What MNCs are doing to optimize their organizational footprint in LATAM

One of the most important decisions a regional executive of a multinational company can make is regarding organizational footprint. By organizational footprint, we mean the allocation of people to different markets and functions to support a company’s commercial strategy. This is not a clear-cut decision. It regards a significant capital investment, both in terms of physical assets and people. Like any investment, the company will experience either financial gains or losses.

FSG published a new report in November entitled “Footprint Optimization in LATAM” which aims to help MNCs understand this decision-making process and the associated trade-offs. These are some of the key findings from the report:

  1. MNCs could improve the effectiveness of their organizational footprint strategy: On a scale of one to five (with one being highly ineffective and five being highly effective), clients ranked the effectiveness of their organizational footprint strategies as a 3.6. This suggests that after years of cost cutting in Latin America, many companies could now be leaving money on the table because of a lack of local capabilities. As such, companies are shifting toward increasing the effectiveness of their organizational footprints in the region
  2. The vast majority of FSG clients did not change location of HQs through LATAM’s slowdown: Approximately one-fifth of clients informed us that they shifted the city of their regional HQs. The most salient trend is that Mexico has gained some ground against Brazil as top location for regional HQs throughout Brazil’s recession, and within Mexico we saw a few clients moving away from Mexico City into cities such as Querétaro. Overall, Miami continues to be the most attractive location for regional HQs when focusing exclusively on operating environment factors (and not proximity to largest market opportunities) given its favorable tax framework, quality and cost of labor, high quality of infrastructure, and easy accessibility to other cities in the region
  3. Companies are becoming increasingly client centric, and are looking for ways to increase the responsiveness of their regional footprints: This comes in several different forms:
    • The first is that sales teams have become more focused relative to five years ago: Almost every FSG client consulted claimed that sales teams have become more focused. This is because MNCs operating in LATAM are trying to increase their demand-generation and sales-effectiveness capabilities by having a more targeted sales approach. As companies segment their sales teams, the most common segmentation criteria is by geography, followed by business unit or product line, sales channel, customer segment, and finally international key accounts.
    • Companies are reassessing sales territories and sub-regional hubs: A common misperception is that organizational footprint strategies are rather rigid. However, MNCs can shift and have shifted sales territories rather quickly and easily. Companies who proactively monitor future demand trends can invest and reshuffle resources rapidly based on where opportunities lie, and as we know, Latin America has historically been a very volatile region and with significant churn in terms of top country opportunities
    • Finally, companies are working towards localization: More companies than not reported that decision making has become more decentralized over the last five years. In fact, there seems to be a growing need for companies to localize their offerings and be closer to customers, and to increase responsiveness to more frequent and unexpected market changes. This has led most companies to decentralize decisions related to marketing and client segmentation, product mix, pricing, and sales channels, while keeping decisions that have company-wide implications (e.g. product or service innovations) at the corporate level
  4. Companies are embracing digital tools to power commercial activities and reduce operation costs: Most respondents felt that their companies have only started to tap into the potential of technology assets to streamline processes and increase sales effectiveness

As overall growth in Latin America begins to accelerate in 2019, it is imperative that MNCs get the “where to play” equation of their business strategy right. Making calculated decisions regarding organizational footprint is particularly important in this environment, given that MNCs are shifting their focus toward enhancing the effectiveness of their organizations to capture market upside, after years of cost-cutting measures.

For more information, please download the full report and schedule an analyst conversation with your Client Services Director.

Not a client? Please contact us to learn more or purchase a single copy of the research.

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