This article was originally published in dpl news on 29 June 2022.
On 31 March, the Investigating Authority of the Federal Economic Competition Commission (COFECE) published the notice of the initiation of an investigation into the retail electronic commerce (e-commerce) sector in Mexico. According to COFECE, the investigation was motivated by a 35% growth of the sector between 2019 and 2021 and the need to ensure that there are no barriers to competition that make it difficult for new companies to engage in e-commerce.
During the last two years, the pandemic pushed for greater digitalization of products and services, allowing people to continue with their lives and perform day-to-day tasks, while abiding by stay-at-home orders. This meant that e-commerce, although still accounting for a small percentage of total retail sales in Mexico, witnessed a sharp rise during that period. As reported by Access Partnership’s white paper, more than one million shoppers in Mexico purchased goods online in 2020. The growth was partly driven by a high proportion of new buyers, who shopped online for the first time during the pandemic. As underscored by COFECE, this growth reached sale levels of over 540 billion pesos in 2021.
Despite the pandemic surge, the pace of online retail growth has already slowed down. Moreover, the rise in e-commerce activity fuelled by the COVID-19 crisis has shed light on Mexico’s persistent public policy gaps. According to data from the United Nations Organization (UNCTAD 2020), Mexico is far behind in terms of readiness to engage in and benefit from e-commerce. Ranked 93rd out of 152, the country’s score of 46.8 points is below the average found in Latin America and the Caribbean (48.86). As a reference, the average score in developed economies is 87 points, a value surpassed by Mexico’s main trading partners- the United States and Canada, with 91 and 90.8 points respectively, almost double the score obtained by Mexico.
E-commerce penetration in Mexico remains low, with many fundamental challenges yet to be addressed. Financial exclusion, postal system delays and the unreliability of services to carry out financial transactions are some examples of policy issues that need addressing. It should be noted that in order to overcome these limitations, some SMEs have partnered with existing players in online markets to engage in e-commerce.
While market investigations such as the one being carried out by COFECE are necessary to ensure that there are no barriers to entry within the sector, policymakers must act with caution when considering any further action or comprehensive regulation that may affect online retail channels – which compete with traditional brick and mortar stores.
Mexico needs to recognise the pro-competitive role that e-commerce plays by increasing competition within retail markets and avoid over-regulating e-commerce companies and existing online marketplaces. At this stage, proposing regulatory changes similar to those being discussed in more developed countries would only perpetuate existing gaps with these countries, instead of reducing them.