John Price
Managing Director
AMI
Size matters… market size that is, when building a business plan. Exact market sizing is an elusive target, but a plausible estimate is important to avoid missing the mark and either under investing or overinvesting in a market penetration exercise or an acquisition. In some product categories, like running shoes for instance, the informal or grey market may account for 80% market share (such is the case in Peru and Paraguay). If you ignore the informal market, you are limiting your addressable market. If you include it, you may be deluding yourself as to your obtainable market. The grey market channel is just one of the many complications facing those who try to size their market in Latin America.
Unlike data-rich environments like the United States, Europe, or Japan, Latin American markets often require a more customized, research-intensive, and mixed-method approach to market sizing.
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Why Traditional Market Sizing Methods Fall Short in Latin America
In developed countries, market sizing is often a relatively straightforward exercise. Abundant, reliable, and granular data is available from government agencies, industry associations, financial disclosures, and third-party market research firms. In contrast, Latin America’s emerging economies are characterized by:
- Inconsistent data quality and availability
- Large informal sectors
- Fragmented consumer markets
- Currency volatility and inflation
- Regional disparities within countries
These characteristics require that market sizing efforts in Latin America rely on a hybrid approach that combines both secondary data analysis and primary research — often conducted through interviews, surveys, or observational techniques. Businesses that fail to adapt their methodologies to these realities risk basing strategic decisions on flawed or incomplete information. For instance, a U.S. home improvement retailer entering Mexico miscalculated market size by relying too heavily on housing data from government sources, underestimating the scale of informal home construction that dominates rural areas.
Define the Market Clearly
The starting point of any market sizing exercise is to precisely define the market in question. This means clarifying:
- Product or service boundaries: What exactly are you measuring — a general category (e.g., private healthcare), a sub-segment (e.g., high-end private clinics), or a delivery model (e.g., telemedicine)?
- Target customer: Who are you selling to — businesses, governments, or consumers? Within consumer segments, are you focusing on income groups, regions, or digital adoption levels?
- Geography: Are you looking at national markets, metropolitan zones, or rural territories?
- Channel: Are you including informal markets, online sales, or direct-to-consumer models?
Failing to define the market narrowly and specifically often leads to overestimating potential and underestimating entry barriers. Market definition also influences what data is relevant and how it should be interpreted, making this step foundational to any subsequent analysis. A fintech company targeting digital wallets in Brazil found success by narrowing its market definition to smartphone users in urban favelas with access to prepaid credit cards — a segment often missed by national statistics.
Understand the Total, Serviceable, and Obtainable Market
It is helpful to think in terms of three concentric layers of opportunity:
- Total Addressable Market (TAM): The absolute maximum demand for your product or service if there were no constraints.
- Serviceable Addressable Market (SAM): The portion of TAM you can realistically serve based on your distribution, brand, compliance, and market conditions.
- Serviceable Obtainable Market (SOM): The slice of SAM you can capture within a given time frame, based on competition, pricing, and internal capacity.
In Latin America, TAM often includes large informal or underdeveloped sectors. For many companies, the SAM or SOM is more relevant and actionable. An accurate SOM helps in resource planning, investment justification, and defining KPIs. For example, an Argentine meal delivery platform initially targeted all urban households but refined its SOM to digitally connected consumers in neighborhoods with sufficient density for viable delivery routes.
Leverage Secondary Data, But With Caution
Latin American national statistical agencies such as INEGI (Mexico), IBGE (Brazil), and DANE (Colombia) provide useful data, but often lack the granularity or consistency of developed nations. Additional sources include:
- International organizations: World Bank, IMF, ECLAC, UN Comtrade – comprehensive across all countries but often 1-3 years old. Their data is macro in scope when you usually require something more micro in focus.
- Trade associations: Most industries have a local industry association but they very dramatically in resources and professionalism and rarely match the data driven approach of trade associations in Europe.
- Public company reports: Competitors or regional leaders may disclose revenue breakdowns but only the largest publicly traded companies are monitored by investment banks and other external analysts who publish useful market analysis.
- Global databases: Euromonitor, Statista, MarketLine — useful, but often generalized or outdated
While these sources provide a starting point, triangulation is essential. Relying solely on a single source can lead to misleading conclusions. The best practice is to compare data from at least three sources and explore discrepancies through further investigation. A Canadian mining company exploring opportunities in Peru cross-validated Ministry of Energy and Mines data with regional export statistics and field interviews to better estimate production and local demand.
Conduct Primary Research to Fill the Gaps
Because of the limitations in secondary data, primary research becomes a core pillar of any Latin American market sizing effort. This may include:
- Stakeholder interviews: Local distributors, retailers, regulators, and industry insiders can validate assumptions and provide nuanced context.
- Surveys: Online or phone surveys can help estimate demand, brand awareness, and pricing tolerance from the end-consumer’s perspective
- Mystery shopping and fieldwork: Visiting retail locations or distribution centers offers firsthand insights into pricing, inventory, and consumer behavior. Engaging salesmen in conversations can also lead to insights related to market share and demand growth.
- Channel analysis: In B2B settings, understanding procurement chains, budgets, and tender patterns is critical.
Primary research can also reveal non-quantitative insights such as brand perceptions, trust issues, or logistical bottlenecks that may not appear in any database. A Chilean telecom firm entering Bolivia conducted on-the-ground surveys and found that low broadband adoption in smaller cities was due not to lack of interest but to inconsistent electricity supply and weak last-mile infrastructure.
Factor in Informality and Regional Fragmentation
Many Latin American markets contain large informal sectors, particularly in retail, food service, housing, agriculture, transportation and even finance. Ignoring these sectors can lead to significant underestimation of actual demand. However, targeting the informal sector also presents unique challenges, including:
- Lack of regulatory compliance
- Poor creditworthiness or digital access
- Distribution and enforcement challenges
In parallel, regional disparities must be considered. Urban centers such as São Paulo, Buenos Aires, Mexico City, or Bogotá often dominate market demand, while rural areas may behave entirely differently. Disaggregating data by state, city, or metro zone is often necessary. In many cases, 70% of market potential might be concentrated in 20% of geographic territory. A Colombian consumer goods company expanded nationally but saw its highest ROI from regional hubs like Medellín and Cali, prompting a shift in logistics and promotional strategies.
Use Proxy Metrics and Benchmarks
Where hard data is missing, proxy metrics are valuable. For example:
- Use household consumption data as a proxy for consumer goods demand.
- Use cell phone penetration to estimate digital service markets.
- Use number of businesses or formal employment to estimate B2B market potential.
Also, study analog markets — for example, if no data exists on organic food sales in Colombia, look at the segment’s growth in Chile or Mexico, adjusting for population and income. Benchmarking against better-documented countries allows businesses to make more informed assumptions. A Panamanian logistics startup used Argentina’s ecommerce logistics benchmarks to anticipate warehouse demand and delivery expectations, adjusting for scale and infrastructure.
The shifting commercial and industrial real-estate markets in Latin America
A conversation with Juan Gallardo, EVP, Latin America, Colliers
Build Scenario-Based Models
Uncertainty is a constant in Latin America — from policy swings to currency volatility. For this reason, scenario modeling is often more realistic than point forecasts. Companies should model:
- Base case: Conservative assumptions, verified data
- Upside case: Regulatory improvements, formalization, tech adoption
- Downside case: Currency devaluation, inflation, political instability
Scenario-based planning allows firms to prepare contingency strategies and adjust resource allocation dynamically as market conditions evolve. A Mexican automotive supplier modeled scenarios around NAFTA renegotiation and was able to shift production temporarily to Guatemala when tariffs were threatened.
Validate with Competitor Case Studies
Studying how local or international competitors have entered and scaled in a given market is invaluable. Look for:
- Store counts and city presence
- Revenue disclosures or market share claims
- Marketing and pricing strategies
- Partnerships or acquisitions
These case studies can often reveal hidden constraints (like limited logistics infrastructure) or growth accelerators (such as a regulatory loophole or subsidy). Companies can learn not only what works but what pitfalls to avoid. For instance, a Spanish retail chain failed to scale in Brazil due to over-centralization, while local competitors thrived by adapting merchandising to regional tastes.
Local Context Is Everything
Finally, never forget that Latin American markets are deeply shaped by cultural, regulatory, and institutional factors. These include:
- Consumer distrust of institutions or digital tools
- Strong brand loyalty to legacy players
- Burdensome bureaucracy for new entrants
- Credit access disparities
- Inertia among local distributors
Any market sizing effort that ignores these dynamics risks being purely theoretical. Local context must inform not just the numbers, but how those numbers are interpreted and acted upon. Embedding local expertise into the analysis team is not a luxury — it is a necessity. A global insurance firm struggled to sell life policies in Peru until it partnered with local microfinance networks to build trust with lower-income consumers.
Sizing markets in Latin America appears to be more art than science — but in fact, it’s a discipline that can be mastered. The key lies in balancing top-down macro analysis with bottom-up local intelligence, continuously validating with real-world insight, and embracing uncertainty as a planning parameter rather than a constraint.
Next Steps
There’s a lot to factor into sizing your market in Latin America. Companies often seek to internalize market sizing—only to run into the roadblocks we described above. If you marshal resources around a plan based upon market sizing inaccuracies, you run the risk of wasting capital and credibility.
Contact us when you need to size a market in Latin America. Our 30+ years of experience—driven by over 4,000 studies in a dozen industry sectors—can help you get to the objective and accurate market sizing you need to make intelligent market investment decisions
