Colombia: Delivering consistent growth in times of uncertainty

Colombia

FSG recently hosted our Regional Executives’ Breakfast in Bogota, Colombia. The first session of the event focused on creating alignment between the main drivers that have been affecting Latin America’s performance, and the potential scenarios for the region’s growth in the next few years. The second session provided executives with a deeper analysis of Colombia’s main growth drivers, as well as the associated business implications. The third and final session of the event discussed the main strategies that LATAM executives have applied in recent years to ensure continued growth and protect profits. The following are the key takeaways from the discussions held throughout the development of the three sessions:

The regional outlook

This session provided relevant information about key macroeconomic drivers affecting LATAM’s economic growth, as well as FSG’s longer-term growth prospects for the region, taking into consideration an upside, base case, and downside scenario.

Despite FSG’s outlook for LATAM growth over the next few years being modest, a full 50% of the executives present at the event strongly believed that LATAM’s growth prospects are not affecting their ability to attract investment into Colombia. Meanwhile, the other 50% believed that LATAM’s deceleration and slow growth for the next few years is somehow affecting their ability to attract investment. In many cases, these executives attributed the potential issues in attracting investment to a misalignment between corporate’s perception of Latin America’s growth prospects (in which the majority of the cases are based on the impression they have from the reality of countries like Brazil and Venezuela) and the overall regional reality, which demonstrates the potential pockets of opportunity, particularly in Central American and the Pacific Alliance countries – such as Colombia.

Another interesting takeaway from this event emerged from the discussion around scenario planning. Challenging the regional convention of limited scenario planning practices, the vast majority of Colombian executives (60%) suggested that they constantly evaluate their assumptions and risks.

The Colombia outlook

After identifying the three main drivers behind Colombia’s deceleration over the past two years (low oil prices, currency depreciation and rising inflation), 75% of executives expressed that currency depreciation and volatility were the main factors behind their own growth deceleration. However, despite the deceleration associated with significant currency depreciation and rising inflation, the vast majority of the executives expressed a positive perception about their ability to hit their 2016 targets. In fact, nearly 69% of executives felt somewhat confident about hitting 2016 targets, and 25% of them expressed high confidence in their ability to hit their target.

In terms of the business implications associated to the three drivers of deceleration, we concluded that Colombia’s market landscape will shift as currency depreciation and higher inflation are likely to continue weighing on consumer purchasing power, shifting consumption toward cheaper and locally-produced goods. Another key takeaway from the discussion is that executives are expecting to see higher borrowing costs, as commercial banks are increasing interest rates, passing rate hikes by Colombia’s central bank onto consumers and businesses. This combination of external and internal headwinds is hurting consumer and business confidence, and as a consequence, is producing a drop in consumer spending and a cut in investment as companies struggle to generate a sufficient cash flow, and access to capital has become more expensive.

Given this reality, we asked our clients if they are considering making significant changes to their value proposition during the next 2-3 years. Unsurprisingly, 67% of Colombian executives were currently assessing that possibility. And among the changes considered for their value proposition, 35% of the executives suggested they were considering offering value-added services as their top option, while 24% of the executives present in the event pointed to improvements in their product positioning as their top option.

Strategic imperatives to succeed in Colombia

Among the five strategies that we presented in this section (deepen portfolio allocation, support channel performance, cut costs but maintain investment, divest from non-priority businesses and the implementation of operational hedging), channel performance management was clearly the strategy that resonated most during the discussion with our Colombian executives.

Given that at least 66% of multinational revenues are generated via distributors in Colombia, executives identified that having an efficient management of distributors is key to succeeding in this country. As such, the focus of the conversation we had during the session was about the need to avoid four common pitfalls in distributor management: the failure to measure the right KPIs, the failure to establish an incentive structure that maximizes performance, the failure to consistently support and reinforce the development of partner capabilities, and the failure to provide appropriate resources for distribution management teams.

After sharing the best in class practices to avoid these four pitfalls, 42% of executives suggested that the implementation of performance review cycles and the alignment of incentives represented the current low-hanging fruit for them in terms of strategies to improve the management of their distributors in Colombia.

For a deeper analysis of the content of our Colombia Executive Breakfast, please contact your account manager.


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