- Brazil is the 5th largest country in the world in both area and population, and one of the 10 largest economies in the world.
- Brazil has gradually opened up its economy since early 1990s. The level of foreign trade, in relation to the size of the economy, is today similar to that of the USA.
- Brazil has a large presence of international companies, so often international clients and partners are already established.
- The economic and regulatory environment is fairly stable.
- Brazil is for many companies the gateway to South America, and many companies have their South American headquarters in Brazil.
- South America has ~ 433 million inhabitants and 12 independent countries. The five main markets from a business perspective represent ~84% of the total population and Brazil represents ~50%:
– Brazil: ~214 million inhabitants
– Colombia: ~52 million inhabitants
– Argentina: ~45 million inhabitants
– Peru: ~33 million inhabitants
– Chile: ~19 million inhabitants
- Some companies choose to include all of Latin America when developing its strategy for the region. Main reason for this is similarities in culture and language.
Especially interesting is Mexico with ~128 million inhabitants. The total population of the Latin American & Caribbean region is ~654 million.
South America can be a challenge for companies looking to take advantage of the opportunities.
Many companies hesitate to enter the region or face difficulties trying to establish their businesses.
Maybe you recognize some of these common challenges:
Identifying the Drivers of Success
Initially the key challenge might be to have a clear understanding of the drivers of success.
- What is the size of the market opportunity?
- Who are my potential customers?
- Who are my competitors, what are they offering and at what prices?
- What would make the potential customers buy from us?
- Which local structure and resources do we need to succeed?
- Which is the best way to enter the market?
- Should we acquire a local company?
Getting Results from your Distributor
Many companies fall into the “distributor dilemma” and do not reach the results they expect.
a. The Distributor does not give enough attention to the Company:
- Distributors have many product lines competing for attention, so they normally focus on products they know and are used to selling.
- Financial resources are limited, and they don’t want to invest in local stock.
- Distributors consider importing and long delivery times to be a problem.
- The sales force has limited product understanding, prefer selling only on price, and need support from the producer.
- Focus on making money today instead of investing for tomorrow.
b. The Company does not give enough attention to the Distributor:
- The Company has many important markets competing for resources.
- South America is far away, has a different culture, different languages, difficult tax system. Consequently, it is hard to understand the distributor and their needs.
- Executive does not have time/resources to give solid support to the distributor.
- Sales Executive visits the region 1-2 times per year and has only limited interaction with final customers.
Setting up the Operation
Sometimes the key challenge is having the correct set-up and enough resources to take full advantage of the opportunities.
- Need for local stock, to shorten delivery time.
- Need of strong management, to drive business.
- Need for local assembly, to reduce sales price.
- Need to work closer with distributors/partners, to push their sales effort.
- Need of own sales force working directly with end customers, to drive sales and create credibility.
- Need for technical service, to give high service level to existing clients.
- Need for local office, to provide local contracts and local invoicing, and to show long-term commitment.
Managing your Subsidiary
Sometimes the results are below expectations in the subsidiary.
- Investments and costs might be higher than expected as the initial projections were not accurate or detailed enough.
- Sales are below expectation and potential deals are not moving forward as planned.
- Difficult to recruit, retain and develop the right people.
- Risks are not being managed properly (business risks, labor, taxes).
- Communication is challenging due to cultural differences and language barriers.
- There are not enough management resources to give adequate support to the subsidiary.
- Control issues.