At first glance, a population in excess of 590 million, more than $10 trillion GDP in purchasing parity, 50 trade agreements and an average age of 27 would indicate that Latin America represents a significant growth opportunity for technology companies eager to introduce their products to new markets loaded with millennials, who are quick to adopt new technology and hence increase their sales.
Then again, smart managers learn to temper their enthusiasm for these kinds of facts with a need to prioritize investments and opportunities in other markets. They must also come to terms with challenges and cultural differences which have historically conspired to make Latin America a challenging region for many tech firms.
Every year, upon going through an analysis of growth opportunity against investments, a handful of technology companies will unwisely choose to pass on the region, losing out on about $475 billion in additional opportunity.
You read correctly. As a rule of thumb, the Latin America sales of a mature global company with a well-established presence in the region should represent around 5 percent to 8 percent of the company’s worldwide business. For a U.S.-focused company, the region should represent about 10 percent of U.S. sales. The gap between the potential and the real sales of the company in the region is the growth opportunity.
Which companies are ready for the region?
In terms of size, companies that enjoy global revenues greater than $1 billion typically have the potential to capture the Latin American market once the appropriate strategy, execution and resources are put in place.
Nonetheless, it’s important to note that even companies with $2.5 billion in worldwide sales can struggle to attract the senior-level talent, market knowledge, relationships and experience required to succeed in the region. As such, for companies with fewer resources, achieving meaningful, sustained growth often requires a different approach, which we’ll get into later.
In terms of tech offerings, there are no silver bullets. The field of viable products and services is fairly wide, given that we’re talking about an emerging market. However, it is interesting to note that fast-growth technologies, like cloud services, security software and IoT-type companies, are seeing great opportunities in Latin America, but often require highly specialized technical resources and partners in order to see meaningful traction.
For all companies, the ability to understand what their technologies represent in terms of growth potential, business volume and required investment is critical.
What companies need to succeed
Regardless of size and offering, all entrants will eventually need to address five key challenges in order to succeed in Latin America:
# Prioritization and focus on execution
# Deep cultural understanding
# LatAm business experience and relationships
# Political and compliance risk awareness
# Access to talent
Without a clear and appropriate response to these challenges, most companies will struggle to define a successful and affordable Go-To-Market strategy. They may be slow out of the gate and eventually see their growth efforts stall, or worse, retreat and pull out of the markets completely. I would advise that great caution is warranted on this last option given the importance of relationships and people’s long memories.
Generally speaking, there are three approaches to choose from when looking to expand or jump-start growth in Latin America.
The traditional approach
IT companies with the right scale and commitment may choose to invest in regional teams with the experience, regional knowledge, relationships and capabilities needed to overcome the key challenges. However, unless their business volumes can ramp-up fairly quickly and they are careful, expense-revenue ratios can begin to run high, inviting internal tensions to justify or curtail investment.
The reseller based approach
This is the easiest way for companies to start operations in Latin America, with less required investment and the ability to leverage partners’ market experience. It’s been a commonly utilized approach into the region with certain well-documented drawbacks. These may include difficulties in aligning objectives, overcoming country-focused coverage models that limit regional opportunities, multiple product lines competing for attention from the same group of people calling on the same clients, and A/R collections and compliance risks, among others.
The success-based approach
This third option has emerged in recent years as a viable business practice around the world. Even for companies with the resources to pursue a more traditional model, a success-based partnership can be a beneficial way to operate in the region due to its ability to minimize risk and investment and accelerate ramp-up time. For companies with limited presence in the region, few existing employees or who are overly dependent on resellers, this service may be an attractive option. However, the success of any such partnership hinges on the partner’s ability to clearly define how the five key challenges will be addressed and a successful track record of having done it before.
In short, Latin America is well worth the effort and resources required to overcome its challenges. With the right model, product, people and relationships, a goal of 5-8 percent of global sales is achievable in a reasonable time frame. As those who have enjoyed success will tell you, it’s a market too big to ignore and a place that sooner or later, most companies with the ambitions or a corporate mandate to expand will have to address.
By Jaime Valles, co-founder and managing partner of Latamkey
Miami-based Latamkey helps tech companies jump-start their sales, accelerate growth, pipeline development and demand generation for Latin America while ensuring compliance and minimal impact on Opex.