One of the question we most commonly answer to companies entering the Latin America is if doing business South of the border is that different. The answer, similar to other international markets, is:
Yes, and No.
On the No side, doing business in Latin America is similar to the US since Latin America is comprised of democratic countries with market driven economies, the rule of law, comparable vertical markets, and technology adoption that--with a time lag—mirrors the US.
The Yes part of the answer is more complex since Latin America brings unique characteristics which go beyond the obvious ones like language, culture, economic development, and laws. Let’s go over a couple of data points that highlight this complexity:
- There is no correlation between the profitability of an industry in the US and its counterpart in Latin America (exception of Chile). This indicates significant and different forces affecting the value chain (*). (Note: the US industry profitability correlates positively with Canada, Japan, South Korea and few countries in EMEA)
- Five of the ten countries with most complex business governance in the world comes from Latin America (**)
The Taiwanese business leader Stan Shih, who made Acer a WW brand, understood this complexity very well, and leveraged the following mantra as he built his company oversees: Think Globally, Act Locally. This is the “golden rule” for international business. It means that understanding the country value chain and customer buying patterns are necessary to enter a country without bringing major risk and cost to the operation. Some of this golden rule’s corollaries are:
- Local knowledge is critical
- Local means country, and sometimes even a country region
- Validate best practices; they may not work well oversees.
- Understand the market, then invest in.
In Latin America, this “golden rule” needs to be applied in nearly 30 countries with three different languages, and multiple business context. The Yes has the upper hand.
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(*) White paper from Tarun Khann and Jan W. Rivkin
(**) TMF Group