If you are thinking of expanding your business into Latin America, it is important to take into consideration how prepared your business is to expand into the region. It has been found that 25 to 40 percent of employees assigned to expanding their organization into developing countries fail, and those assigned to underdeveloped countries have a 70% failure rate. These numbers do not just apply to small and medium sized businesses either, companies as big as Walmart have failed to be successful in Latin American countries, such as Brazil. With the majority of the countries in Latin America classifying as underdeveloped or developing, you are going to have to take some precaution when entering the region.
Despite these alarming facts, you should not be afraid of entering the Latin American market. Many of the firms that have failed at doing so, did not properly plan when entering the market. There is a total population of nearly 650 million in the region, with an overall GDP greater than $5 trillion. With this being said, your business can generate significantly more revenue by entering the region. In this blog article, we will focus on what are the main causes of businesses failing to expand into Latin America so that you can prepare accordingly when you decide to enter the region.
Failing to Understand the Marketplace
Entering a new market means new competitors. Just because your product was successful in other markets, does not mean it will be successful in the Latin American market. Competition can be fierce, with competitors that have more experience in the region and lower costs of doing business. It is essential to analyze the competition in your new market, as your offerings may not be competitive enough to attract customers.
You should also analyze if your business model has potential in the country you are entering, if it does not, you are going to have to make an adjustment or you will quickly find yourself failing in the region. Many companies have had successful business models that work in different parts of the world, but fail upon entering a country in Latin America. Walmart is a prime example of a company that had its business model succeed around the world, but fail in Brazil. Walmart, known for its one-stop-shop and every day low prices business model, failed to draw the attention of Brazilian consumers. The Brazilian consumer is attracted to promotional deals, and the every day low prices of Walmart just did not appeal to their interests, as Brazilians failed to see value in Walmart's prices because they were consistently low.
Although it may seem obvious, you must also determine if there is a demand for your product/service in the country you are entering. Demand can vary across each country in Latin America. Simply put, demand for shorts and Summer time clothing will be higher in the Dominican Republic, where the weather is tropical, than the demand in the most southern tip of Chile, where the climate is subpolar oceanic. Each country in Latin America has different needs and may face different challenges that can have an impact on demand for different products and services, so it is important to take these needs and challenges into consideration when entering different Latin American countries. This brings us to our next topic.
Thinking All Latin American Countries Are the Same
If you are going into Latin America thinking each country is the same, you are preparing yourself for failure. Latin American countries differ greatly from one another, with differences in culture, interests, economies, and more. In order to be successful in Latin America, you need to take into account the differences in each country, starting off with culture.
Culture in Latin America varies, this includes traditional foods, music, sports, linguistics, languages, and more. The most notable country with a difference in language is Brazil, being the only country in Latin America that predominantly speaks another language other than Spanish, that language being Portuguese. Aside from Brazil, there are great differences in culture within each Latin American country. To put things into perspective, South and Central Americans tend to be big fans of soccer, while in the Dominican Republic and Puerto Rico, soccer is barely watched, with both islands having a greater interest in baseball. Linguistics can also have a significant impact in your marketing efforts and you should be aware of the linguistics in each country. Although two countries in Latin America may both speak Spanish, a word for one country may mean something completely different in another. This can cause issues in marketing, for example, a company selling strawberries may refer to the strawberry as a "fresa" in different parts of Latin America, but the word "fresa" in Mexico can be used as slang to describe someone who is arrogant or superficial.
Economies and governments also play a major factor when expanding into Latin America, with each country facing different political situations and having economies of different sizes. Brazil, Mexico, Chile, Argentina, Colombia, and Peru are the larger economies of the Latin American region, with higher GDPs than their fellow Latin American countries. Now, just because a country has a bigger economy, does not mean you should pursue doing business there, as there are several other factors to consider when doing business in a country. Governments also play a role, as trade agreements and political instability can have a major impact on the way your business operates in these countries. Many Latin countries do have trade agreements with the United States, however, some do not. If the United States does not have a trade agreement with the country you are doing business with, you may be hit with tariffs or possibly not even be able to do business in that country. Information about U.S. trade agreements with other countries can be found here. Be sure to analyze both political situations and economies when expanding into Latin America.
Dealing with a Longer Sales Process
As previously mentioned, culture is important to consider when entering the Latin American market. Within the Latin American business culture, is a stronger need for trust, which extends the duration of the sales process. In the region, business people tend to need to spend time with you to get to know you before business can even be discussed. This means you will have to dedicated some time to lunches, having drinks, and discussing personal things like friends and family, in order to get to know your buyer. It is typically frowned upon in some Latin American countries to bring up business unless the buyer does first, thus, you should avoid doing so and allow the buyer to be the one to bring up doing business. This may take some time, but if trust is gained, the buyer will most likely bring up doing business and that's when you can begin selling. This may not hold true with every buyer in Latin America, but it is very common. The duration of trust building can also vary by country. Most business professionals in the U.S. are quicker to discuss business and are not accustomed to this lengthy sales process with so much emphasis on trust, and this causes many sales professionals to fail in the region.
Companies that sell tangible products in Latin America can often times encounter issues with distribution if they are selling mass amounts of products in the region. A major issue with distribution in Latin America is that distributors and sellers have difficulty accessing lines of credit. High interest rates and lack of infrastructure are to blame for troubles in credit access. Distributors and sellers need these lines of credit in order to take on the amount of inventory you wish to sell. This issue can prevent your firm from meeting demand, and possibly prevent you from covering the high costs associated with entering the new region. An option would be to offer credit to these distributors and sellers, but this can be risky, as collecting debt in Latin America can be difficult at times.
Underestimating Costs when Expanding into Latin America
The costs of distribution, marketing efforts towards each country, market research, long sales processes, and more, can really make entering the region costly. That being said, many companies underestimate the costs of entering the new region and are forced to stop doing business there after running out of cash and failing to produce results. Without the proper budget, which requires a well thought out plan that takes into consideration all of these factors, you may find yourself running out of cash quick and having to pull your efforts out of Latin America. With that being said, take the time to carefully calculate and identify every cost you can and compare these costs to your budget to determine if you are capable of entering the region. When creating your plan to expand into Latin America, be sure it is flexible enough for you to make changes along the way without costing you much if one of your efforts is failing.
The obstacles one faces when expanding into Latin America can be daunting, however, there are multiple firms you can work with to help you in your expansion into the region. Selva Digital is a LATAM digital marketing agency that focuses on creating and executing digital marketing strategies towards Latin American countries for businesses around the world. The amount of market research we have on Latin America allows us to help firms execute digital marketing efforts in the region and consult them along the way to ensure they achieve the highest success possible. Find out how we can help your business expand into the Latin American market. Contact us now.