Articles

Strategies for Success in Latin America

Thunderbird Professor Roy Nelson

By Roy Nelson, Ph.D.

Common themes and patterns tie Latin America together, but global managers who view the region as a single unit will stumble. Trade rules, customs and geography vary across the region, and languages spoken include everything from French, English and Dutch in the Caribbean to dozens of tribal languages in Central and South America.

What works in one Latin American country does not always work in another. I recently spoke with managers at a major U.S. advertising firm who learned this lesson the hard way. They produced a sensuous television commercial that sizzled in Brazil but flopped in Chile, where consumers tend to be more conservative. Global managers who do best in Latin America are those who pay attention to broad demographic and cultural patterns but also respect the region’s rich diversity.

Income disparity

One pattern common across Latin America is a sharp gap between rich and poor. About 10 to 15 percent of people in this region belong to the upper or upper-middle classes, and another 20 to 40 percent fall in the middle class. That leaves about 50 to 65 percent of the population in the lower classes.

Companies that sell products or services in Latin America generally deal with this income disparity in one of two ways. The first strategy involves targeting the “A strata,” or households at the top of the pyramid. Although this segment of the population is small, that’s where the purchasing power lies in Latin America. I see this “high margin, low volume” strategy every time I visit shopping malls in urban centers such as Sao Paolo, Brazil; Lima, Peru or Buenos Aires, Argentina. The store windows are filled with luxury items that most people can’t afford.

The second marketing strategy is also popular. This involves targeting the bottom of the pyramid, where the purchasing power is small but consumers are plentiful. Companies that use this “low margin, high volume” strategy sometimes package premium brands of products such as toothpaste or laundry detergent in smaller containers. This makes quality products accessible to people in the lower strata.

Youth movement

Another demographic pattern that spans Latin America is the prominence of youth. Although the percentage of people 19 and younger is getter smaller in Latin America, the numbers are still staggering. Nearly 40 percent of Brazilians were 19 and younger at the start of 2008, and the percentage was even higher in places such as Mexico. In the United States, this figure was closer to 27 percent. This creates a great opportunity for companies in Latin America to market products that appeal to young people. Sporting goods, cosmetics, clothing, electronic equipment and toys all sell well.

Cultural norms

Certain cultural patterns also exist across Latin America. For starters, Latin Americans have their own way of dealing with time. A casual invitation to attend a dinner party at 7 p.m., for example, does not mean the host actually wants guests to arrive at 7 p.m. Those who come at the appointed hour will likely find the host still in the shower.

Different rules apply to business appointments. A good rule of thumb for foreigners is to arrive on time to business appointments but come late to social gatherings. Personal connections also have added importance when doing business in Latin America. “Know who” often trumps know how. Global managers who understand this are careful to greet each individual in a group, starting with the most senior executives. When they say goodbye, they shake everybody’s hand. And when they meet somebody for the first time, they seek third-party introductions.

Social interaction is crucial when building these business relationships. Although doing lunch might seem like a waste of time to some global managers, a long meal before getting down to business can make or break the relationship.

Language lessons

Latin Americans also appreciate any effort to speak the local language, even if a foreigner does not speak fluent Spanish or Portuguese. Beyond language, communication in Latin America also can be physical. Men sometimes share a hug, and they sometimes kiss women on the cheek if they are well acquainted. Foreigners who try to imitate these customs, however, can go too far. I learned this lesson early in my career when I was new to Brazil. I tried to fit in at a birthday party by kissing every woman in attendance — but I later realized a more cautious approach would have worked better.

Latin American communication also can be indirect. Yes often means no when a business acquaintance wants to be accommodating. In this culture, a direct answer of no can be seen as rude — even if the answer really is no. Global managers can work around this by taking an individual aside and quietly confirming an agreement made in public. Or they can ask for things sooner than they actually need them.

Opportunities abound in Latin America for global managers who pay attention to these patterns and norms while respecting the differences in each country. I have seen plenty of business blunders during my field research in the region. But success is within reach.

Roy Nelson, Ph.D., is an associate professor of international studies at Thunderbird School of Global Management in Glendale, Ariz. He has conducted field research in nearly a dozen Latin American countries and speaks Portuguese, Spanish and English. He has degrees from Stanford, Yale and Cornell universities