Navigating the Latin American distribution systems is equally complex. The retail market is estimated to reach $1 trillion by 2010 and the channel structure is changing constantly on the way. Currently, the informal economy remains the most important channel for the distribution of goods to customers. For example, 50% of all FMCG brands move through this channel and this is largely to do with Latin American Governments abject failure to streamline formal business regulations many of which are so opaque and complex that they provide a platform for corruption which in turn compounds the problem. Catch 22. A typical business in Sao Paulo reports 7 different taxes four times a year. Despite the economic boom 93% of all jobs created are in the informal sector. [i]

 


[i] Treewater. Logistics Today. (September 2007)

The informal market does not lend itself to a one size fits all distribution system. On the one hand, we have the issues raised by crowded urban environments and, on the other, the issue of access to highly dispersed and remote rural communities. The cost of reaching each consumer varies greatly and this is where the field marketing and neighbourhood based sales initiatives covered above can be so successful.  

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The Japanese market imports a high percentage of textiles. Consider the competition between competition for Japanese markets of the textile industries of Malaysia and Vietnam. Vietnam had a distinct cost advantage over Malaysia at the production stage but this was lost when logistics is considered. Vietnam lacked a deep water port – a fact that had a significant role to play in US military operations during the ill fated Vietnam War – and this inflated their costs to reach the Japanese market. Malaysia had sophisticated port facilities in place in Singapore even before they developed their own.

In Peru, with over 250,000 mom and pop stores to cover, Coca Cola partners their bottling partner, the Lindley Group. Recently, a local discount competitor was cutting price dramatically and this put Coca Colas costs under close scrutiny. The Lindley Group outsourced its entire distribution function to 70 wholesalers with their lower cost base and a detailed understanding of micro market conditions. This move required close supervision, significant investment in IT applications and continuous training and support. For example, Lindley defined the sales routes, coached sales management techniques and assisted in the use of technology.

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