How to choose a Latino distributor (and not die in the attempt)

south america LATAM rtmworldThe aftermarket in Latin America is undergoing a consolidation process, especially in the more mature countries such as Brazil, Mexico, Colombia and Argentina. We are seeing less rotation of large distributors, many of which were active in the market a decade or more ago.

This consolidation is even more evident in large urban centers as vendors seek an increase in profitability and in turnover thanks to the new price war brought on by the new built cartridges and supplies from China.

The truth is that the aftermarket’s share of the supplies market has not significantly increased its share over the originals. The cake is being divided into the same sized proportions. Customers simply rotate between the different distributors according to who can best respond to their economic, quality or time needs.

Does that mean all is said and done? Certainly not. There are still great opportunities in Latin America. It may not be the industry’s golden era but there are still healthy options to explore new business opportunities.

In this scenario, it is not easy to seek strategic alliances or new distribution channels. Ignorance, geographical and cultural distances, uncertainty about payment compliance, respect and promotion of the brand, are several of the many unknowns. Is the best candidate the one who has the biggest or the most luxurious car?

How to design a good partnership

An alliance is not only commercial: it also implies a personal relationship. Not every candidate is the right one, even if they promise a rain shower of containers.

As a first step, it is necessary for the Chinese manufacturers to:

  • look for a competent seller, who can interpret the local conditions to sell your product;
  • get information about your reputation;
  • know the other products a seller represents, which will speak a lot for themselves;
  • ensure there are no conflicts with the products you sell;
  • establish an agreement detailing responsibility regarding prices, advertising and promotion, market research, storage and distribution;
  • consider the financial solvency of the potential distributor;
  • know the market share for each product category and how the products will be treated within the overall portfolio.

Exclusive or authorized distributor?

Those Chinese companies looking for a distributor of their own brand, face the unknown of defining the degree of exclusivity that the distributor will provide. Will the distributor be exclusive and be given the official authorization?

I recommend the first, renewable agreement should have a term no longer than 12 months. This allows both parties to learn more about each other and to define the business model.

cheese rtmworldWhere is the Cheese?

The Latin consumables market tends to be more healthy in those cities that are removed from the larger centers. The volumes are still attractive but the price war is not so intense and the distributor can be more trustworthy. The cities of the interior also need reliable suppliers that can provide commercial and technical support. They are aware that their location forces them to pay higher prices. It is quite a complex task for any local entrepreneur to develop an efficient network of commercial agreements, which implies an investment in logistics, travel and time. This is a key aspect that should be evaluated before making an agreement.

Local logistics

The global market tends to have – erroneously – a homogeneous outlook on Latin America. Just because most countries have Spanish as their national language, does not mean they have the same character. To think that is naive and could be a recipe for disaster. Each country has its own specific political, economic and cultural characteristics.

Take note China: there is no silver bullet for this industry that allows a single distributor to reach the entire region. The few distributors that have been successful in developing sales logistics in several Latin countries have always achieved this through agreements with local companies and not through direct sales. Beware of anyone who offers to cover multiple countries of the continent without a local base in each of them.

A commercial and technological partner

Whatever the product or service offered (toners, inks, parts, finished goods), you should not lose sight of the technical nature of the sale. It is necessary for both companies to develop technologically together if commercial development is to be achieved. It is essential that all personnel be suitably trained and qualified about all the products and their characteristics.

A Price-Oriented Market?

I hear the same complaint all over the region, country after country. Every Aftermarket business owner in Latin America I talk to says the same thing: “My competitor’s prices are killing my business.”

So, because your competitors are offering low prices, you lower your prices… what a great strategy! No matter how low you price your cartridges, there will always be someone who will offer a better price.

Some big LATAM dealers tell me their commercial strategy is to flood the market with low-priced cartridges—2% below their actual costs—to eliminate every competitor. Then, they tell me, when all the competitors have gone, they will raise their selling prices and enjoy the benefits of a “one supplier” monopoly. Well, good luck with that plan! Again, there will always be someone who will offer a better price.

Take a closer look at LATAM and you will find the Aftermarket market share hasn´t grown for the last 10 years; it remains between 24% and 29%. Yes, the OEMs still have a 70% market share in Latin America.

Consumers are willing to pay more for the quality genuine brands. A lot more! And their higher prices continue to increase every 6 months thanks to the strengthening of the US dollar against the regional currencies. There are many, many more OEM users than Aftermarket users. Let me say it again… OEM users are willing to pay much more for a cartridge than Aftermarket users.
So I ask: with 70% of users buying cartridges at higher prices, is LATAM really a price-oriented market?

The easiest strategy—and I call it the caveman strategy—is to go to market based solely on price. Any tacos seller on any Mexican city street corner can come out with that strategy. The bad news for these “master minds” is: there will always be someone who will offer a better price.

The only way to find a “highly profitable” business is by investing. Yes, investing! Not only money, but through an investment of intelligence, creativity, knowledge, market research and personnel, etc.

Getting prepared is a good start, knowing the objective is the second step. Your objective should be to scratch a piece of the 70% OEM market share and not to waste resources trying to win the overcrowded Aftermarket market share.

Ask yourself: if it’s not about price, then what it is about?