I ride a bike to avoid Mexico City’s infamous congestion. But last week, as I weaved through cars — drenched, shivering, and yet somehow still in a traffic jam — I wondered if the capital’s enormous concentration of people within one high-altitude valley was such a good idea. Of course, once I’d dried off, the answer was a resounding yes. There have long been studies pointing to the benefits of large, concentrated cities as efficient users of resources, sharers of information, and centers of creativity.
Inevitably, there are cons too, and they are magnified in Latin America’s ultra-centralized tech centers, which tend to concentrate and monopolize resources. The overarching effect of centralization appears to be overall market saturation: Brutal competition for resources and customers, combined with high prices in goods, services, and real estate. Though the negative effects of over-saturation are relatively obvious, there are a few positives to be extracted from these harsh conditions.
The first one is a relatively straightforward case of a pro hidden in a con. Business ventures that set up shop in a tech megalopolis will be subjected to stress tests that will eventually allow them to take quantum leaps as they begin to grow — if they survive, that is.
However, I am interested in the tangential effect that centralization can have on megalopolis-adjacent cities. While big tech companies pussyfoot around the questions concerning remote work — Do we all need to be in expensive cities? Will we lose our sense of community if we are decentralized? — startups are going ahead and answering them in practice.
There seems to be a Goldilocks zone near massive cities where startups can set up, grow, and thrive. Unsurprisingly, it is full tech companies that most thrive in this model, but I’ve also noticed logistics and e-commerce companies — those dependent on some measure of physical space — benefitting from this model too. The lower costs of wages and real estate combine nicely with the relative closeness of the big city, as founders shuttle their wares or themselves to the nearby agglomeration of people and capital.
In Mexico, the ring of cities surrounding the capital have recently become impressive fledgling tech centers, most impressively in the cases of Querétaro and Puebla. Rosario, an Argentine city just up the river from Buenos Aires, has also increasingly caught the eye of funders and entrepreneurs as a good alternative. And that’s without mentioning the fascinating symbiosis between Buenos Aires and Montevideo, the capital of Uruguay, which in this case acts as the smaller tech foil to Argentina’s capital city.
Chatting about this topic with Emilio Di Marco, Argentine founder of an e-commerce tool, Aument, the obvious conclusion of the power of centralization came to a head when he suggested that Latin America itself existed within a Goldilocks zone in relation to the U.S.
Last-mile delivery giant Jokr has gone a step further and recently made the jump “downwards” to focus solely on Latin America. No longer is this regional market just a place to set up shop before scaling to greener, more centralized, pastures. It is a trend we’ll likely see grow in Latin America within the coming years.