Whether you seek a sales rep, distributor, supplier, JV partner or acquisition target, the same common sense best practices hold true, and yet, so often companies rush into business partnerships in a hasteful fashion, jeopardizing their future results. To help companies ready their approach to partnering, we’ve prepared this list of questions and answers on how to find, evaluate and select the best partner in the LatAm region.
What are some of the initial barriers when searching for a partner in Latin America?
Companies typically run into a few major blind spots:
- They don’t know the local legal system, or key local regulations
- They don’t know who the top local players are, much less the reputation and background of each
- They are unaware of the industry structure and the layers of intermediaries
- They rush the partner selection process, trying to squeeze it into a couple of trips to the market
Another key barrier is falsely placed trust. Companies are often introduced to a prospective partner by a trusted 3rd party, such as a law firm or an embassy. They then forgo the essential step of a thorough background check on the company and its principals. That can lead to problems down the road.
Can a company also make a partner selection mistake in Latin America by placing too much weight on first impressions?
Absolutely. For example, a company representative may meet a potential partner company whose owner speaks excellent English, is quite charming and knowledgeable—but discover later that the rest of the staff working under that impressive figurehead are far less professional, the very people upon whom your business partnership will rely.
What other major up-front challenge do companies face with partner selection in Latin America?
One would be the lack of information about privately-held companies. More often than not, companies expanding into Latin America will not be partnering with a publicly traded company, but rather with a privately held firm. Corporate databases like Dunn & Bradstreet cover only a narrow layer of the largest publicly traded and privately held firms in Latin America. To adequately profile private companies, you must conduct primary research (interview people).
What are some of the pitfalls of selecting the wrong business partner in Latin America?
Poorly chosen partner companies come up short in many ways:
- A lack of working capital and access to debt can limit their ability to grow sales
- Undertrained/inexperienced staff can lead to poor representation and positioning of your product
- An ill-reputed partner can damage your brand’s image in a market and will limit your product reach
- Without good government relations, your partner company will be stymied in their ability to sell to the government or obtain government approvals
How can picking the right partner in Latin America actually go wrong?
That can happen when companies don’t invest the time in the building of the relationship. In some cases, a senior executive will come down to Latin America from the home office and get along very well with the owner of the partner company. They’ll share meals, they’ll play golf, the executive will meet the family of the owner, and everything will be fine—with those two individuals.
Problems arise when a company doesn’t take the time to introduce the respective players on both sides who are involved in day-to-day operations: marketing, sales, the warehousing team, the import/customs team, etc. A partner may not send a team member up to the company’s main office to learn more about the company, for example. So none of these relationships are created, much less nurtured. Without the nurturing of these relationships between people handling the actual operations, when problems arise, they don’t get solved. Instead, they get kicked up to those two original people who started the relationship, and that’s a dysfunctional situation.
Aside from relationships, companies and partners often miss out on education. To properly market or sell a product requires a lot of time to understand a product’s technical aspects, its strengths, how it should be positioned. There is a learning process that the product distributor has to undergo. This requires hours and hours of training and discourse between the company and the distributors. Not investing enough in this process is going to lead to failures, sooner or later.
Why is it useful to outsource the process of researching and evaluating and choosing a business partner or distributor in Latin America?
It’s particularly useful at the early stages of partner selection, which is identifying all the potential candidates. The reason that oftentimes companies choose the wrong partner is because they’re only really considering one or two options that were recommended to them. They’re not considering all the options that are out there. If they’re working with a limited deck, this lowers the chances of them whittling it down to a few great finalists or one great option. In contrast, if a company looks at 30 possible partners, then they are probably going to find at least one good potential partner at the end of the process.
Most companies don’t have the bandwidth to do this…or they don’t have the knowledge to do it. They’re also operating in a new market with a new language, a new set of rules, new sources of information, new assumptions, new cultural norms, etc. And what people in Latin America are willing to reveal to a foreigner who is asking sensitive questions is going to be very different than the replies a foreign company would get when asking those same questions in a country like Germany, for instance.
So when you’re considering a partner company in Latin America, what should you focus on to determine whether you should pick one partner over another?
At AMI, when we do a partnering study, the first thing we do is identify traits that the client is looking for. For example, if our client is looking for a distributor, we’re looking at traits like company reputation, their size, their relevant experience working with similar products and how deep their talent pool is. A potential distributor’s owner could be impressive, but how impressive are the managers who are actually doing the work? How many years have they been in business? Do they work with the government? What is their reputation with the government? How diverse is their client base? Do they actually have national coverage if this is what the client requires? So we’ll go through a series of attributes with the client to identify their must-have requirements for the partner.
What are the typical steps that AMI takes in its partner research?
As we said, we start by determining the list of traits and giving them a score/weight. That list of traits is crucial and it’s what we use to score the finalists.
Based on the traits, we then cast a wide net to consider many different companies in our search. We consult top people in the industry, directories and other sources. We often reach 40-50 companies and then apply the hard filters based on the list of requirements established with the client. For example, if one requirement is at least US$50 million in annual sales, we apply it. The hard filters like these allow us to winnow down the list by half or more. We then apply soft filters—technical know-how, quality of personnel, etc. These filters are less quantifiable but still quite verifiable.
Applying soft filters can usually get us down to eight companies or so, at which point we delve into financials and other aspects, such as the relationships of potential partners with other companies they work with or compete against.
Has the client even met the partners at this stage?
Yes, usually they will meet potential partners when we have whittled down the number to single digits. At this point we set the meetings and accompany the client. Our role in these meetings is to pose the tough questions that are major concerns for the client. We avoid the client asking these questions to keep from tainting the relationship. We take notes through the process and go back to the original traits we established initially and use them to score each of the finalist partners under consideration.
What about background checks?
Background checks are time-consuming and costly. So we save them for the very end, once we are down to one or two finalists that check all the boxes for client requirements and that the client has met and has a good rapport with. That’s when we run the background check on a potential partner, looking for things like:
- A history of litigation
- A history of non-compliance with regulations or taxes
- How they treat employees
- How they treat the environment
And other important concerns.
After the partnership is formed, what are best practices to make sure the partnership remains successful?
It’s important to bring people together regularly — export and logistics on the client side, import, warehousing, and operations on the distributor side. Meeting face-to-face builds trust, helps communication, and makes it easier to resolve and prioritize problems. Companies should also have a third-party audit performance: survey the market to see their product’s reputation, speak with government buyers to check service quality, and ensure the distributor isn’t misrepresenting or mispricing their product. Overall, it’s about auditing to keep the distributor honest, and aligning so there’s no gap between the company’s thinking and theirs.
Next Steps
Contact us to explore further how we can help your company find the right partner in Latin America.
