John Price
Managing Director
AMI
At AMI, we’ve spent decades advising companies on strategic planning in Latin America, learning from countless engagements across diverse industries. A key observation is the frequent misuse of the term “strategic planning,” which many confuse with annual planning. Strategic planning goes beyond resource allocation and internal politics, demanding a clear, objective strategy that acknowledges external market forces, risks, and opportunities.
#1 Forgetting the “Strategy” in Strategic Planning
Strategic planning begins by answering two fundamental questions: Where and what do you want to be? Unlike operational plans rooted in assumptions, strategic planning involves forming a theory to be tested. This approach requires an external approach, addressing customer needs, the competition and the investment environment (regulations, economic conditions) all of which are outside of your company’s control and comfort zone.
Southwest Airlines provides a classic example of this approach. Unlike legacy carriers focused on incremental growth, Southwest identified an underserved market: travelers priced out of flying who relied on bus transport. By targeting this group with low fares, a non-hub network and no-frills services, they radically disrupted the US airline market.
#2 Focusing on Demand, Not Competition
A common error in strategic planning is spending resources to study the size of the market before even determining if you can compete in a market or what realistically is an addressable market for you to size. Before assessing potential demand, businesses must evaluate their ability to penetrate a new market or segment and compete effectively. High-growth markets, even if small, often present underserved customers open to new entrants. In contrast, mature, slow-growing markets tend to have over-serviced, loyal customers, making penetration difficult. Thus, market demand growth can be more important than market size.
Key metrics to evaluate include:
- Competitor pricing: Understand not only direct competitors but also those indirectly serving your market.
- Market consolidation: Highly consolidated markets often benefit entrenched players through regulatory advantages or nepotism, as seen in Mexico.
- Competitor cost structure: Assess whether competitors can lower their prices aggressively once you decide to compete.
For example, during a recession in Mexico, a leading cereal manufacturer slashed prices by 40% to leverage its cost advantage. Their market share skyrocketed, pushing smaller competitors out of the market. For surviving mid-size players to compete, they had to join the price war, but to do so needed to understand the cost structure of the market leader to see how long they could sustain such deep discounts.
#3 Not Considering All Types of Competition
Many businesses overlook less conventional forms of competition in Latin America, such as:
- Gray and black markets: In Peru, 70% of the running shoe market operates in the gray market.
- Copycat disruptors: Local entrepreneurs often replicate international business models, filling gaps in smaller markets.
- Vertical integrators: Companies like Mercado Libre invest in their own logistical capabilities, challenging traditional logistics providers who served Mercado Libre as a customer.
- Parallel competitors: Products like wooden construction materials often face indirect competition from alternative building methods like cement and rebar.
A broader, imaginative view of competition is crucial to strategic planning.
#4 Ignoring Economic Cycles
Latin America’s economies are often cyclical. Understanding these cycles is critical for timing market entry, though modern institutions have moderated volatility.
- Shock phase (e.g., commodity collapse or political upheaval).
- Adjustment phase with austerity measures.
- Export-led recovery driven by devalued currencies.
- Capital inflows spurring investment growth.
- Consumer-driven growth and eventual economic overheating.
Strategic timing based on economic cycles—from downturns to periods of strong consumption growth—can significantly impact success. For example, during Argentina’s recent political shift, export sectors like beef thrived due to currency devaluation, while domestic consumption faced challenges. Companies must decide whether to enter early in recovery phases or wait for consumer-driven growth, depending on their products and services.
#5 Prioritizing Market Coverage Over Penetration
Many firms overextend themselves by pursuing coverage across Latin America’s numerous markets, often failing to profit from smaller operations. Instead, focusing on deeper penetration within larger markets can yield better returns. For instance, Brazil has 49 cities with populations exceeding 500,000, offering untapped opportunities before venturing into smaller territories like Paraguay or Ecuador. Companies enamored with broad geographic reach risk spreading themselves too thin.
#6 Focusing on Growth While Overlooking Risk
Strategic planning tends to prioritize opportunities over risks. However, ignoring factors such as intellectual property theft, corruption, or organized crime can lead to significant losses. Levi’s, for example, faced widespread counterfeiting in Brazil, eroding brand value. Similarly, some pharmaceutical companies avoid public healthcare systems in corruption-prone markets.
Mergers and acquisitions present another overlooked risk. Family-run businesses often resist cultural changes brought by new ownership. Removing entrenched leadership can create resentment, leading to the emergence of competitors. Strategic planning must account for such scenarios, balancing the benefits of acquisitions with the risks of cultural clashes and talent loss.
#7 Failing to Ask Those Who Tried Before You
Strategic initiatives often resurface after being attempted unsuccessfully years prior. Institutional memory fades as personnel change, leading to repeated mistakes. To avoid this, companies should consult former employees or competitors with prior experience in similar initiatives. Tools like LinkedIn can facilitate outreach to gather invaluable insights.
#8 Underestimating the Time and Cost of Strategic Planning
Latin America’s information scarcity makes strategic planning more resource-intensive than in markets like the U.S. or Europe. Companies must rely on primary research rather than readily available reports. Additionally, Latin American operations often lack dedicated planning teams, forcing senior executives to juggle strategic tasks with their core responsibilities.
Simplifying strategic plans, outsourcing labor-intensive components, and negotiating achievable expectations with headquarters are essential steps to address these challenges. For example, consolidating efforts on key priorities rather than spreading resources thinly across multiple markets can yield better outcomes.
#9 Insisting on a Top-Down Approach Without Consensus
Top-down planning often falters due to a lack of buy-in from local teams. Successful strategic initiatives require multidisciplinary collaboration and alignment with country managers, who typically prioritize their P&L over disruptive plans. Building consensus through inclusive workshops can mitigate resistance and foster commitment.
In one case, a client engaged AMI to facilitate a two-day workshop involving regional and local teams. Participants evaluated potential business ideas, collectively ranked them, and volunteered for execution roles. This process ensured alignment and enthusiasm, resulting in smoother implementation compared to prior top-down directives.
Next Steps
Strategic planning in Latin America is fraught with pitfalls, but avoiding these nine blunders can dramatically improve execution and results. Success depends on embracing externalities, considering diverse competitive landscapes, and fostering collaborative, realistic strategies tailored to the region’s unique dynamics.
Contact Americas Market Intelligence to obtain bespoke and strategic insights from the markets that you want to further penetrate or enter in Latin America. We are veteran market intelligence professional
