If you could give medals to your existing export markets, who would you give gold, silver and bronze to? You probably know. But how can you rank potential markets you’ve never covered before in your export strategy?
Most overseas companies seeking to penetrate Latin American markets will probably have started with other countries and have some idea of what they’re looking for. However, you know it’ll be hard to find the country that will fit all the criteria – just as heptathletes, for example, aren’t world-class at every one of their disciplines.
So in order to help you rank Latin American countries in terms of business potential (because there are 20 countries in the region!), how about answering the questions below and seeing how you’d rank them in your podium?
1. Is there a market for your products/services?
Only well-planned market research can give you an accurate view of potential demand, which could vary considerably across different countries.
An obvious instance is if you sell to a specific sector or solve a specific need. For example, if you sell to the mining sector, look at Chile, but not Uruguay.
A client of mine sells a product that works great with natural pastures, so countries like Uruguay, Paraguay and Argentina are clear candidates. If you sell products for other particular crops, such as tropical fruit, you will be more likely to find potential in Costa Rica than in Chile.
It’s not always that obvious, though. That’s when research is key. And that’s when understanding each market individually, even down to cultural subtleties, is important.
I’ll give you two examples. If you sell plastic bags or film that will save you the hassle of cleaning an oven tray, remember that most middle class families that can afford those products will probably have a maid who does the cleaning. How you market those products will be critical.
Similarly, there’s the issue of packaged baby food, which we discussed at a workshop in London recently. Most people won’t buy those tiny jars of baby food because there will be a maid or grandmother or some kind of help around to facilitate making food from scratch. It’s so different from my experience as a mum in the UK!
2. Is the market willing to pay the price you can realistically offer?
Again, market research is critical here. This is why so many market research reports include some proxy for purchasing power, such as GDP per capita, particularly for consumer goods.
However, for other kinds of products and services, careful pricing analysis is also important. For example, you might find that certain imported products in Brazil can command amazingly high prices. But before you get too excited about margins, look at the daunting amounts of taxes you’ll pay from import duties through to national and federal taxes. Also look at the costs of in-country freight, and at the margins that retailers or distributors will expect. Your profit will quickly vanish!
3. How easy is that market to penetrate?
This will clearly depend on what you sell and how you do it. There are no easy markets in Latin America (or anywhere, you might add), but if you look at statistics such as the World Bank’s Ease of Doing Business ranking, you’ll quickly rule out at least a few countries from your podium.
If you combine certain statistics such as economic openness (import duties, for example), with ease of doing business and transparency, you’ll probably think of a few countries to which you’d like to give medals.
Chile, Colombia and Peru tend to do quite well in these categories, but that’s only a general statement.
4. What’s your export strategy for the region?
Any country in the region will need at least a five year strategy. If you are looking for economies of scale to succeed with volume, for example, then Brazil is your gold medallist. This is particularly true if you are open to manufacturing products locally.
If you want to start fairly small and test the waters, then Uruguay or Chile in South America, or Costa Rica in Central America can be your winners.
If you want to provide services to the region, then maybe a free trade zone in Uruguay would work wonderfully, or placing your operations in Panama.
It all depends on how you plan on tackling Latin America, your resources, your vision and commitment.
You don’t have to enter a new market by yourself
So those are just four questions to ask yourself when giving medals to potential markets for your export strategy in Latin America. I’d also add a potential fifth one, out of experience: have you found the right partner?
This could be a rep, distributor, JV partner, manufacturing partner, licensee, franchisee or something else.
Any experienced exporter will know that, as much as you can study a market, statistics can say and market visits can show, at the end of it, people do business with people. The guy who came last in the race might become your winner.