I work with US companies of varying sizes and industry sectors that want to expand into Latin America, and one of the most common questions I get asked by them is, “Should we establish a local office with employees, or utilize indirect distribution channels like agents, value-added resellers, and distributors?” I’m always glad they ask, because being aware that there are consequences for different choices is a great first step towards success in this particular aspect of going global.
The rules for regional go-to-market sales and distribution are different in Latin America than they are for many other regions. What works in Belgium or Taiwan almost never goes right in Latin America, so you can’t make any of the same assumptions. For the majority of companies, an indirect agent or distributor model makes the most sense in terms of reach, scale, and cost, at the very least for an initial phase. However, though you could do that and make it work in Brussels, in Latin America, the ultimate payoff comes from building direct, long-term relationships with industry leaders and associations in their particular industry and staying actively involved building those relationships.
Latin American agents and distributors are independent businesspeople. At the end of the day, no matter whom they represent, they will be looking out for their own best interests. A solid partnership requires a joint effort, and it can be a strategic mistake for US companies to rely on agents and distributors alone. This blog explores how US companies can work in tandem with their Latin American distributors and agents for win-win outcomes.
American companies should approach business in Latin America as they do in the United States. They should take the initiative and engage with industry associations, groups, and leaders that protect and look out for the interests of the industry as a whole. In our experience, many US companies that should know better do not take this step as aggressively as they should. Why they don’t isn’t always clear, though the language barrier is a factor. Most likely, though, a lack of understanding what drives business in Latin America is the culprit. Many senior American executives with Americas regional responsibility are not familiar enough with the “Latin” portion of the Americas.
Building relationships with heads of strategically relevant industry associations in Latin America will increase the business success of an American company in the short and long term. This means going beyond the superficiality of simply attending an annual trade show to speak with contacts. It requires the American executive to proactively seek ongoing engagement with relevant industry associations and leaders in Latin America.
What the American executive will find is that relationships with Latin American industry leaders are enjoyable and often result in friendships. It is through these relationships that doors magically begin to open. These are doors that, most often, a local distributor or agent might not have access to, given the importance of hierarchy, power, and status in the Latin American business culture. Just as in the US, a senior executive from an international company carries more weight than an independent distributor.
Some Latin American distributors may become uncomfortable with a US company engaging in their market directly, foolishly seeing this as a threat. In reality, it is something that should validate the distributor and raise their status. This presence creates more credibility for a distributor because it illustrates “seriedad” or a sign that the US company has a long-term vision for the Latin American market. When combined with outstanding customer service, this partnership model becomes unstoppable.
Ideally, the Latin American distributors should focus on the day-to-day selling and relationship building, while the US executive pays attention to building strategic industry relationships. Many industry associations and organizations in Latin America have elected leaders from the business community, just as in the US. The networking opportunities are significantly increased through engagement with senior industry leaders.
Even if a distributor is doing a great job visiting prospects and closing sales, their efforts could be doubled by the presence of the American company executive simultaneously building relationships and getting involved with senior industry leaders. This type of teamwork is a win for everyone, as long as the US executive simultaneously illustrates a commitment to the Latin American business partners that are responsible for their sales.
Join our Latin America Business Fluency workshops to learn more about distribution strategies and the unwritten rules of business in Latin America.