Slowing growth across much of Latin America this year has led multinationals to seek new pockets of opportunity in the region. Given that Colombia has been one of the few markets to outperform in Latin America this year, many multinationals are taking a hard look at expanding their footprint in the market. However, as companies seek to define their go-to-market strategy in Colombia, they are faced with the twin challenges of understanding the market’s complex distribution landscape and structuring their channel relationship in a way that maximizes market share and profitability.

With these challenges in mind, Frontier Strategy Group has developed a report which assesses the key factors shaping Colombia’s distribution environment and partner capabilities and evaluates how these factors are likely to evolve in the coming years. Below are three key takeaways from this research.

Key takeaway #1: Multinationals in Colombia rely heavily on channel partners due to distributors’ expertise in managing Colombia’s complex business environment

• Over 75% of FSG’s clients in Colombia deploy an indirect channel model, and on average, they employ more distributors than elsewhere in LATAM
• Unlike many in Latin American countries, Colombia’s economic activity is not concentrated in its capital city but rather across several large cities. These markets are geographically dispersed, making it difficult for multinationals to obtain nation-wide distribution coverage. This challenge is compounded by complex topography, poor infrastructure and a delicate security environment, which local distributors have extensive experience managing.

Key takeaway #2: Working with channel partners in Colombia is costly, as distributors’ favorable bargaining position permits them to demand large investments from multinationals

• The growing presence of multinationals in Colombia has lowered switching costs for distributors, shifting bargaining power in their favor. Due to this power dynamic, channel partners tend to lack an initiative to develop their own strategic capabilities. Instead, competencies are typically developed through costly investments on the part of multinationals.

Key takeaway #3: Advancements in Free Trade Agreements, peace talks, and infrastructure will alter Colombia’s distribution landscape

• Positive developments in all three areas will generate inflows of FDI, which will further tilt power dynamics toward local channel partners over the near term. However, each development will also help multinationals better navigate Colombia’s business environment, which over the long term will help shift bargaining power back toward suppliers
• Multinationals who are able to anticipate these changes, and adjust their channel strategy in Colombia accordingly, will be at an advantage vis-à-vis their competitors

*To learn more about Colombia’s complex distribution landscape, FSG clients can access the complete report here.