When a company decides to introduce its business into a new market through distributors, whether to sell products or services, it is important to understand the chosen country’s market, local requirements, and potential obstacles. The first task for a business is to ask itself some vital questions about the targeted market, such as the market structure, market share, current trends, and market size. In addition, a business should recognise the challenges a particular product or service could face, these may include pricing, marketing, the competition, and overall logistics.
Using distributors as a route to market is one of many market entry strategies that can be adopted for products and services. Other strategies include setting up departments in the chosen country and selling through a direct sales force or selling through an online platform. A network of distributors enable a business to reach large numbers of customers in a foreign area and can significantly reduce costs that could be incurred through a direct sales force strategy. Through their experience in shipping and importing to foreign markets, local distribuotrs help to establish a business overseas by exclusively handling the distribution of products and services.
Finding Distributors in LATAM
First Contact and Market Research
As a first step, a business should undertake a review of their product and service information, and then conduct detailed market research with either an overview of the LATAM region, or country specific. For any business looking to get established in LATAM, it is paramount to save precious time, resources and finances. This can be done by gaining access to on the ground market knowledge and support in order to fully understand the local market and key business drivers. A business could work with a local company to identify competitors and optimal routes to market for their products and services.
For Colombia, a market review should include size, pricing, competitive landscape, and potential customers. One of the fundamental considerations during this process, is the regulatory environment, such as the legal framework, and the tax and accounting system. These vary around the world, and from Colombia to Mexico, some may be easier than others. Within this review, potential distributors should be identified, highlighting their strengths and weaknesses.
Contact with Distributors
When looking for distributors, a business should have already differentiated between the customers and prospects that it wants to deal with directly, and those that can be reached through distributors. Finding good foreign distributors with the desired reach could bring in steady revenue from the get-go. However, finding the good ones could be difficult..
Some important aspects to take into account when searching for and identifying the right distributors are:
- Reputation of the company
- Competitive profile of the company
- Balance between their demands and your needs
A distributor has to demonstrate their capacity to promote the products and services, maintain adequate stock levels if applicable, and keep staff trained and knowledgeable in the products and services offered. The business should work with distributors that has the same goals and desire for revenue.
It is important to bear in mind that a business can work with multiple distributors to ensure it receives the best service for each of its products and services. The exact services to be provided by the distributors and other commercial terms should be clearly outlined. Discounts, stock levels, selling prices and marketing support, should all be clearly defined.
To attract a distributor, a business has to present a clear product and market opportunity, outlining the benefits to the distributor for promoting the products or services. The requirements for the business relationship should be distinctly specified in the initial talks, setting out clear KPIs for the distributor. KPIs could include delivery times, response times to customer queries, frequency of sales calls. It may also be necessary to position a member of staff with the distributor to monitor and lead marketing projects and sales. The aim is to find distributors with experience in the targeted market, but do not work with strong competitors.
A good relationship between the business and distributors is crucial for success. Understanding that distributors embody the roles of partners, employees and customers, should pave the way for a smoother working relationship. Both parties want to prosper, and it is essential to have the same goals and mutual understanding of one another’s business. Sharing best practices, resources, and responding to customer feedback could lead to further development and expansion of the businesses.
An important factor to consider about the LATAM region is that it is a relationship-based culture where developing business and even personal contacts take time.
Why Do Business in Colombia?
Based on data from the The World Bank on economies and their “ease of doing business”, Colombia’s 2018 ranking is at 59 out of 190 economies. Peru is ranked at 58, Chile at 55, and Mexico at 49. Economies such as New Zealand, Singapore, Hong Kong SAR China, the United States, and the United Kingdom, are ranked amongst the top ten economies in 2018.
The World Bank states that a high ease of doing business ranking means:
“[T]he regulatory environment is more conducive to the starting and operation of a local firm. The rankings are determined by sorting the aggregate distance to frontier scores on 10 topics, each consisting of several indicators, giving equal weight to each topic. The rankings for all economies are bench-marked to June 2017.”
Colombia has been given an overall Distance to Frontier (DTF) score of 69.41 out of 100, which is approximately 11 points more than the 58.66 average in the LATAM and Caribbean region, and the overall DTF is based on the average score from 10 individual indicators.
This measurement is described by The World Bank as follows:
“The distance to frontier (DTF) measure shows the distance of each economy to their defined “frontier”. This represents the best performance observed on each of the indicators across all economies in the Doing Business sample since 2005. An economy’s distance to frontier is reflected on a scale from 0 to 100, where 0 represents the lowest performance and 100 represents the frontier.”
The individual indicators described are:
- Starting a Business
- Dealing with Construction Permits
- Getting Electricity
- Registering Property
- Getting Credit
- Protecting Minority Investors
- Paying Taxes
- Trading across Borders
- Enforcing Contracts
- Resolving Insolvency
In terms of starting a business, Colombia has been given a score of 85.32 out of 100, which is more than 7 points higher than the regional average of 78.09 in LATAM and the Caribbean.
Find Out More About Doing Business in Colombia
Although there are many opportunities for doing business in Latin America from tourism to farming, from property to mining, and any other entrepreneurial venture, it can sometimes be challenging due to the complexities of market entry. Biz Latin Hub is uniquely placed to help you and your business, not only identify your optimal route to market, but we can also support you with full commercial representation services as you implement your strategy in one or all of the markets where we are present. Our mission is to facilitate the entrance of entrepreneurs and investors into Latin American markets with the help of our experienced teams of accountants and lawyers. Please get in contact with Craig Dempsey at [email protected] to receive comprehensive advice about doing business in your chosen country.
Colombia is open for business, and if you want to learn how we can help, check out our video below!