- 1.0 About the Latin America Market
- 2.0 Market Entry Options
- 2.1 Fly-In, Fly-Out
- 2.2 Relocation and Incorporation
- 2.3 Incorporate and Hire Locally
- 2.4 Prove the market
- 2.5 Go to Market Through Channel Partners
Expanding a company beyond its home country is a daunting process, especially for first-timers with small budgets. For this reason, Microsoft Partner Geo Expansion Program is helping its Partners with expansion to LATAM, which includes pre-planning activities, support from local contacts, and scalable frameworks that ensure a smooth landing in the new region.
It came to my attention that not many IT solution providers were aware of this, so I wanted to shine some light on it, using the Latin American market as an example
Microsoft’s program is designed to expedite the entry of Partners into new markets, accelerate their performance, and create a predictable, consistent, scalable experience. The program takes Partners through different stages of maturity that eventually drive mutual pipeline and revenue growth in new geographies.
Separated by region, Microsoft has also published a series of white papers that outline how to work with specialized Partner Agencies, which can drastically lower the cost of entry and flatten the local learning curve. These local partners support the setup of temporary to permanent operations, including office openings, local recruitment, sales force support, staff relocation, local laws, and possible strategic partnerships, all of which enable small companies to reduce barriers to entry and speed up the validation of the market’s value proposition.
So, how does Expansion to LATAM fit into this? What makes this an attractive region to take advantage of Microsoft’s services, and what role do recent trends like hybrid workforce and digital selling and delivery play?
1. About the Latin America Market
Let’s start with the economy. In 2020, Forbes forecasted that Latin America would grow at a rate of 2.6%, pre-COVID, with the lion’s share coming from Mexico, Brazil, Colombia, and Argentina.
Mexico and Brazil are the preferred locations for establishing headquarters in Latin America, mainly because they are the two largest markets in the region. Each nation’s capital is home to more than 20 million residents, making them highly attractive options for new entrants. The two countries also generate more than 60% of the entire region’s GDP.
Latin America market with its Spanish language, Mexico is particularly favored by those who want to expand quickly through the whole continent. It’s also much closer to the United States, with big cities on the border or near it, like Tijuana and Monterrey. This proximity makes it cheap and simple to visit your new operations on the same day.
Countless US companies operate within the Latin American business ecosystem, with suppliers and customers often located in North America. Moreover, local executives are a typically comfortable discussing business in English and the region has a thriving outsourcing industry that delivers low-cost services to US customers. With more businesses upgrading their enterprise software to a SaaS model, nearshore outsourcing is on the rise for these services, particularly as implementations can be done remotely with consultants only traveling for key meetings.
Since COVID-19, hybrid workforce models have been proliferating rapidly around the world, including Latin America. More and more employees are working from home and only traveling to the office when needed. This hybrid approach has led several technology companies to open operations in Mexico with two strategies in mind: using the country as the port of entry into Latin America and expanding their workforce that delivers services to North America.
2. Expansion to LATAM: Market Entry Options
Once companies have established where they want to enter the market to set up a temporary or permanent operation, the next question is what is the best option?
The bad news? There’s no short answer, as each company would benefit from a different entry strategy that suits its unique plans. The good news, however, is small companies can now expand just as rapidly as large companies. Plus, they can scale as much or as little as necessary thanks to the flexible frameworks that are now available.
Microsoft Geo Expansion Services the recent Microsoft Partner Geo Expansion to LATAM Whitepaper covers these topics in detail, including potential opportunities by country. It’s available for download on the Microsoft Partner Portal (or follow the links at the end of this post).
Here’s a summary of the section of entry methods that are covered in the document.
2.1 Fly-In, Fly-Out Method
It can be beneficial to travel there first, meet customers, and do some reconnaissance to determine whether your solution is a good fit. From there, you can adjust your offering, start building a network, and then make a final decision on where to set things up.
While this is a low-cost option and works well, most face-to-face meetings are not possible in the current climate. It’s also a medium-risk option as locals would be unlikely to do business with you if you can’t demonstrate some level of presence in their region, such as local contacts or mutual network connections.
2.2 Relocation and Incorporation
As the most high-risk, high-cost method, relocation, and incorporation require a deep understanding of the target market, its legislation for incorporating, and the complex tax and labor laws in each country, which is extremely difficult when going it alone.
If relocating employees, there are several considerations like the cost of backfilling each person’s position at home, the process of acquiring visas, the risk of employees being unable to adapt, the slow start when it comes to business development, and the steep learning curve of operating in a foreign country.
2.3 Incorporate and Hire Locally
Hiring locally is high risk if you don’t have a local that can help you with your vetting process but it’s cheaper than relocating employees and helps to avoid the executive learning curve.
While rewarding in the long term, incorporating and hiring locally can be extremely complex at first, with country-specific tax and labor laws and overly-bureaucratic processes getting in the way of a smooth entry. Again, local partners are essential for simplifying this process, as some let you start your business development and hiring processes while your legal entity is still being established. They also provide shared services for administrative tasks, eliminating the need to hire new staff in that area.
2.4 Prove the Market
Perhaps the lowest-risk approach to geo expansion to LATAM is simply testing the market to formulate a strategy and then pivoting until it makes sense to enter. Proving the market allows companies to find a few customers and work out how to serve them with the potential revenue they bring in.
If a lack of communication and local presence is causing problems, it’s recommended to work with a specialized business development agency that can support your sales efforts and use their established network for building business relationships quickly. They can also help you lower the learning curve on potential competitors and correctly adjust pricing and perks for your solutions.
This option gives unknown brands an immediate platform and presence to find business and start a delivery operation while considering full incorporation later down the line.
Once set up, companies will then need to market their brand locally to attract talent and establish strategic partners in the region.
2.5 Go to Market Through Channel Partners
At last count there were more than 50,000 active Microsoft Partners in Latin America, so ISVs and VARs can benefit from connecting with a network of channel partners in their target market.
With their pre-established businesses, you can lean on them to navigate the local culture and language, leverage their local reputation, learn from their market understanding, tap into their existing customer base, and mutually benefit from their success with your product or service.
This type of approach is not recommended if you want to start right away, as the local firm that you are partnering with might be a potential competitor. It’s essential first to develop trust and perform the right due diligence since both brands will be connected while the partnership is in place.
Conclusion of Expansion to LATAM
Latin America is ripe with opportunities for ISVs and VARs, and Microsoft is helping unlock those opportunities with its geo-expansion services and network of specialized agencies. As with most emerging markets, the region has customers with unmet needs due to a lack of local expertise, which represents valuable opportunities for specialized Partners.
These types of expansion programs shine a light on the variety of options that are being used today in the IT Industry that offer complete flexibility, much like Subsidiary as a Service.
- If you are a Microsoft Partner and want to know more about Microsoft Partner Geo Expansion Services, you can access the Partner Portal or contact your Microsoft Partner Development Manager.