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John Price, Managing Director of AMI, presents the most relevant business, economic and political trends shaping Latin America over the next four years. The meteoric rise in Chinese influence in the region, the looming threat of falling commodity prices, the shift in North-South energy trade, the pace of reform, improving income disparity and the expansion of the base of the pyramid consumer.
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Latin America
MiamiNovember, 2012
The immediateThe longer termOpportunities
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Legal notice
Wherever possible, AMI has verified the accuracy of information provided by third parties, but does not under any circumstances accept responsibility for such inaccuracies should they remain unverified.
It is expected that the reader will use the information provided in this report in conjunction with other information and with sound management practices. AMI therefore will not assume responsibility for commercial loss due to business decisions made based on the use or non-use of the information provided.
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Your Presenter
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What we do…
Customer• Market
Research
Competitor• Competitive
Intelligence
Climate• Economic
analysis• Political risk
analysis
bespokeMarket Intelligence
that answers strategic questions
• Should we enter the market?
• How do we compete against the dominate local player?
• What do local customers expect from their supplier?
• In which market will we gain the most growth in 2013?
• Should we buy or greenfield?
• Who is the best local firm with whom to partner?
• Do we face regulatory risk?
• If the opposition wins, will they support our investment?
• What products will our competition launch next year?
• What is the optimal product mix to serve our target market?
in Latin America
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Eight strong industry practices
Financial Services• 160 LatAm projects since 1994• Consumer & corporate cards, pre-paid cards, insurance,
banking, consumer loans, trade finance, more..
Retail & CPG• 170 LatAm projects since 1992• Food, beverage, snacks, appliances, beauty products,
toys, entertainment
Healthcare• 80 LatAm projects since 1993• Pharmaceuticals, supplements, vaccines, medical
equipment, devices, hospital services, health policy, more…
Telco, IT, Media• 70 LatAm projects since 1993• Telco – wireless, ISP, services, equipment; IT – computers &
accessories, ERP, AMT; Media – gaming, pictures, print, TV, radio, signage
Industrial• 105 LatAm projects since 1994• Transportation, manufacturing, chemicals,
metals, plastics, paper, packaging, safetyNatural Resources• 90 LatAm projects since 1992• Mining – exploration, equipment; Energy – oil & gas,
alternatives, petrochemicals; Agriculture – commodities, fertilizers, technology
Automotive• 110 LatAm projects since 1993• Cars, trucks, buses, OEM parts,
aftermarket, service, finance
Logistics• 75 LatAm projects since 1993• 3PL, air cargo, FTL, LTL, rail, ocean, warehousing,
distribution, equipment, software
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AMI enjoys a global partnership with the GIA, the world’s largest network of market intelligence companies
• GIA Group embodies 24 offices globally, of which AMI operates Mexico and Miami.
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The Immediate (2013)
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Exogenous Forces – trending positive
USA+ manufacturing+/- Energy sector? Fiscal cliff
Europe+ ECB ? Merkel
China+ Migration+ New political cycle ? Economic shift
Syria & Iran+/- Oil shock- Financial instability
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Spheres of Economic Influence – China predominates
USA- Mexican manufacture
exports- Mexico bound FDI- Central American,
Caribbean and Mexican remittances
- Central American manufacture exports
- Caribbean tourism- Caribbean banking- Andean bound FDI- Andean product exports
China- Food imports from
Brazil, Argentina, Paraguay, Uruguay
- Metals imports from Peru, Chile, Bolivia, Brazil
- Energy imports from Venezuela, Peru, Colombia
- Mining investment in Ecuador, Peru, Bolivia, Venezuela
- Infrastructure investment in Panama, Caribbean, Central America, Peru, Ecuador, Venezuela, Brazil
- Bi-lateral loans in most markets
Europe- Caribbean tourism- Caribbean private
banking- Caribbean exports- South American
commercial and institutional lending
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Consumption Growth (%) X-change rate (2010 = 100)
2011 2012 2013 2011 2012 2013Brazil 4.8 3.5 5.1 100 83.0 80.5Mexico 4.5 3.8 3.7 100 93.7 96.5Argentina 9.5 4.3 3.5 100 93.2 84.0Colombia 6.6 4.6 5.3 100 102.7 102.3Venezuela 4.0 7.5 1.0 100 100.0 74.1Chile 8.8 5.9 5.9 100 99.0 98.0Peru 6.4 5.9 5.6 100 104.2 106.6Ecuador 5.8 4.4 3.1 100 100.0 100.0
Country Forecasts – a predictable tale of the usual suspects
Regional growth will increase from 3.1% to 4.0%- Commodity prices are rebounding- Credit is loosening
2013 versus2012
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US Elections – Latin America still won’t matter come Nov 7th
Possible overhaul of immigration including amnesty to illegals, might expand H1B
Immigration
Lessen enforcement of employers, possibly expand temporary worker plan, expand H1B
Record levels (due to sharing databases) helps justify amnesty
Deportation
Likely to continue because of lack of amnesty
Latecomer to the political benefits of trade. Would support symbolic new trade agreements if politically convenient.
Trade Wants to sign more free trade agreements in LatAm, Brazil especially
Gun shy on further liberalizing of relations with Cuba after Castro snub. Continue non-intervention with Venezuela.
SanctionsWants to reverse Obama’s easing of Cuba embargo. Strong rhetoric against Chavez – possible sanctions?
Likely shrink as a result of other priorities. Aid Likely shrink as a result of budget cuts.
Cited as a priority but not acted upon as such. Drug trade to US is in decline on its own.
DrugsMay push for “Plan Mexico”. Strengthen DEA enforcement efforts. Deepen investigation in Venezuela.
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The Longer Term (Societal Trends)
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Latin America is entering an optimal demographic phase
Source – www.investmentu.com
GLOBAL RANK COUNTRY MEDIAN AGE33 Cuba 38.448 Uruguay 33.656 Chile 32.161 Argentina 30.571 Brazil 29.378 Colombia 28.082 Mexico 27.185 Peru 26.286 Dom Rep 26.186 Venezuela 26.187 Ecuador 25.794 El Salvador 24.395 Jamaica 24.2
103 Bolivia 22.5114 Guatemala 20.0
LatAm’s 40 year demographic window
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Modernizing LatAm Household structure the age of segmentation has arrived
CAGRPercentage Growth of
market share1990-2010
Source: ECLAC
Often brutal economic reforms in the 1990’s eroded the real incomes of middle and working class segments, forcing both parents to work. Modernizing ways encouraged SES A, B, C+ women to hold onto their careers.
Latin America’s fastest growing segment is elderly living without children
Emigration and divorce have created more single mothers
Non Family14.5%
Nuclear Family61.6%
Other Family Types23.9%
Two Parents with Kids42.0%
Extended Family21.7%
Dual Income19.8%
Unw
ed, S
tude
nts
Frie
nds
5.0%
Single Income22.2%
Livi
ng A
lone
9.5%
Sing
le In
com
e4.
7%
Dual
Inco
me
3.4%
Coup
le, n
o ki
ds8.
1%
Sing
le P
aren
t (F
emal
e) 9
.9%
Sing
le P
aren
t(M
ale)
1.5
%
Com
posi
te F
amily
2.2%
Wor
king
Mot
her
6.3%
Une
mpl
oyed
M
othe
r 3.
6%
100%
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Credit will continue to expand but at a slower rate
USD
Billio
ns
CAGR = 21%
CAGR = 7%
Source - EIU
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The emergence of a new viable market2015 Analysis using 2005 constant USD prices
Based upon WRI and EIU figures and AMI Analysis
ABC1 = HH income of over $20k USD or $15k per year (constant 2005 prices)
Top of the Base of the Pyramid• 40.3 million homes• $417 bn total spend
ABC1• 34.4 million homes • $1,342 bn total
spend
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Crime & corruption will continue to plague the region
Sources – Transparency International, World Bank
City Murders /100,000
1 San Pedro Sula, Honduras
158
2 Ciudad Juarez, Mexico 1473 Maceio, Brazil 1354 Acapulco, Mexico 1275 Tegucigalpa, Honduras 996 Caracas, Venezuela 987 Torreon, Mexico 878 Chihuahua, Mexico 829 Durango, Mexico 79
10 Belem, Brazil 7821 New Orleans 6930 Detroit, USA 4831 Bagdad, Iraq 4843 St. Louis, USA 3544 Cape Town, South
Africa34
The World’s Deadliest Cities
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2009 2010 2011 2012 2013 2014 20150%
10%
20%
30%
40%
50%
60%
70%
80%
Cellphone ownership
Computers per capita
Latin Americans clamor to connect
Source - EIU
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Latin Americans are the greatest consumers of social media on earth and distrustful of traditional media
2010 2011 2012 2013 20140
50
100
150
200
250 Facebook subscribersLinear (Facebook subscribers)
mill
ions
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Older & Wiser
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1990 versus 2020
1990 household
•5.3 pph•Ages 30-40 fastest growing•US$2,720 GDP per capita •3% car ownership•<3% have credit cards•Shrinking middle class•Economic crisis•Conform to tradition•Fitting in (collective)•Undemanding consumers•Cost conscious•Traditional media, Predictable opinions
2020 household
•3.3 pph•Age 60+ fastest growing•US$15,390 GDP per capita•21% car ownership•>25% have credit cards•Expanding middle class•Social crisis•Seek pleasure•Gaining power (individual)•Very demanding customer•Value & convenience driven•Social media, unpredictable
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Opportunities - How to win tomorrow’s Latin American customers
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Utilize Modern Segmentation Techniques
GeographyIncomeAgeGender
Traditional Segmentation
IncomePsychographics Lifestyle Values Interests & Hobbies Loyalty Purchase Timing Usage levelGeodemographics
Modern Consumer Segmentation
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Build value, service & convenience and they will come
Demanding Consumer
Choice
Time
Credit
Empowerment
Best value, not lowest price
Solve my problems
Treat me as an individual
Inform me now
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Introduce a wider spectrum of products
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2
3
4
5
6
7
8
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Luxury
Mid-price
Old thinking: Introduce (dump) three products into the LatAm market
New thinking: Introduce multiple
niche products
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Embrace testimonial marketing via social media
• Our product is great• You’ll love our product or your
money back• Recall our brand, recall our brand,
recall ….• Traditional advertising• Unsubtle PR techniques (journalists
for sale)• No objective 3rd party opinion in
sight• Metrics: Eyeballs, awareness• Research methods: surveys
• Did I tell you I test-drove the new Harley-Davidson?– What did you think of it?– Loved it. You should try it.– 54 of your friends liked it, 6
disliked it• Don’t take our word for it, ask your
friends• Convince credible opinions to try your
product• Metrics: brand emotion, usage,
recommendations• Research methods: Observational
research
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Leverage Latin America as a Base of the Pyramid Laboratory
Why start your global Base of the Pyramid strategy in Latin America?• Middle income• Distribution systems • Communication• Homogeneity• Free trade