Why Competitive Intelligence Matters in Latin America

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The biggest threat to foreign investors in Latin America is neither economic nor political uncertainty but rather the competition, which comes in many shapes and sizes … and often requires competitive intelligence (CI) to counteract it. Most multinationals focus on their traditional global rivals and large Latin American competitors. But often overlooked is the informal local competition, sometimes referred to as the grey or black market. In consumer markets like batteries in Brazil (30%), running shoes in Peru (70%), or whitegoods in Central America (40%), illegally imported (grey) product is too big a factor to ignore. Product rip-offs (black market goods) are prolific in cultural goods like music and film, luxury goods like watches and purses, liquor and pharmaceuticals. Not only do black market goods dampen profit margins, but they also can bring huge liabilities to producers if they pose a safety risk to customers, as can be the case with pharmaceuticals and alcoholic beverages.

Slick Black Market Tricks

The tactics of black marketeers in Latin America can be surprisingly sophisticated. Years ago, our team worked on a whiskey case in the Andean region, where illegal producers were able to replicate the elaborate bottle and labelling design of the targeted company, filling it with cheap whiskey from India, brought to the region in massive vats. Small retailers who resold the product were happy to do so because the illegally procured whiskey was sold to them at 50% of regular cost, effectively doubling their margins. Investigating the product fraud was no easy matter. On-the-ground researchers followed the supply chain back to the source, a makeshift factory off the beaten track. The real challenge came when we handed over our research findings to the client, who tried to seek enforcement support from the local government. Not surprisingly, the very agency in charge of such enforcement was complicit in this highly profitable operation and proved unwilling to enforce. The client instead chose to retreat from said market altogether — which did little to fix the problem but absolved them of liability risk.

Going Against the Greys

Grey markets, which move legitimately produced product through informal channels, are a nuisance to local distributors and locally managed sales organizations of multinationals who are trying to defend their pricing in formal channels. Most basic consumer goods sold in countries like Chile, Peru, Ecuador, and Bolivia are imported from China and subject to both import tariffs and steep sales taxes (VAT). The same products brought in through grey market channels are often priced 40% below formal channels. Two-thirds of that discount comes from evading VAT and import tariffs and the remaining discounting comes from selling through street markets where retail rent and labor costs are far less than via formal retail stores. These informal markets are far less shady than many would assume. Typically, the street vendor is a fixture, there year in, year out, building relationships one customer at a time. They offer money back guarantees on electronics, even warranties. Most importantly, street vendors often provide financing or lay-away options for consumers.

Political Power Plays

The large formal Latin American competitors can be formidable threats as well, because of their political connections. When importers working with a new foreign brand suddenly find their warehouses invaded by customs officials and their product seized due to a technical non-compliance, a little investigation often reveals that the local competitor threatened by the new foreign brand has connections in customs and induced them to make their raid. When foreign engineering outfits bid on Latin American infrastructure projects, they must understand the relationship structures in place between local rivals and the government officials supervising the bidding process. Too often, the bidding process is manipulated to favor the better-connected bid, as opposed to the technically or economically advantaged bid. Suppliers from North America and Europe, who are subject to strongly enforced anti-corruption laws at home are often hamstrung in any murky bids. Suppliers from other foreign jurisdictions may not be, such that bid manipulation is not the exclusive domain of Latin American suppliers but also foreign competitors who operate without fear of retribution back home.

Dealing with Disruption

The newest competitive threat to multinationals operating anywhere are disruptive technologies that radically improve efficiencies or make redundant old models. These fall into different categories: the Uberization model that connects individual providers with customers, bypassing a middle man. The gig economy packages and prices out tasks into jobs, performed by individuals and purchased via a platform by the customer. The sharing economy allows people to use under-utilized assets (e.g. Airbnb), directly threatening businesses priced for low levels of occupancy. Coming soon will be more disruption with the advent of artificial intelligence and the internet of things. All of these disruptive forces are in play already in Latin America.

In Latin America, companies must take into account the full array of competition, whether it comes from old school or new school sources or out of left field via political alliances. Reacting after the fact does little to protect market share and brand stature, both of which are under threat. Instead, companies need to design and execute a comprehensive competitive intelligence program that combines external expertise with internal training, internal champions and internal processes.

That is where Americas Market Intelligence (AMI) can help. We have supported hundreds of clients over a span of 25 years to research and mitigate competitive threats impacting their business today and in the future. Our LatAm competitive intelligence case studies will provide more flavor as to the breadth and complexity of competitive issues we have tackled in concert with our clients in the past, including Latin American competitive intelligence projects in specific sectors like consumer goods, retail expansionbeautypharmaceuticalsmedical devices, payments, remittances, beverages, telecommunications, auto parts, mining lubricants, industrial plants, mining, the energy sector, logistics and more.

The Next Step to Win

Contact us to find out more about how our competitive intelligence expertise can help your company outperform competitors that resort to these or other tactics.
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John Price

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