commerce and fintech
space.
 Porter’s Five Forces
1. Competitive Rivals
Mercado Libre, often dubbed as the "Amazon of Latin America," has managed to maintain a strong presence in Argentina. As of 2024, Mercado Libre
faces very few competitors in the Argentine market. Notable competitors include global giants like Amazon and Alibaba. Although these competitors
are significant players in the e-commerce game, they lack the local presence, as customers in Argentina can only access them via global shipping.
There are a few local e-commerce brands like Frávega and Tiendamía, but they only serve a small portion of the Argentine market with their niche
offerings. As a leader in the e-commerce market in Argentina, Mercado Libre continues to innovate and expand their services, further solidifying its
position as the go-to platform for online shopping in the region. This leadership and innovative approach not only ensure Mercado Libre's
dominance in the market but also set a high benchmark for customer service and technological advancement in the e-commerce industry.

2. Potential for New Entrants in an Industry

Argentina's economy stands at a critical juncture over the next decade, facing significant challenges but also opportunities for transformative
growth. The country's economic trajectory hinges on the success of President Milei's ambitious economic reforms. These reforms are key to
attracting major e-commerce players like Amazon and eBay, which could challenge Mercado Libre's market dominance by securing a significant
market share. The e-commerce sector, lucrative yet competitive, demands substantial investments in technology, logistics, and marketing for
companies to gain and maintain market share. Despite the attractiveness of the e-commerce industry, the high barrier to entry poses a significant
challenge for smaller players, making it difficult for them to establish a foothold in the market.

3. Supplier Power
In the e-commerce industry, supplier power varies significantly across different categories and markets. For Mercado Libre, leveraging its platform
to offer a diverse range of products can help mitigate supplier power by diversifying its supplier base. The company's scale and reach across Latin
America provide it with a bargaining advantage, allowing it to negotiate better terms with suppliers. However, the presence of strong competitors
and the importance of certain key suppliers could enhance supplier power in specific segments.
 Porter’s Five Forces
4. Customer Power
Customer power in the e-commerce sector is high due to the availability of alternatives and the ease of switching between platforms. Mercado Libre
addresses this by focusing on customer experience, including seamless payment solutions through Mercado Pago, efficient logistics services, and a
broad product offering. Their strategy is to retain customers by creating value beyond just transactional experiences, such as through loyalty
programs and customer service excellence.

5. Threat of Substitutes
The threat of substitutes for Mercado Libre in Argentina could come from offline retail channels, other e-commerce platforms, or different forms of
online trading platforms. To counteract this threat, Mercado Libre invests in technology, logistics, and user experience to make online shopping
more attractive than traditional retail shopping. Additionally, the integration of financial services through Mercado Pago offers a holistic ecosystem
that keeps users within its platform, reducing the appeal of substitutes.
 BISSON’s Five Forces
1. The bargaining power of workers
The e-commerce industry, especially in tech-driven companies like Mercado Libre, relies heavily on skilled labor, including software developers, data
analysts, and digital marketing experts. The scarcity of these skills in Argentina can enhance the bargaining power of workers, potentially leading to
higher labor costs. Mercado Libre's response to this challenge involves creating an attractive work environment, offering competitive salaries,
benefits, and opportunities for growth and development.

2.Complementary products / services / technologies

For Mercado Libre, complementary products and services play a crucial role in its ecosystem. The synergy between its e-commerce platform and
financial services (Mercado Pago), logistics solutions (Mercado Envios), and payment solutions for offline transactions enhances the overall value
proposition for users. These complementary services not only drive user engagement but also create additional revenue streams for the company.

3. The bargaining power of distributors

In the context of Mercado Libre, the bargaining power of distributors is mediated by the platform's vast network of sellers and logistics partners. By
controlling a significant portion of the e-commerce logistics through Mercado Envios, Mercado Libre reduces the leverage of external distributors.
However, for products not fulfilled by Mercado Envios, distributors might hold more power, especially if they possess unique products or strong
logistics capabilities.
 BISSON’s Five Forces
4. Influence of Mass Media
The influence of mass media on Mercado Libre significantly shapes public perception and consumer behavior. Positive media coverage can boost
the company's brand and build customer trust, while negative coverage can harm its reputation. In response, Mercado Libre engages in strategic
marketing and public relations to maintain a favorable image. With the advent of social media, managing public perception has become crucial. The
company's proactive approach includes monitoring media mentions and engaging with the audience through social media platforms, press releases,
and community involvement, aiming to ensure a positive narrative around its brand in the fast-paced digital age.

5. Influence of organizations for quality

Adherence to international quality standards and certifications can impact Mercado Libre's operations, especially in gaining trust from consumers
and sellers. Compliance with standards set by organizations like ISO demonstrates a commitment to quality, security, and reliability. This can be a
differentiating factor in a competitive market, ensuring customer satisfaction and loyalty. Furthermore there would be data privacy control
compliance for mercado libre as the company control huge amount of customer data and data privacy law like GDPR in Europe could make its way
to Argentina in the future.
 Competitors

Carrefour Ebay AliExpress Alibaba Falabella Tiendamia

E-Commerce Platform Auction Platform Budget-friendly Marketplace for Supermarkets E-commerce platform
Online and offline Peer-to-Peer marketplace Businesses Department stores Access to US market
stores Marketplace Wide selection, low- Connecting buyers with Financial Services Competitive prices
Hypermarkets and Second-Hand cost, long waits Chinese suppliers
supermarkets

Cencosud Paypal PayU Pago Fácil Garbarino Fravega

Supermarkets Financial Services Financial Services Financial Services (for Retailer (home Retailer (electronics
Department stores (online payment, money (online and offline businesses and for appliances) and appliance)
Home Improvement transfers, bill payments, bill consumers, secure Financial Services Online and offline
Financial Services payments, mobile payments, international payments, etc.) Delivery stores
wallent, etc.) payments, etc.)
 Competitors
Competitors Marketplace Own Delivery System Financial Services Wide Product offer

Mercado Libre
Carrefour
Ebay
AliExpress
Alibaba
Falabella
Tiendamia
Cencosud
Paypal
PayU
Pago Fácil

Garbarino
Fravega
Strategic Group Map Market Leader

Main Competitors

Mercado Libre
Least Diversified (only
Financial Services)

Carrefour
Alibaba

AliExpress
Ebay
Paypal Fravega

Pago Fácil Garbarino Diversity of Income Streams

PayU
Tiendamia

Cencosud

Falabella

Market Shares
MELI Argentina: 2040 forecasts
Probability (from 1 to 5 i.e. Impact (from 1 to 5 i.e. from
Expected trend until 2040
from very low to very high) very low to very high)

Population Increase 4 2

Economy Increase 3 5

Argentine Strengthen/Dissapear
2 5
Peso (dollarization)

FDI or
external players looking to get
into the Argentine Increase 2 3
Tech/Ecommerce/Fintech
Sector

Mercosur
Stay Flat/Decrease 4 2
integration

Regulations Decrease 3 5

Adoption
Increase 3 4
of technology by Banking Sector

New
players in ecommerce/fintech in Increase 4 3
Argentina
 MELI Argentina: 3 Scenarios
We will now consider three scenarios for MercadoLibre: Most Likely, Optimistic and Pessimistic.

One element to keep in mind when projecting different scenarios for MELI’s operation in Argentina, is that not all variables have the
same impact, as we can see in the table.

Therefore, to project the different scenarios we will focus mainly on the variables whose impact would be biggest for the company.

Just as an example, even if we believe that there’s a high probability that the population will grow from 2024 to 2040, it won’t be a
dramatic shift which would represent a significant boost to MELI’s revenue. Therefore we don’t consider it in the following analysis,
we stick to the variables which would impact signifcantly the bottom line.
 MELI Argentina: Positive Scenario
If Argentina’s economy starts to organize and to grow again, it would be a huge boost for MELI. Even if they were able to grow their revenue
amidst the recessionary context of the previous years thanks to the boom in e-commerce, consumption will always increase when the economy
does well. Therefore, if the newly elected president gets to enact the reforms he proposes it would be very good for MercadoLibre. Over the last
years they have been able to grow in spite of a shrinking economy, if the tide reverses in this regard, they have a lot to win.

In the same vein, if the currency stabilizes or dollarization occurs (which is what Milei stated in the campaign he aims to do), MELI would be in a
better situation. There would be less uncertainty concerning wages and prices in general, and a stronger currency means that their earnings,
measured in USD, will be higher.

As part of his economic agenda, president Milei wants to reduce regulations. If this were to happen it would be great for business in general as
MELI would be able to operate with less burdens, both in terms of carrying our projects and in managing their employees. Argentina is currently
one of the most restrictive countries to do business. If MercadoLibre was able to expand as they did in this context, they would be one of the
big winners from any deregulation enacted by the government.
MELI Argentina: Negative Scenario
The worst case scenario in terms of economy for MELI would be that the president elect, Javier Milei, fails to carry out what he promised in his
campaign and that a Peronista candidate were to be elected president. As Mercado Libre has always been seen as one of the “winners”, it has
been constantly criticized by figures aligned with the Peronistas, from politicians to union leaders. Moreover, this left wing party does not have
a good track record growing the economy, if they were to win its unlikely that Argentina would grow much in the foreseeable future, even under
favorable conditions abroad. Even if Mercado Libre has been able to grow over the years in spite of a negative economy, if the negative trend
continues it may very well drag the companies’ revenues with it.

In the same vein, the Peronista governments tend to print money as a solution to cover fiscal deficits, which would imply higher inflation once
more. This would exacerbate all the mentioned problems concerning wages, forecasting, etc. which result from the uncertainty generated by
the situation.

Finally, Argentina is one of the countries with the most regulations at the moment. If Milei fails, or the Peronistas get back in power, it is
reasonable to assume that this will not change or even get worse. This left wing party favors many of the measures applied by the Venezuelan
government over the las 20 years and when they are in power they usually apply them as we have seen in every ocation when they have been in
power this century. Therefore, it is safe to assume that Argentina would go on a similar path, dragging with it most of the countries economic
activity. As we already highlighted, this would be negative for MELI. For the time being they have been able to grow because, even if the pie
shrank, they were able to get a bigger piece. The problem is that now there’s not as much room as expansion as before. The safest way for them
to keep on going is if the economy gets bigger.
 MELI Argentina: Likely Scenario
As in most cases under a democracy, it is likely that Milei will be able to accomplish some of the things he promised and others he won’t. In spite
of this, the reality is that he recently won with over 55% of the votes, the biggest democratic win in Argentina in the last 40 years, preaching free
market ideals which would be considered radical by almost everyone. His victory could be seen as a sign that even if not everyone, the majority
of Argentineans want an economy with less government intervention and with more liberty for the individuals. Moreover, as Argentina has such
a restictive economic environnment right now, both in terms of taxes and regulation, any measures passed by its new president would probably
have a positive impact for the economy.

Therefore, it is reasonable to assume that even if Milei can’t do everything he said he would, Argentina’s economy should grow over the next 16
years, be more disciplined from a monetary perspective (independently of wether the government can Dollarize as they said they would) and it
should also be less regulated than it is at present.

Assuming no other major change, MELI should keep improving and growing from here to 2040. This is due both to a macroeconomic scenario
which should improve and also because of all the favorable dynamics they have been developing over the years which enabled them to have
the dominant position which they are currently enjoying.
Sources :
[1] Reuters, dated May 5, 2021, link : https://www.reuters.com/business/retail-consumer/latam-e-commerce-giant-mercadolibres-quarterly-loss-widens-2021-05-05/
[2] EDGAR Entity on the U.S. Securities and Exchange Commission (SEC) website, specifically for CIK number 1099590 : https://www.sec.gov/edgar/browse/?
CIK=1099590&owner=exclude&fbclid=IwAR2RWTaNvkL_WzEmKh_vz8G_RI_6j5U89GzdY5bJoGS-XePRNWDLNlQICw0
[3] MercadoLibre for the period ending December 31, 2022. This document provides financial and other detailed information required by the SEC : https://www.sec.gov/ixviewer/ix.html?
doc=/Archives/edgar/data/0001099590/000109959023000007/meli-20221231.htm https://www.sec.gov/ixviewer/ix.html?
[4] Emerald Expert Briefings, 2020
[5] (Lee & Turban, 2001; Yang et al., 2019)
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https://www.ceicdata.com/en/argentina/population-projection-national-statistics--census-institute
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