Selling into Latin America has been an extremely challenging venture for most offshore consumer product manufacturers.

Because Latin America comprises 18 distinct markets – each with its own political climate, cultural nuances, currency fluctuations, and other influential factors – the complexity and expense of operating in Latin America has proven to be prohibitive, even for major retailers.

In the book Redefining Global Strategy by Pankaj Ghemawat, these complicating factors are grouped into four categories, denoted by the CAGE acronym:

Cultural factors that impede the flow of business for offshore manufacturers in Latin America include language/dialect barriers, various ethnicities, religious differences, lack of trust, traditionalism, and regional insularity;

Administrative factors, such as importation issues, lack of common currency, political hostility, corruption, and weak institutions, are pervasive;

Geographic factors include not only distance but border issues, time zones, climates, disease environments, navigability, weak transportation and communication infrastructure, and high transport costs;

Economic factors include currency fluctuations, disparities in local purchasing power, availability of financial resources, and local pricing instability.

Historically, manufacturers have relied on outside, contracted entities such as national distributors to navigate this complex web of factors. While this is a viable route to the consumer, it is inherently risky and expensive for the manufacturer. Both the brand’s integrity and the manufacturer’s bottom line are constantly at risk.

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Contracting with a national distributor is one of the biggest gambles an offshore manufacturer can make.

While distributors claim to have established reliable pathways through the local cultural, geographic, and economic barriers, their execution can be highly inconsistent. When it fails, the distributor’s problems instantly become the manufacturer’s problem.

Some common challenges that offshore manufacturers experience in Latin America:

Cargo Held Hostage – Cash flow problems can keep inventory in limbo for weeks, even months, forcing manufacturers to “rescue” it with additional funds and assume liability for recent currency fluctuations.

Difficulty Collecting Revenue – Unexpected challenges in moving funds out of the country.

Lack of Response to Product Issues – Warranty claims and DOA warranties expose the weaknesses of even the best distributors – but it’s the manufacturer that takes the hit. 

Complete Lack of Transparency – Transparency, in both the marketplace and operations, is critical to future revenue… but easily obscured when a third-party distributor takes the reins. If the distributor mishandles the merchandise, neglects market feedback, or ignores red flags and opportunities, the manufacturer has no way of knowing until the damage has been done.

And, because the manufacturer is unlikely to fly a representative to Latin America to confirm the problem every time something arises, there is no way of knowing whether the problem itself is authentic or manufactured by a shady distributor to increase profits.

Without accurate and true market intelligence, manufacturers cannot capitalize on the opportunities available in Latin America.

With margins growing thinner every year, manufacturers are recognizing that this risky and inefficient distribution system is inherently flawed. Fortunately, it can be modified, even bypassed.

Many manufacturers are now exploring a new distribution model – an outsourced direct-sales model that effectively navigates these factors, creates transparency, safeguards brand integrity, minimizes risk and maximizes profit. Thoroughly tested and proven viable by Sharp Electronics, Castelmec’s SDO platform is changing the way business is done in Latin America.

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Without a clear understanding of the nuances of local markets, even the most sophisticated companies can fail.

Case in point: Wal-Mart. When it launched its Latin American division, it opened huge stores in Chile and Argentina, meticulously laid out according to extensively researched plans.

Unfortunately, these plans were developed in the United States, with wide isles and product placement strategies that suited Americans just fine – but felt foreign to the Latin consumer.

To make matters worse, Wal-Mart failed to account for the “installment” method of payment that is so popular in these regions. When consumers unexpectedly encountered First World payment terms in their Third World neighborhoods, they fled the mega-stores and returned to local retailers. Consequently this venture, which looked ideal on paper, failed miserable, closing doors within a matter of months.

Unfortunately, Wal-Mart is not alone; many Fortune 200 companies have met similar fates in Latin America. With 19 distinct markets to negotiate, each with its own distinctive culture, doing business in Latin America is not as simple as it seems.

Fortunately, the SDO platform now offers offshore companies a viable pathway to the Latin American consumer – one that accommodates the nuances of local cultures, because it works within local cultures. For more information, contact us.