2018: The year traditional businesses in Chile woke up?

This article originally appeared in El Mercurio, written by Nathan Lustig.

Will there be more acquisitions this year? I asked this question in my first column for El Mercurio in January 2016. I thought that there would be, but the answer was a definite no. I was right that there eventually would be more, but I was two years ahead of schedule.

Although investment in startups has doubled every year since 2014, acquisitions have not kept up the pace in the region.

In my 2016 column, I wrote:

“…in the USA, large companies are worried that startups will ‘take over’ their market and replace more traditional companies. This situation has happened many times in the US with companies like Amazon, Uber, Netflix, and many others.”

“But in Chile, startups have yet to do any real damage to a large corporation so these companies aren’t afraid of startups. Could it be that in 2016 startups will begin to be successful enough to ‘scare’ a big Chilean company into acquiring them?”

After that article, one of my friends who was the manager of a large company laughed at me, telling me that things would not change so quickly. He thought that no one would come to compete in Chile or that big companies would be able to beat startups that made it into the market.

Fast forward to December 2018. We had an inflection point: Falabella acquired e-commerce startup Linio for US$138M. Walmart bought Cornershop for US$225M and we saw the first acquihires in the region where large companies purchased startups for their talent.

The market conditions have also shifted. Amazon already delivers more than 50M products in Chile. AliExpress is sending 30K packages to Chile daily. Big retail is scared and corporates are finally reacting.

Still, the majority of large companies in Chile think they can create digital transformation events, back entrepreneurship programs, and follow their counterparts’ path without fear of competing with local or global startups. They stick with the same product or service, with the same customer service as usual.

Think about the majority of large Chilean companies. Which ones really focus on working with or acquiring startups? Falabella has taken the first steps with Linio and BCI launched Mach. But the majority are still doing nothing more than paying for the publicity of appearing in startup events.

A great example of this phenomenon is our internet provider in the Magma Partners offices. We have had three periods of more than a week without internet this year. This company has a strong public discourse about helping startups. Their entrepreneurship program is fantastic, but they can’t even keep our internet working all year, and their customer service is atrocious.

I can think of many banks off the top of my head that won’t even open checking accounts for average Chileans or give them access to affordable credit without dozens of documents and endless bureaucracy.

So I come back to the same question: will there be more startup acquisitions in 2019? This year will be the first time Chilean companies truly feel the pain of competing against local and global startups and that they finally realize that they have to go beyond talking about entrepreneurship. They have to make massive improvements, or they will die, just like giant corporations in the US.

Read the original article on Economía y Negocios.

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