No one could deny at this point that we have arrived at an unprecedented stage where globalization is making the world “one large market”. Companies worldwide are recognizing the need to “globalize" their business models in order to grow.
Within the global marketplace, Latin America is in the crosshairs of many global companies. Below are five reasons that make the region a no-brainer for companies considering new markets to expand their businesses.
1) An Economy Racing Ahead
According to the World Bank the economic growth in the region will likely outpace the expansion in the Euro area, Japan and the U.S. through 2012. It’s simple; Latin America is in a growth stage where many developed countries are still recovering from the economic impact. The region’s middle-income and lower middle-income classes are enjoying the benefits of improving credit conditions1, which represents a huge opportunity for global companies to partake from the benefits of this “consumer boom” that translates in bigger markets for everything, from high-price items, to snack-foods and even pay-TV channels.
A great example of the region’s economic recovery is Brazil, the 7th largest economy in the world and the largest in the region with a 2010 GDP of $3.6 trillion2. Over the past 10 years the per capita income of the bottom 10 percent of the population has been increasing at very high rates, (7% a year), well above the national average, placing Brazil’s economy ahead of Britain and France earlier than predicted by Goldman Sachs3.
According to the expert’s predictions, the economic growth in Latin America will continue to proceed at multiple speeds in 2011 with continued growth dynamism, especially in the pro-market democracies such as Brazil, Peru, Chile and Uruguay. There's definitely a positive momentum building in the region. While it hasn’t reached its peak, this is the perfect time for anyone with good products and a good marketing strategy to step in and win.
2) An almost 600 Million People Market4Organized in Four Trade Blocs
Although the entire region is comprised of 20 countries, all of them, (except Cuba), have joined one of four trade blocs:
• Mercosur5: Argentina, Brazil, Paraguay, Uruguay and Venezuela, (special member)
• Andean Community of Nations6: Bolivia, Colombia, Ecuador, Peru and Chile, (associate).
• Central American Integration System7 (SICA): Costa Rica, Guatemala, Honduras, Nicaragua, El Salvador, panama, Belize and Dominican Republic.
• Mexico is part of NAFTA8, which includes USA and Canada.
This relatively recent integration of the region represents major efficiencies for U.S. companies looking into international expansion.
Tapping – not only into a 600 MM people market – but having the possibility to do so through only four main channels and in two languages, (Spanish & Portuguese), is a very enticing proposition for any company looking forward to embark in an international expansion journey.
3) An enormous Import Potential
Latin America is the fastest growing U.S. trading partner9 and this growing curve started more than 10 years ago. Between 1990 and 2000, total U.S. merchandise trade with Latin America grew by 219% compared to 118% for Asia.
Today, imported products ranging from smart phones to medical gear to drill bits are coming into the region in larger volumes on international flights. In fact, many airlines are adding cargo capacity in Latin America confident that total freight revenue in the region is increasing10. A good example is UPS, which recently increased its weekly schedule of Boeing 757 freighter flights to Bogota Colombia to meet increased inbound demand there for imports.
According to Tom O’Malley (Miami-based vice president of UPS air cargo operations in Latin America), in 2010 the carrier saw a 46 percent growth in kilos, year over year, compared to 2009, and continued growth is expected in 2011.
In 2010 the U.S. exports to Brazil alone, supported more than 250,000 jobs in the U.S11.Clearly, a market big enough to catch the attention of U.S. manufacturers.
4) A millionaire e-commerce business that’s booming
Technology has dramatically changed the way the international development game was played in the past. Until recently, retailers have looked at international e-commerce expansion as an “all or nothing” proposition. As e-commerce reaches critical mass in the region – especially in Brazil – the decision to expand internationally leveraging this technology is something definitely worth it to consider. A good example of this opportunity is the service offered by Miami Beach-based SafetyPay12, a global online payment system, and the only one within its business model that enables Latam customers to shop online in U.S websites and pay directly through their online banking account in their local currency. This global provider of Internet payment solutions has established agreements with banks across Latin America so the customers’ cash goes into a SafetyPay account, which pays to the merchants with its own credit, while sharing a fee with the bank. The golden opportunity for U.S. retailers that choose to leverage this technology to open markets in the region is Brazil.
Let’s start by highlighting the enormous potential of the Latin America’s giant: in the first two months of the 2011, Brazilians spent $2 billion overseas – a 33% increase from the previous year – and the country e-commerce numbers are no less impressive. Brazil represents more than half of the region’s retail e-commerce with only 34% of the total Internet users. If all of the above isn’t enough to entice U.S. retailers to jump into the Brazilian e-commerce extravaganza, on March 2011 the local government increased the tax13 on what Brazilians buy abroad to a 7%, which becomes “zero percent” when they purchase U.S. products, (in their country and in their local currency), through companies like SafetyPal.
As an example of the magnitude of this opportunity, the country’s consumer electronics market was estimated at US$26.6 billion in 2010 and is expected to grow 11 percent to US$36 billion by 201414.
5)Remittances15: An additional $58.9 Million Purchasing Power
Measured in U.S. dollars, money transfers made by Latin American and Caribbean migrants to their countries of origin reached $58.9 billion in 2010. Mexico is the largest remittance-receiving country in the region –with over $23 billion– and Brazil remittances from the U.S are approximately $2.7 billion per year.
If you think that only money transfer businesses can tap into the billionaire remittance business, think again. Any company in almost every industry category could offer solutions to allow U.S. Hispanics to satisfy the needs of their loved ones in their countries of origin, and therefore, to enjoy a piece of the remittances’ succulent pie. A strategic partnership with any of the global players in the remittances or banking industries would become very important to any U.S. manufacturer interested in leveraging this lucrative money-transfer dynamic.
For all the reasons mentioned above, and many more, global companies around the globe – regardless of market sector or product category – have been increasingly enthusiastic about expanding their businesses in Latin America, and they have experienced the rewards of their growing strategy. Although we can count them by hundreds, here are five of the lucky ones… or should I say “some of the wisest ones”?
- Groupon16
The daily deal sensation companyturned its attention to the budding e-commerce market in Latin America and acquired Chilean deal site ClanDescuento. More expansion in countries such as Argentina, Mexico and neighboring countries are also on the Groupon road map.
- Google17
The search engine giant launched its Latin American division in Brazil in 2005, opened in Argentina in 2006 and now it is focusing an unusual amount of attention on Central and South America since revenue from the region surged 80 percent last year, outpacing every other market.
- Amper SA18
Spain's leader information technology company is buying Miami's eLandia International, (with a portfolio of more than 3,000 business customers in 17 markets in Latin America, the Caribbean and the South Pacific and $367,000,000 revenue in 2010), to expand its reach in the fast-growing market of Latin America.
- Harley-Davidson Motor Company19
The U.S. motorcycle maker will open a Latin American regional headquarters in the Miami area to seize the great deal of opportunity for the brand in Latin America that posted nearly 6 percent economic growth in 2010, led by booming Brazil.
- Wal-Mart20
The U.S. retailer giant, is planning a massive expansion in Latin America this year with a 1.6 billion investment in 6 countries across Mexico, (365 outlets), and Central America (80 new stores), as an addition to the 1,743 stores that it already operates in Mexico and the 551 outlets in Central America.
This comes on the back of a massive investment for the opening of 275 units in Mexico and a $1.2 billion investment allocated to its expansion in Brazil.
Ivonne Kinser is part of American Airlines Marketing Solutions. A newly created group that operates under the Marketing Organization and is in charge of developing innovative marketing strategies and platforms to integrate other brands with the American Airlines’ experience.
For the past ten years, Ivonne has served as an Account Director for Richards/Lerma & The Richards Group in Dallas, TX, have led the international marketing efforts for one of the largest trade show management companies worldwide -The Market Center Management Company- and managed the American Airlines advertising efforts in 19 countries throughout Latin America while at T:M Advertising in Dallas, TX.
Sources: 1- Latin America improving credit conditions https://on.wsj.com/i9kCjD, 2- Brazil economic growth/ 2010 GDP https://1.usa.gov/grWLVf, 3 Goldman Sachs https://bit.ly/ib8jvm, 4- Latin America Population https://bit.ly/hrSSy8, 5-Mercosur https://bit.ly/dT2YmL, 6- Andean Community nations ,7https://bit.ly/hUEkkP, 8- (NAFTA) https://bit.ly/eXOxau, 9- Latam exports https://fpc.state.gov/6122.htm, 10- Latam cargo growth https://bit.ly/eYUhLU, 11-Brazil (U.S. jobs) https://bit.ly/g7kcug, 12-SafetyPay https://bit.ly/dXn8rj, 13-Brazil Tax increase https://on.wsj.com/iccAef, 14- Brazil consumer electronics market https://bit.ly/hUofZO, 15-Remittances https://bit.ly/fUG0cm, 16-Groupon https://bit.ly/h68ZDl, 17-Google https://bloom.bg/fvqnkh, 18-AMPER SA https://bit.ly/f3m5w9, 19-Harley-Davidson https://bit.ly/i81mlX, 20-Walmart https://bit.ly/hkmkBN.https://bit.ly/eBFdhE– (SICA)
