Wharton Fellows
Latin America and Hispanic Markets

Why should managers be interested in Latin America? While Latin America accounts for only about 1.5 percent of the world's GDP, the region offers significant opportunities for growth, both in its domestic markets and through Hispanic segments in US markets. The US Hispanic market is a market of 42 million people, 13 percent of the population [versus 12 percent African-American], with estimates of purchasing power as high as $800 billion, and growing.

The Coming Trillion-Dollar Market

Wharton Fellow George Herrera, former President & CEO of the US Hispanic Chamber of Commerce, says youth and brand loyalty create a window of opportunity in US Hispanic markets. US companies have to move quickly to seize this opportunity. "Hispanics are very much brand loyal," said Herrera, who is now President and CEO of the Herrera-Cristina Group, Ltd., which provides consulting services on Hispanic markets to Fortune 500 firms. "If we are with you at the beginning, we stay with you."

The US Hispanic market also is very young, with an average age of just 25 years old, so brand-building initiatives today will have a long tail. "Three years ago when I visited Tulsa, Oklahoma, 60 percent of the kids enrolling in the first grade were Hispanic," Herrera said. Getting these youthful customers on board early thus becomes very important for companies seeking to tap into this growing market.

The impact is magnified further because of close connections with family back home. Of the 40 million Hispanics in the US, about half have family in Latin America. Successful brand building in the US can help carry companies into home markets, and vice versa.

Hispanic purchasing power is growing rapidly and is expected to top $1 trillion by 2007. The number of prosperous Hispanic households — those with incomes of at least $100,000 — rose 137 percent between 1990 and 2000. Hispanic businesses generate almost $300 billion in annual revenues. (For more statistics, see the US Hispanic Chamber of Commerce.)

Tapping the Market

How have companies been successful in reaching these markets? Among the successful approaches Herrera has identified:

  • Provide involvement: The Hispanic community, taking lessons from the African-American community, has been much more vocal in asking for "reciprocal relationships" with companies, Herrera said. "If we are spending dollars, we want to be part of the process," he said. "If I can buy it, I want to sell it." There has been pressure for greater investment in the community as well as more Hispanics in top leadership and governance of companies. This has led to the appointment of Hispanic members to boards of directors of major firms such as Ford, Coca-Cola, Marriott, Denny's, and Cendant, where Herrera was named a member of the board of directors in 2004, the first Hispanic appointed to that position.

  • Tap into core values: In addition to directly addressing the concerns of the community, there are certain values that resonate with Hispanic market segments, including family and education. "Hispanic markets also tend to be very conservative," Herrera said. "Companies need to be able to address these values."

  • Use different media: The Hispanic community relies more upon radio and magazines for information than the general population. It is important to use these channels.

Latin America Is Diverse, Volatile and Has High Potential

In addition to the opportunities in the US, Latin American markets also offer complex, yet growing, opportunities, said Wharton Professor Mauro F. Guillén. He said that to be successful, managers need to understand three key characteristics of the region. Latin America is:

  1. Diverse: "It is extremely difficult to talk about Latin America as if it were one place. Although there are some characteristics of these countries that put them in the same bucket — they are all former colonies, frontier countries (with many natural resources) that have a relatively common political history and relatively homogeneous culture — from an economic, business, and political point of view, it is hard to talk about Latin America as a region. Mexico has nothing to do with Argentina, Chile is different from Peru."

    Even the physical distances are great. "Mexico is really far away from Argentina — a 6- or 7-hour distance — like the Eastern US and Europe," he said. "From Los Angeles, it takes 7 hours to go to Japan and 7 hours to go to Argentina."

    Companies need to tailor their business strategies to different countries. For example, how a company secures financing will differ by country depending on their financial systems. Some countries have strong federal governments, while others require companies to negotiate with several regional governments. Some have very highly educated populations, offering a good pool of labor to choose from; while in other countries, it may be difficult to find good people to hire. "There is incredible diversity in the region," he said. "If you want to be effective in doing business, you have to understand the particularities of these different countries."

  2. Volatile: "It goes without saying that it is a highly volatile region," Guillén said. "This poses challenges for everyone — workers, citizens, companies. Some countries are more volatile than others. At one end of the spectrum, countries such as Ecuador and Venezuela are extremely unstable. At the other end, Mexico and Chile are more stable. It is important to understand that in general it is a very volatile region, but it is also important to understand that this volatility differs country by country." Countries do share a common pattern of cycles of boom and bust, although the timing may be different. "One generalization one can make about Latin America is that there are cycles, ups and downs — first interventionists promise a quick fix, then come free marketers, and they also fail."

  3. High potential: "There are huge opportunities," he said. "The region has been going through a lot of problems, but a region with 500 million people is a very large market." He points out, however, that the market today is far less than 500 million since much of the population lives in the countryside, which makes them inaccessible. Even in the cities, poverty is widespread. "It is a complicated picture, so it is not easy to generalize, but there are a lot of opportunities."

The Next India?

How is the potential of Latin America different from India? A big difference is that India was colonized by the British, which not only means that large segments of the population speak English, but its institutions are based on common law that is absent from most of Latin America. Latin America also is endowed with "amazing natural wealth," from oil and gas to forests and minerals, and some of the best agricultural land in the world.

Location works to Latin America's advantage. "A huge difference is location. With Latin America in the Western Hemisphere, it is close to the US." The relationship between the US and Latin America has been tainted by the drug trade and the instability of the region. "India, with all its shortcomings in the political system, has had quite a bit of stability." Although some companies are "nearsourcing" to Latin America, the region competes much more with China for low-cost manufacturing.

The many successful companies in Latin America have demonstrated the opportunities there. "The region has problems, but there are excellent companies across the region — from high-tech to low-tech, from agricultural to services — which is why I remain optimistic," Guillén said.

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