A Curious South of the Border Partnership: Mercado Libre and SAP Ariba

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SAP Ariba and Mercado Libre announced Tuesday a partnership in support of regional tail spend and spot buying initiatives for corporate procurement organizations.

The coming together of the two providers might seem odd at first glance but makes sense for several reasons.

A New “Free Markets” Deal for SAP Ariba

Mercado Libre ("free market") is primarily a consumer-oriented marketplace. Those that have tracked it (and use it) may remember its past, copying the eBay model (eBay in fact invested in Mercado Libre) for Latin America. But today, the vast majority of commerce on Mercado Libre’s platform is based on fixed price transactions, more inline with Amazon’s marketplace model. It has become the largest e-commerce site (by a wide margin) for fixed price purchases in Central and South America.

So why would SAP Ariba partner with such a provider? The answer is simple: providing a means to help buying organizations with operations in Central and South America manage spot buys (primarily “tail spend” within an organization). Given SAP Ariba’s organic experience both through serving multinationals and some regional buyers in Latin America as well as its Quadrem acquisition, it is clear the company is in touch with buying requirements in the region.

Why Mercado Libre

But why Mercado Libre? There are a few reasons:

First, business-to-business e-commerce is expanding on Mercado Libre’s platform. The Mercado Libre team suggested to Spend Matters that “at least 10%” of their volume today is B2B — but that it could be much bigger (like Amazon before Amazon Supply and then Amazon Business, there is not a distinctive B2B business unit within the Mercado Libre organization). In other words, SAP Ariba picked the largest provider to partner with as a type of pre-integrated punch out/marketplace supplier to address tail spend buying needs.

Second, it will speed up the buying process. Onboarding suppliers in Latin America can be challenging given fraud controls and invoice requirements (SAP Ariba told us it typically takes three to four days to set up even a small supplier in the market given look-ups, validations and other considerations). In other words, traditional spot buying scenarios North America and Europe cannot happen in Central and South American firms with standard purchasing controls without significant latency in the process.

Barney Need Not Apply

The partnership is not what we call a “Barney Deal” in the analyst world. I asked a question of both the Mercado Libre and SAP Ariba teams at SAP Ariba LIVE centered on how one could onboard smaller suppliers onto one or both platforms, and they had direct answers (and they also talked about the benefits of bringing suppliers from one network onto the other). The planning of the relationship has clearly taken place over a number of quarters, if not more.

Argentina and Mexico First

The first launch point for the partnership will be in Argentina. Next up will be Mexico (before the end of 2017). The following countries to go live with integrations between the two providers will be Brazil and Mexico.

Spend Matters First Take

I had the chance to talk to Xavier Olivera, managing editor of Spend Matters México y América Latina, as well as Spend Matters’ lead P2P analyst, and he had this to say about the partnership:

Spot buying is a common practice in Latin-America. The idea that a business organization can enable spot buying purchases through an e-commerce site such as Mercado Libre (using a p-card) and still comply with its procure-to-pay business rules and policies is a winning initiative.

For Latin American companies, the partnership between Mercado Libre and SAP Ariba is important news. It will facilitate the implementation of new spending policies designed to thwart maverick purchasing by guiding employees in a controlled e-commerce environment. We hope to hear about more e-commerce sites joining this initiative to cover a higher percentage of spot buy spending categories for Latin American companies.

In the months ahead, Spend Matters will be covering additional details as SAP Ariba and Mercado Libre operationalize their partnership.