As we head into the second part of 2016, and with most of our clients now immersed in developing their strategy and key initiatives for 2017, I wanted to share with you some thoughts about where we see the Latin America region going, and what some of the strategies and tactics are that successful companies are focusing on to preserve top-line performance and profitability in the region.
The region will continue to face a challenging environment as external headwinds persist
Latin America will contract by -0.7% in 2016 and show a shy recovery of +1.5% in 2017, as it continues to suffer from an adverse global environment characterized by low commodity prices, reduced demand for the region’s exports from China, rising interest rates and currency volatility. Without Brazil, and Venezuela, the two main underperformers in the region, growth would come out at much healthier rates of +1.5% and +2.5% respectively, although still far away from the 3.8% average growth rate that we witnessed between 2004 and 2013.
Successful companies are adapting their strategy to find resilient pockets of opportunity and streamlining their operations
Multinationals in Latin America are becoming increasingly focused on reallocating resources to resilient pockets of opportunity and on adapting their value propositions to sustain growth in an environment of economic slowdown and currency depreciation. Streamlining operations and providing value-added services will be key as competition heats up and margins fall in order to maintain sales and protect profitability, for which strong alignment with channel partners will be key. Some companies are taking advantage of low valuations and distressed assets to pursue inorganic growth, especially in Brazil, which will continue to suffer the effects of economic recession and political turmoil until 2018.
Key strategies that successful multinationals are putting in place to sustain growth in the region include:
- Strengthening market monitoring and course correction capabilities
- 42% of FSG clients have reported that they were slow to make necessary changes to adapt to Latin America’s slowdown, and almost 80% of companies said that they lack a structure process to facilitate course correction once unexpected changes to market conditions occur
- To learn how to better anticipate market disruptions and accelerate course correction mechanisms, watch this FSG webinar on Best Practices for Market Monitoring and Course Correction
- Making the case for LATAM with corporate, placing a special emphasis on long-term fundamentals and relative strengths of specific markets
- 77% of FSG clients believe that it will be harder to tap into corporate resources for Latin America in 2017, and although the region presents pockets of opportunity, 41% of our clients feel that corporate does not understand the distinct realities of different markets
- Access our latest our latest regional outlook to identify which markets will grow faster over the next few years and to make the case for corporate investment in the region
- Finding resilient pockets of opportunity across geographies (national and subnational), industries and customer segments
- Our most recent client poll found that companies are reshuffling resources away from Brazil – traditionally the most important market for corporate investment for more than 50 percent of our clients – into Pacific Alliance markets and Argentina
- Additionally, 57.1% of our clients are planning to expand into new territories to support sales growth in 2017, of which 35.7% plan to expand into both new countries and within existing markets at a subnational level
- Leverage our Mexico and Brazil Subnational reports for B2C, B2B and healthcare companies to prioritize subnational expansion efforts in these key markets
- Explore ways to enhance your customer segmentation process by reading our report Enabling Effective Segmentation in Emerging Markets, and our Market, Behavioral and Profitability Segmentation research pieces
- Adapting value proposition to leverage growth in value-added services across industries
- Successful companies are providing value-added services to make their products and solutions stickier with customers, command higher prices and create more stable revenue streams
- 50% of regional heads identified value-added services as the most important lever to strengthen their company’s value proposition, followed by product (33%), and positioning (17%). No company selected pricing as a key strategy to support top-line performance in the region
- Supporting commercial execution through effective channel management and seamless transitions
- According to FSG research, high-growth organizations (those with revenue growth >20%) tend to enact channel transitions with greater frequency than low-growth organizations. However, only 26% of FSG clients that underwent a transition in Latin America reported that it went smoothly
- Read our Channel Transitions in Latin America report to learn about pitfalls to avoid in channel transitions, and to create a process to identify current and future capability gaps in your channel
- Deepening operational efficiency to boost bottom-line growth as margins fall through slowdown
- Latin American executives know that demonstrating commitment to profitability goals will determine their own success as business leaders during market downturns. As a matter of fact, 40% of FSG clients are currently focused on finding operational efficiencies and productivity gains to remain profitable and to free up resources to capture upside potential when markets rebound
- Increasing responsiveness to FX depreciation volatility through operational hedging and pricing strategy
- In a recent event hosted in Miami with heads of region, 72% of FSG clients reported that they had lost flexibility to pass FX depreciation on to distributors or customers, which suggests higher price sensitivity but also outdated and rigid price setting and operational hedging processes
- Learn how leading companies are re-thinking their pricing strategy by reading our report Adapting Pricing in Emerging Markets and our Currency Volatility Playbook
- Attracting and retaining talent through means other than salary increases
- Despite Latin America’s economic slowdown and rising unemployment, talent shortages in the region have not disappeared and are expected to worsen in the coming years
- In order for companies to attract and retain talent while keeping salary increases in check, executives will have to craft a compelling employee value proposition; FSG clients surveyed have identified creating a growth path for key employees (33% of responses) and fostering team culture (33% of responses) as the two areas that need most improvement in their companies
Follow us on social media
While clients can leverage our data, research, access to analysts and networking events through our FrontierView platform, we also encourage executives to follow us on Twitter and on LinkedIn to get weekly updates of our views on different markets and business strategy in the region.
Companies can also follow us directly through our FSG blog. Key blog posts published during the first half of the year include:
Management Best Practices
- Driving sales growth in Latin America through channel transitions, and how to identify appropriate channel transitions for your company?
- How MNCs should adapt their pricing strategies for persistent volatility
- How to win the war for talent in Latin America
- Rightsizing the market opportunity of Cuba
- Bulletproof your channel strategy in Colombia
- Five things you need to know about Brazil’s fiscal adjustment
- What to expect from Colombia’s peace agreement
- Brexit clouds medium-term outlook for Latin America
- Argentina’s economic normalization: Risks and opportunities
- What does Kuczynski’s victory mean for Peru?
- Venezuela’s deepening crisis imperils prospects for a peaceful transition
- What does Puerto Rico default mean for business on the island?
- Healthcare companies are coming to terms with growing public budget constraints in Latin America
- Brazil remains a priority for multinationals despite economic and political woes
- Mexico economic and business outlook: Key takeaways from Mexico City Executive Breakfast
- Ecuador is becoming an increasingly worrisome environment for multinationals
- Brazil state-level spending: How bad it can get?