Latin America sizzles

Multinationals and agencies are setting their sights on the booming economies of countries including Brazil, Argentina, and Colombia, but care must be taken to maneuver through local marketplace challenges.

Latin America sizzles

Multinationals and agencies are setting their sights on the booming economies of countries including Brazil and Colombia, but care must be taken to maneuver through local marketplace challenges.

“In the past, Latin America was considered a tertiary market. Now not a week goes by that I don't get calls from clients and prospects asking for budgets and proposals for Latin America,” says Laura Schoen, chairman, Latin America for Weber Shandwick. “An almost forgotten region is now one of the hottest places in the world to do business.” 

In September 2011, Weber Shandwick acquired a majority interest in S2Publicom, a 125-person agency in Brazil with multinational clients including Groupon and McDonald's and Brazilian clients such as Gol Airlines and Petrobras. Up until that point, Weber only had affiliate partnerships in South America, one of which was with S2Publicom. 

Schoen says the agency plans to make more acquisitions in the region. “We are shifting toward a model of more ownership because of the momentum that exists there.” 

According to the United Nations' Economic Commission for Latin America and the Caribbean (ECLAC), foreign direct investment into Latin America and the Caribbean reached a record of about $153 billion in 2011, accounting for 10% of total global foreign investment and up from $120 billion a year prior. 

Mecca for multinationals
By country, Brazil, Mexico, Chile, Colombia, Peru, and Argentina were the biggest beneficiaries and where economies have been growing at a brisk pace. With a saturated US market and ongoing economic struggles in Europe, the region has become a mecca for multinational corporations looking to grow their bottom lines.

Starbucks is planning to open more than 300 stores in Mexico and Argentina.
In 2010 Starbucks, for example, took full ownership of its business in Brazil where it plans to open several hundred stores over the next five years, and has targeted 300-plus new locations in Argentina and Mexico.

General Motors has also made substantial investments in the region, now the automaker's third-largest market behind China and the US, says Marcos Munhoz, Brazil VP and former general director of communications and public and government relations. “The market has grown substantially in recent years,” he says. While GM forecasts moderate growth this year, Munhoz “expects growth in 2013 on level with GDP of around 4% to 5%.”

So what is fueling the foreign investment? Thanks to strong economic growth, there is an emerging consumer segment throughout Latin America with greater purchasing power and access to credit.

The ECLAC report shows poverty fell in the region to 31.4% of the population in 2010, its lowest level in 20 years. The study cites favorable economic growth, higher wages, a decline in fertility rates, and improved social programs for a decline in poverty that affected nearly half (48.4%) of the population in 1990.

Geographic disparities exist, but as a region, companies can build their brands and corporate reputations among a massive new base of middle-class consumers that, according to the report, numbers 56 million.

“On the marcomms side, you have a lot of people buying their first refrigerator, washing machine, and cell phone and that will continue as this emerging consumer ramps up,” says Ramiro Prudencio, president and CEO of Burson-Marsteller Latin America.

“On the public affairs side, you now have people once worried about putting food on the table who are thinking about larger quality-of-life issues.

“That shift has seen them become more engaged in their civic life.”

The agency market in Latin America is a mix of multinational players and local firms and many report increased demand for client services across multiple disciplines. Llorente & Cuenca, a Madrid-based communications consultancy firm, previously generated most of its revenues from its Spain and Portugal operations.

However, in 2011 Latin America accounted for 60% of the company's $24.3 million in global revenues, a 23% increase versus the year prior. Llorente & Cuenca also made a number of key hires and promotions to strengthen its commitment to the market, including relocating one of its partners, Germán Pariente, from Madrid to Rio de Janeiro.

Substantial growth
At Burson, Prudencio says the Latin America operation continues to grow in the high double digits, but he explains that the newfound attention is a double-edged sword.

“On one hand, global companies are putting a lot of money into this part of the world, so we're finally able to access resources to do great work,” Prudencio adds. “On the other hand, regional CEOs or country managers for major multinationals are under huge pressure from global headquarters because suddenly their region is a major revenue and profit center,” he says.

That has created a war for agency talent to meet the demand for increased and sophisticated communication activity on a continent where many countries are at near-historic low-unemployment levels, particularly Brazil and Chile at 5.8% and 6.7%, respectively, in May.

In fact, agency leaders say salaries for senior positions command as much, or in some cases more than what a candidate might get in New York. Some leaders report recruiting South American expats, who left their home countries for graduate school and stayed in the US. Ciro Dias Reis, president of full-service PR agency Imagem Corporativa in São Paulo, says talent is “the biggest challenge” for his agency. To remain competitive, Dias Reis says his firm pays about 25% more for experienced new hires than three years ago.

The agency also has a number of employee incentive programs, such as a three-week exchange in which employees work with partner firms in countries including China, England, and Germany. “We also give bonuses for people who successfully land new clients and projects,” he adds.

Agencies, as well as corporate-side PR departments, are also starting to look for candidates with social media savvy. Industry estimates put Internet penetration in
Latin America at 45% and growing, and while the region's online audience is relatively young, it is nevertheless among the most active global users of social media.

Social network boom
According to analytics firm Socialbakers, South America has doubled its Facebook population to 121.5 million in the past 18 months. And comScore reports there are more than 27 million Twitter users in Latin America.Google and Facebook have recently established a presence in the region and Twitter has struck a deal with IMS, the largest media buyer in the region, to manage most of its Latin America sales.

The only exception is in Brazil, where the company plans to establish its own operation, says Maren Lau, head of international and corporate development for IMS. 

“We will be helping Twitter by bringing regional and local knowledge to inform strategy and by creating significant opportunities with potential advertisers in a short period of time,” says Lau.

These days several regions in Latin America offer significant opportunities for growth, but companies and agencies looking to make their mark must consider the benefits of these relatively untapped, healthy economies with the specific challenges presented by each country's regulatory and compliance issues. PRWeek takes a look at four hot spots in Latin America on the following pages.

Brazil: South America's leading light
As global communications director of Brazilian mining company Vale, Sergio Giacomo knows firsthand the incredible opportunities for PR pros in Brazil.

When he left Brazil in 1990, taking increasingly senior roles at agencies including Burson-Marsteller and Edelman in Paris and then at Shell International throughout Europe, Vale was still a relatively small scale, state-owned entity.

By 2010, the year Vale recruited Giacomo from Europe, The Economist had dubbed the company “the biggest firm you have never heard of.” Only in the last few years has it become Brazil's largest private-sector company and the world's second-largest mining company.

Still, an opportunity to become part of one of the world's most exciting new economies was what attracted Giacomo to the job. “South America of the 21st century is definitely not the same as the one the world used to know,” he says. “It is a dynamic, forward-looking region, developing innovative and positive ways to foster integration and playing an increasingly important role in the world's economy.”

That is no more apparent than in Brazil, Latin America's economic engine, which last year surpassed the UK as the sixth-largest economy in the world. By many projections, Brazil is expected to become the world's fourth-largest economy by 2030, behind China, the US, and India.

Growing middle-class market
According to the United Nations' Economic Commission for Latin America and the Caribbean, in the past decade Brazil has lifted more than 40 million residents – the equivalent of the population of California – out of poverty and into the middle class, with access to health, education, credit, and formal employment. By 2014, 20 million more are expected to ascend into the middle class.

No wonder “every board of directors at major Fortune 500 companies is demanding a Brazil strategy from senior management,” says Ramiro Prudencio, president and CEO of Burson-Marsteller Latin America. “We're seeing that demand much in the same way we used to see for a China strategy. And that is driving through organizations and into their different functions, including PR.”

PR events in Brazil helped drive the preregistration sales of the new Ford EcoSport.
Ford, for example, has outlined a long-term growth strategy through its investments in Argentina and, in particular, Brazil. This past July, the automaker made its new SUV, EcoSport, available first in Brazil, where the vehicle was designed and developed.

Burson's Brazil team was part of an integrated launch effort with other WPP agencies including JWT and Wunderman for the EcoSport, the first vehicle designed in Brazil for worldwide production and sale in 100 countries. The five-month national campaign built awareness around Ford's commitment to Brazil as a global business platform and featured events in five major cities. It included a concert by Carlinhos Brown, one of Brazil's most famous performing artists, attended by more than 100,000 people in Salvador, Bahia, the same state where the EcoSport was designed. In addition, a one-on-one soccer match was held between two of Brazil's top players who used the new EcoSport to dribble a jumbo soccer ball into large goals. The original target for pre-registration sales was 3,000, however Ford received 80,000 from Brazilian consumers.

McDonald's Brazil has put greater focus on PR to achieve more growth.
As part of its growth strategy, McDonald's in Brazil has increased the role of PR within its marketing function, says Flavia Vigio, VP, communications of  Arcos Dorados (Golden Arches), the largest operator of McDonald's restaurants in Latin America and the world's biggest McDonald's franchisee.

“The role of PR is critical to extending the impact and credibility of our advertising,” explains Vigio. “One of our challenges is to deliver positive and strong messages about company operations, quality of products and services, and involvement in the community, and to do that we want to create a confident [consumer] environment in which our advertising can resonate.”

To do that, Arcos Dorados has launched a number of customer-driven PR programs, including Champions of Food, which challenged parents and their children (aged seven to 12) to create and share recipes for a chance to win a trip to the 2012 Olympic Games. The campaign, promoted through PR by Weber Shandwick-owned S2Publicom in Brazil, included a partnership with chef Sergio Arno and outreach to journalists, bloggers, and their children.

Agency leaders in the Brazilian market tell PRWeek these types of integrated media campaigns are becoming more commonplace. Traditional media, the majority of which has no state ownership, has weathered the economic downturn much better than media in North America.

And while Internet penetration as a percentage of Brazil's population is not at the level of developed markets, the country still ranks as the seventh-largest Internet market globally, with a home and work computer audience of 46.3 million visitors aged 15 and older, according to comScore, up 16% from the previous year.

Brazil is also home to the most active social media users, says Roxana Strohmenger, an analyst at Forrester Research. “In developed markets, we dipped our toes in the shallow end of the Internet first before venturing in the deep end. But when consumers in Latin America go online, they exhibit these advanced online behaviors like tweeting and social media right away,” she explains. “They bypass the shallow end of the pool.”

Facebook recently surpassed Google's Orkut in December 2011, taking the lead as the top social networking destination in Brazil with 36.1 million visitors, up 192% from the previous year. And Twitter has more accounts in Brazil than any other country except for the US.

Global spotlight

Huge investment has been made in Brazil for the 2016 Olympics.
Moving forward, a lot of communications work on the agency and corporate side is expected to tie into high-profile events taking place in Brazil, including the 2014 FIFA World Cup and the Summer Olympic and Paralympic Games in Rio de Janeiro in 2016.

Paul Gennaro is SVP, chief communications officer for Aecom, the New York-based firm that won the contract to design the masterplan site for the 2016 Olympics. Gennaro says when a city wins a major sporting event that big, “you usually see a tremendous amount of investment that follows, in housing, transit, and other infrastructure needs” – and a corresponding rise in communications activity to gather stakeholder support for those plans.

Omnicom's In Press Porter Novelli (Brazil), for instance, recently retained several assignments, including strategic communications planning for the 2016 Olympics and the depollution of the Guanabara Bay funded by the World Bank.

These kind of assignments have required the firm to “hire a different kind of PR professional, one who is strategic, multidisciplinary, and has a very good knowledge of integrated communications,” says Cristina Moretti, president of In Press Porter Novelli. 

“We have had to change our agency structure dramatically,” she adds. “We now have on staff executives who are skilled in advertising, creative, anthropology, and statistics. Today you really need to offer clients a multidisciplinary team.” 

PR can help break down barriers to entry

"Expansion into Brazil can be difficult," says Dr. Shan Nair, CEO of Nair & Co.
As the adage goes, with challenge comes opportunity. And while a resilient economy and a rising middle class has made Latin America a ripe target for global expansion, there are aspects of the market that still make it difficult to penetrate, including a tricky regulatory and compliance environment.

This is particularly true in Brazil, the economic engine of the region. In a global ranking of countries from one to 183, with a ranking indicating a regulatory environment that is not conducive to the start and operation of a local firm, Brazil ranked a lowly 126 in 2011 by the International Finance Corporation. In comparison, Chile had the highest score of any country in South America at 41.

“Brazil may hold the most promise for profit, but it is also the most difficult country in South America to set up and conduct business,” says Dr. Shan Nair, co-founder and CEO of Nair & Co. His firm, which has offices across the globe, helps businesses expand into new geographic markets.

Companies are required to make filings to any number of government agencies, on average, about one every 10 days, says Nair. Anti-corruption compliance also means local subsidiaries of foreign multinationals have to perform due diligence when working with third-party suppliers, partners, and other agents.

In response, PR agencies in Brazil have increased their communication capabilities in terms of on-the-ground outreach to regulatory and government bodies.

Llorente & Cuenca Brazil creates carefully crafted stakeholder outreach strategies for multinational firms, particularly in heavily regulated industries such as oil and gas, health, and telecommunications. “We need to connect these companies to their stakeholders within government and in the regulatory sector,” says Germán Pariente, partner and managing director at Llorente & Cuenca Brazil. “PR can help improve the relationship between the companies and the executive with regulatory agencies.”

Colombia: Image change helps fuel growth
In successfully disbanding some of the world's largest cocaine-trafficking cartels, Colombia has changed its image from a risky place for doing business to one of growing stability and opportunity. 

Tourism brands are heavily investing in Colombia.

Claudia Esguerra, director general, Colombia, for Llorente & Cuenca, says that change has attracted “multinational firms from all over the world to explore and exploit both the country's coal and gold resources.” The investment has been a welcome boon for the country's PR sector, which has seen foreign and Colombian-headquartered energy companies look to agencies to “develop communication strategies that position the companies with stakeholders, from governments to communities,” Esguerra tells PRWeek.

Significant investment
The agency's clients in Colombia include Gerdau, a leading producer of steel in the Americas, and Empresa de Energía de Bogotá, a domestic provider of electrical power.

Beyond multinational companies in the energy sector, Starbucks has made an investment in Colombia's coffee industry. This summer, the coffee giant opened its first Farmers Support Center in Manizales, which will work with Colombian coffee farmers to help improve their quality and size of yields. Edelman, which has affiliate relationships in Colombia, is helping Starbucks with outreach.

The country's booming natural resource sector, plus a safer business climate, spurred Colombia to 5.9% economic growth last year, making it one of the fastest-growing economies in South America. In turn, that has helped fund government spending, which includes social welfare programs – urban unemployment remains
persistently high at 11.9% in May – and large-scale infrastructure projects, two areas where agency leaders tell PRWeek there is a lot of client activity.

If economic growth keeps pace, as the Colombian government and popular President Juan Manuel Santos hopes, the country will overtake Argentina as Latin America's third-largest economy by 2015, behind only Mexico and Brazil. To help keep the economy humming, the government has identified travel and tourism as one of Colombia's future pillars of economic growth. A number of tourism brands have already made investments into the region.

Hyatt Hotels will open its first two hotels in Colombia in 2015, including a $130 million Grand Hyatt hotel in Bogotá. JetBlue also expanded its service to Bogotá in May, this time from Ft. Lauderdale. Its Bogotá to Orlando route, launched in January 2009, recently became one of its best-performing routes, says Mateo Lleras, manager, corporate communications, Latin America and Caribbean, JetBlue Airways.

“It took a little longer to get established than most new routes because we needed to introduce the JetBlue brand here,” says Lleras. The media effort focused on the fact that Colombians could now go to Disney and other Orlando attractions by flying straight into the city.

Teething problems
Miguel Silva, FTI's strategic communications director for Latin America in Bogotá, says given Colombia's newfound attention for investment there is also a new complexity that comes with increased business activity.

Demand in areas such as crisis communications, mergers and acquisitions, regulatory affairs, and litigation counsel has seen FTI increase its Colombia-led South American revenues to $8 million last year, a 20% year-on-year increase, says Silva.

Companies are also integrating social media into their PR campaigns. Online users in Colombia – at about 22 million or 50.4% of the population – are 30% more active in social media than the world average, reports comScore.

Fernando Gastelbondo, partner, managing director at Compass Porter Novelli in Colombia, says social media is often a starting point of its client campaigns, including LG Electronics, Nestlé, and Nintendo. “Clients in Colombia mainly want Twitter users to help their campaigns go viral,” adds Gastelbondo. “One of the most popular client requests we get is to map social media influencers to achieve that viral activity.” Gastelbondo says social media also helps clients address a fragmented media landscape.

“Aside from the capital city of Bogotá, there are four other large cities that represent about 50% of the market, all having their own local print, radio, and TV outlets.”

Chile: Latin America's hidden gem
It is isolated from the rest of South America by the Andes mountains; has a population of 17.2 million, is dwarfed by its bigger neighbors; and has long-time economic stability that can make it seem not as ripe for enterprising brands. And yet Chile ranks in countless studies as the region's most business-friendly country for multinationals.

“Chile's stable business environment, talented labor pool, and outstanding physical and telecom infrastructure is positioning the country for continued growth,” reads a recent report from management consulting firm A.T. Kearney. “Chile increasingly [is] gaining interest from North American and European companies looking to serve both English- and Spanish-speaking clients.”

Centralized environment
In May, as the economies of other South American countries slowed down, Chile's grew 5.3% versus a year prior, according to the Central Bank in Chile. The country also has a very wired population compared to the rest of Latin America, with more than half of its population (54.8%) online.

And Chile offers a very centralized environment: half of the country's population, and more than half of its GDP originate in and around Santiago, its capital city. With one exception – Sudamericana de Vapores, a shipping company located in the port city of Valparaíso – every company is headquartered in Santiago.

In May of this year, retail sales surged by 5.6%. Walmart, which launched through acquisition in 2009, is making significant inroads against home-grown players Falabella and Cencosud. In 2011, Walmart Chile opened 41 new stores, bringing its total at the end of May 2012 to 325 locations. The company launched grassroots PR campaigns to promote a new alliance with NGO Red de Alimentos (Food Network), which has seen Walmart Chile donate more than 70 tons of food to the hungry since 2011.

This past April, Walmart Chile also launched the Chilean branch of The Sustainability Consortium, inviting companies, NGOs, and government agencies to build a sustainability index of products sold in stores. The three-year program is funded by the company and the Chilean government.

Retail and PR growth

Walmart opened 41 stores in Chile in 2011.
Falabella, Cencosud, and Walmart are also fighting for online supremacy in a market that the A.T. Kearney reports calls “Latin America's hidden gem” for Web retailers who are developing their global expansion strategies. Of Chile's Internet users, 71% shop online, the highest number among the 30 developing countries measured in 2012. Still, the report notes it is easy to overlook the potential of Chile's online market – $749 million in online sales compared to Brazil's $10.6 billion.

But the average Chilean household spends $158 per year online, compared to $44 in the rest of Latin America. And in the next five years, Chile's Internet retail market is expected to double to $1.5 billion as more people shop online.

Falabella and Cencosud currently command 39% of the online market share in Chile, but Walmart has a 20% share and wants to become the country's largest online retailer within five years, the report reveals. 

“The demand for PR in Chile has increased considerably over the past 15 years,” says Francisca Fuensalida, director of communications for Building Media Relations, a Chilean agency founded in April 2001. In fact, by her estimate there are now more than 100 strategic communications consulting firms in the country.

Fuensalida says the demand for PR is being fueled, in part, by consumption-conscious consumers. That's reflected in the fact that there has been a 45% increase in the past five years in the number of complaints received by the country's consumer protection agency.

“This has forced agencies to disseminate information based on reality,” says Fuensalida. “It's no longer possible to use elements that sound good, but are somewhat fuzzy.”

And while a majority of Chileans are now online, traditional media relations are still the “most requested service” by clients. Digital and social media are growing in importance, Fuensalida says, “and will soon be valued as important as coverage in traditional press.”

Argentina: Government red tape limits trade
With an economy that has averaged annual growth of almost 9% since 2003, an unemployment rate that dipped to 6.7% at the end of 2011 from more than 8% in early 2010, and a well-established middle class, Argentina seems like the ideal launchpad for multinational brands. 

But protectionist government policies have, in recent months, created an unwelcoming environment for global brands, says Laura Schoen, chairman, Latin America for Weber Shandwick. “Argentina is actually the odd man out in the region,” she says.

In a move earlier this year that stoked tensions with Spain, the Argentinian government took majority control of YPF, the nation's largest energy company, from Repsol, a Spanish-based energy business. 

Argentina also has more industry protectionist measures, 191 of them, than any other country. The total exceeds the number of protectionist measures in the rest of Latin America combined (170), according to the UK-based Centre for Economic Policy Research. Chile, by comparison, has two.

Strict regulations
The strict rules against imports require companies in Argentina to substitute imported goods with locally made ones, or companies can get into the export business to offset the dollars they spend bringing in goods and materials. Aldo Leporati, managing director at Porter Novelli Argentina, says, “this is one of the
biggest challenges we face in working with clients.”

Leporati says the agency helps ensure clients are compliant with the regulations in the country so they don't incur manufacturing, distribution, or inventory delays caused by import bans.

For one of its clients, a distributor of small home appliances, for instance, Porter Novelli Argentina helped communicate an export agreement made with a local wine company so the distributor could import appliances.

“In this case, it was a wine company, but it may well have been a honey, wheat, or rice exporter,” says Leporati.

In addition to government and regulatory relations, many PR firms help clients navigate a media environ-ment split between outlets allied with the government and those that are not.

Late last year, for instance, the Argentine government seized control of the country's sole newsprint supplier.

The majority shareholder of the supplier had been Clarín, a media group with newspaper, TV, and radio properties that media relations executives tell PRWeek had been critical of the government.

“Media in Argentina are today polarized according to their view for or against the government, and our clients are often in the middle of that news coverage,” says Pablo Abiad, director general for Llorente & Cuenca in Buenos Aires. “That's why the dominant attitude of the companies, when confronted by journalists, is often suspicion or silence.”

One of the most robust areas of Argentina's economy is the pharmaceutical industry, fueled by double-digit government spending on healthcare and social welfare programs such as Remediar, a network that distributes essential drugs directly to local clinics in low-income neighborhoods. 

Argentinean pharmaceutical companies dominate the market. But many multinationals have subsidiaries in Argentina and others are still looking to access the market through strategic partnerships, says corporate communications manager Hernán da Cunha for Laboratorios Bagó in Argentina.

He says that's why it has been key for Laboratorios Bagó to spend its PR dollars on building its brand equity with public and investor audiences.

“The firms that have succeeded in this region have capitalized on their good reputations as an attractive strategic regional partner for multinational pharmaceutical companies looking to quickly grow share of their products in different Latin American countries,” says da Cunha. 

Laboratorios Bagó has 25 in-license products and international agreements with the likes of Abbott, AstraZeneca, Boehringer Ingelheim, Danone, Eli Lilly, and Novartis. “Brand equity has become a valuable and strategic advantage,” says da Cunha.

PR is also a main vehicle for the industry, given regulations against direct-to-consumer prescription advertising, says María Eugenia De la Fuente, director and co-founder of Paradigma, one of Laboratorios Bagó's PR partners.

“Distrust is one of the characteristics of Argentinean journalism, so it is necessary to focus on scientific content,” says De la Fuente.

“Any communication from a new product must be accompanied by robust epidemiological public health data and with very prestigious medical spokesmen from public hospitals.”

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