Multinationals need to focus attention on building an effective channel strategy across the lifecycle of their business in Mexico, taking into account how best to select and sign new partners, developing an appropriate distribution management process, and plan for channel transitions as your business needs evolve.
Selecting and signing partners in Mexico
- Defining distributor target type: The most important decision is choosing between a large and more established but less engaged distributor, or a smaller but more focused one. That decision will be influenced by how much power the multinational company is willing to yield in exchange for a desired sales growth trajectory, which in turn depends on how much bargaining power that company has when it enters negotiations with distributors
- Finding partners: Multinationals need to conduct thorough due diligence on all available potential partners, and don’t just focus on referrals. The ways to source these potential partners include the following:
- Social media
- Agencies and organizations
- Market visits
- Industry events
- Yellow Pages
- Commissioning a Partner and Target Identification custom project with FSG
- Vetting partners: Vet potential partners based on their ability to meet customer demands, their level of sophistication, and their capacity to navigate Mexico’s operating environment. FSG has developed a distributor comparative assessment questionnaire and dashboard to help guide this process
- Signing partners: The key factor here is to leverage the flexibility of Mexican commercial law to safeguard your rights vis-à-vis channel partners. Mexico offers a relatively favorable legal framework for signing local distribution partners
Developing a distributor management process
For most multinationals, the size and geography of Mexico requires leveraging a diverse range of distributors to tap into the total market opportunity. The Mexican market requires a complex hybrid approach, with both enormous territorial responsibilities and both direct and indirect channels, which requires concerted effort and the ability to balance between scale and the importance of key accounts. Accordingly, multinationals should take the time to build robust channel management processes and infrastructure, based on best practices that will support the continuous improvement of channel partners and drive sustainable long-term growth.
Multinationals above all need to avoid the following four pitfalls:
- Failure to measure the right KPIs
- Solution: Deploy a weighted performance scorecard that measures both capabilities and commercial performance
- Failure to establish an incentive structure that maximizes performance
- Solution: Ensure that your incentive structure aligns well with your scorecards, and rewards partners with status, not just margin
- Failure to consistently support and reinforce the development of partner capabilities
- Solution: Commit to a robust calendar of partner interactions throughout the year, which will support capability-building, not just accountability and compliance
- Failure to provide appropriate resources for distribution management teams
- Solution: Build a development plan that recognizes that great sales skills are not enough to make someone a great channel manager
Planning for a channel transition
Even if companies execute flawlessly on distribution management, their maturity levels and changes in the industry landscape will eventually force them to modify their channel strategies, especially in a market like Mexico which is seeing significant changes to the channel landscape, from the expansion of modern retail to the rise of e-commerce.
Multinationals should design their channel strategies with two forward-looking goals in mind:
- To ensure that the channel structure continues to support ambitious sales goals regardless of the company’s maturity level
- To remain responsive to changes in the industry landscape, such as shifts in customer demand, emergence of new technologies, improvement or worsening of the operating environment, and disruptive competitor moves
This report, along with the Channel Transitions in Latin America report, offer more insights in how to build an effective long-term approach to channel transition planning.