Latin America Distribution Channel for Newbies

When I am at an event with colleagues that are not yet doing business in Latin America, I am often asked the same questions. This leads me to believe that these are the topics that most people interested in the Latin American channel would like to learn about. So I thought it would make an interesting article to answer these questions here for those that are new to our channel in this region of the world.

How big is the market?

Latin America is comprised of over 20 countries, which is home to approximately 550 million people. Because their buying power is not as high as it is in the USA or more developed countries, they are much more price sensitive. A rule of thumb to use from a manufacturer’s perspective is the 5% rule. The 5% rule is that sales of your product line will be approximately 5% of your revenue in the USA. Obviously this is not set in stone and some companies reach 10% and higher, however it is a quick barometer of what to expect in the region.

As for specific markets, here they are in descending order: Brazil, Mexico, Argentina, Colombia, Venezuela and Chile. These top six countries represent 80% – 85% of the total Latin American market, depending on who’s numbers you want to believe, with Brazil being the largest and representing approximately 45% of the entire Latin American market. All the other countries not in the top six will make up the remaining 15% – 20% of the total market.

Is there a technology gap?

Back in the late 80’s and early 90’s, there was somewhat of a technology lag in Latin America. While more mature markets in that time-frame were selling IBM ATs, Latin America was still buying IBM XTs (I realize I’m dating myself here but it helps make my point). This was due to a lag or gap in technology where the Latin America market just wasn’t aware of the newer technologies available. However, since the mid to late 90’s, Latin America is up to speed on the latest and greatest product offerings coming from the Americas, Europe and Asia. However, today in some countries we have a financial gap, and not a technological gap. Why a financial gap? It comes down to buying power. For example, if you have a bank branch manager that makes $12k per year and needs to order 500 LCD monitors for his branch, they will go with the smaller size LCD because of the difference in price. A US$20 difference per monitor on a 500 unit deal is almost equivalent to his salary for one year. In the USA and other mature markets, when the difference for an LCD monitor is US$20, most consumers go with the newer, larger models because US$20 doesn’t represent a significant amount of money.

Does this mean you will sell only older technology in this region? The answer is definitely not. The channel in Latin America is well-versed on the new technologies and the example above applies to certain countries that offer opportunities to move some product in your warehouse. However, by no means underestimate or treat customers in Latin America as technologically inferior as this is a sure fire way to get them to buy your competitor’s products.

Do customers expect credit terms?

The direct answer is YES. There are many large, well-established companies in the market and they do expect payment terms. Most will ask for 60 day terms using the reasoning that it takes much longer for the product to reach them, however the grand majority have net 30 day payment terms. Smaller companies may opt to pay cash, but you will still get some resistance to do business with you. Most suppliers pay for credit insurance to hedge their receivables from any large defaults on payment. There are also organizations that allow you to share credit information with others in the channel such as the NACM ( National Association of Credit Management ), which keeps close tabs on common customers and have a warning system should a customer fall behind on his payments with another NACM member.

Many suppliers entering the market usually start with cash terms and then offer small lines as the business grows with their partners and they feel more comfortable working with them.

Is it safe to travel to Latin America?

Traveling to Latin America is like traveling anywhere else in the world. If you are in a large city, whether it’s New York, Tokyo or Mumbai, there is going to be crime. So it pays to play it safe and not be alone wondering out in the streets or stand out too much from the crowd. Sporting expensive electronics, watches, handbags and jewelry is probably not a good idea. In some cities like Mexico City, taking a cab off the street is not recommended either. Either have a customer drive you, use a cab from the hotel, or have someone call a cab for you and they will ask for you by name when the designated cab gets there. After 20 plus years of travelling into the region, I have never had an incident thus far. Now I’ll probably get ripped off on my next trip for having written this last line!

Well, I hope these questions are questions you would have asked. I realize the answers are rather short and to the point, without too much explanation or room for grey areas, but for time’s sake, we have to keep it this way. Obviously these topics can be really delved into, but we’ll leave that for some other time.

Feel free to contact me with any specific questions or comments.