How Latin American Software Firms Are Getting Their Act Together to Go Global
How Latin American Software Firms Are Getting Their Act Together to Go Global
Whenever Latin American startups raise funding rounds, they usually plan to use this new capital inflow to build a presence across their home region. However, as Argentine investor Alejandro Burato warned in a recent blog post, “expanding into Latin America” is easier said than done. In my experience, US investors often have to be reminded that Latin America is not a country. That is, there is no comparison between what it takes to build a nationwide presence in the US and what Latin American companies have to do to cross borders.
Of course, this doesn’t mean that there aren’t pan-Latin American success stories. According to French-Spanish economist Javier Santiso, there are actually more and more of these. In his recent book “The Decade of the Multilatinas” (Cambridge University Press, 2014), this Professor of Economics at ESADE Business School and former Director and Chief Economist at the OECD Development Centre argues that Latin American multinationals have played a crucial role in the rise of emerging markets over the last few decades.
The Rise of Tech-Focused ‘Multilatinas’
While “multilatina” firms operate in a broad range of sectors, it is interesting to note that technology is definitely one of these verticals. One of the companies mentioned several times in Santiso’s book is Brightstar, whose Bolivian American founder Marcelo Claure recently rose to public fame when he became Sprint’s new CEO.
As Nearshore Americas reported a few months ago, Latin America is the main regional market of this Miami-based telecom equipment supplier which currently boasts a presence in 55 countries, including an upcoming call center in Costa Rica.
US-based Brightstar aside, other tech companies from all across Latin America have managed to expand well beyond their borders, such as telecommunications player América Móvil out of Mexico, IT firm Sonda out of Chile and Infocorp out of Uruguay. As for Argentina, it was the birth country of e-commerce heavyweight MercadoLibre and software firm Globant, while Brazil is home to companies such as IT services global player Stefanini, hardware manufacturer Bematech and management software provider TOTVS.
Finding the Right Road
Despite the rising number of “multilatina” software and IT companies, expanding from one country to several others still isn’t a piece of cake. Any company wishing to jump on the bandwagon will have to carefully compare several strategic options to find the right one for their needs. Indeed, what works for a well-funded firm may not be adequate for a small startup, and vice-versa.
Speaking to several Latin American companies that have successfully managed to internationalize their business, we found out that none of them followed one single route. For instance, they may have acqui-hired a competitor in one country and sought a commercial partner in another. In some instances, they also tried to operate remotely before finding out that they couldn’t do without a local presence.
While it may seem easier to expand as an IT company than as a brick-and-mortar business, B2B sales rarely take off in Latin America without local commercial staff. According to Sally Buberman, CEO of Argentine live learning company Wormhole, this hurdle is related to cultural factors:
“In the US, clients are more used to remote relationships, and things are less personal. Clients may buy a [B2B] service without even calling the provider and use it for six months before the first contact. In Latin America, it’s the opposite: people want to talk to you face-to-face, and the first minutes of a meeting are usually dedicated to getting to know each other at a personal level.”
In other words, addressing several Latin American countries from one single office may not be the best way to maximize sales. However, tech companies can leverage the nature of their business during the exploratory phase, which can sometimes be conducted remotely. In the case of Wormhole, the company started with an online marketing campaign to promote its service abroad via AdWords, on LinkedIn and on social networks. Converted users would sign up for its free trial, before receiving a call from Wormhole’s staff asking more detailed questions about their needs. The company’s commercial and support teams would then be in charge of helping those clients remotely.
In addition, the startup joined global entrepreneurship network Endeavor in 2012, thereby getting a chance to host the Global Entrepreneurship Lab (G-Lab). This internship program promoted by MIT’s Sloan School of Management gathers a group of highly skilled students to support Endeavor companies with specific challenges they may face. Wormhole asked its interns to make a series of phone calls to potential clients and competitors abroad and later used this knowledge to move on to the next step (Wormhole now has a presence in 7 countries – Argentina, Brazil, Chile, Colombia, Peru, Spain and the US).
Hitting the Ground Running
As we mentioned earlier, establishing a local presence can be done in several ways; for instance, some companies may choose to relocate some of their in-house staff to a new country, while other may look for new local hires or acquisition targets. According to Movile‘s CEO Fabricio Bloisi, his company learned along the road that going international by only sending people from Brazil wasn’t the best option.
As you may know, Movile is a Brazilian mobile commerce company that recently raised US$55 million from Innova Capital, Naspers and FINEP – a unit of Brazil’s Ministry of Technology. It already has 400 employees, owns consumer-facing brands iFood and PlayKids, and plans to use its new capital to consolidate its growth while further expanding into same-day delivery.
When it took its first jab at expanding, Movile had some of its Brazilian team members move abroad, but found out soon enough that hiring local staff made a huge difference in terms of speed and cultural awareness. For instance, Bloisi notes, Brazilian companies may not be sufficiently aware of the subtle cultural differences between their Spanish-speaking neighbors:
“Before acquiring Cyclelogic, we wanted to have one single version of our content [for all Spanish-speaking Latin America]. After the acquisition, our local hire said: “You can’t do that, you need to localize it; you might be able to reuse one version in 2 or 3 countries, but not in all of them.”
Not all Latin American companies have enough funding to set up their own operations abroad, especially in their early days. In that situation, looking for partners and distributors is a good alternative option, on which Wormhole initially relied in several countries, including Brazil. In 2012, the company signed a licensing agreement with Telefónica’s brand Vivo to bring its web conferencing tool to Brazilian SMBs.
“We created a white label product for commercial distribution, with a different design and pricing to avoid cannibalization on both ends,” Buberman explains. “Our partners offer it to their clients and share revenues with us, as part of long-term contracts between us.”
She is convinced this is a great way to enter a new market. Yet, she also points out that partnerships have to be crafted carefully to make sure that knowledge gets shared. For instance, Wormhole made sure that joint meetings with end clients were part of the deal, as well as frequent meetings with their partners’ sales executives.
Some of the key learnings Wormhole was determined not to lose in translation were related to cultural differences between countries. “In Latin America, each country is its own world,” Buberman says, a sentiment often shared among entrepreneurs.
Still, one of the biggest names in Latin America’s tech scene begs to disagree. According to Globant’s CEO Martin Migoya, the region’s different cultures are actually quite similar, with a shared taste for horizontal and passion-driven companies that proved to be a great fit for Globant.
There’s no denying that Globant has been very successful at going global. In one of the key documents filed as part of its recent IPO on the New York Stock Exchange, it noted that “as of March 31, 2014, [it] had 3,322 employees and 25 delivery centers across 16 cities in Argentina, Uruguay, Colombia, Brazil, Mexico and the United States, supported by four client management locations in the United States, and one client management location in each of the United Kingdom, Colombia, Uruguay, Argentina and Brazil.”
While it is hard to contradict someone with such a track record, my personal feeling is that Spanish-speaking Latin American first-time entrepreneurs actually tend to underestimate how different Brazil can be from their home countries – not only by its language, but also by its size and culture.
As Burato recommended in his above-mentioned blog post, startups that have Brazil on their roadmap should consider either of these three options: “1. [Have] one of the founders move there and manage the operation; 2. Find a top-notch manager to lead the country and give [them] equity (local and/or holding) and 3. Partner with another company, if it applies to [their] business model.” In my opinion, acqui-hiring Brazilian competitors is also well worth considering for startups that can afford to do so.
Factors to Consider
While hiring is often presented as a challenge, Globant’s SEC filing insists on its firm belief that “Latin America has an abundant skilled IT talent pool.” To access it, the company relies on a combination of sources. “We recruit from universities and from the market,” Migoya told us with a smile. “We have been training lots of people, it’s a great school!” However, Globant is undoubtedly more popular than the average tech company. In addition to its culture, its size and public listing make it very attractive for candidates, not to mention its international presence and the opportunities it offers.
Candidates to expansion need to make sure to know how long things will take. Bureaucracy is a shared plague in Latin America, while teams also need to get familiar with different billing, distribution and legal systems. In that regard, key introductions from Endeavor’s network played an important role in helping Wormhole set up offices abroad. “We didn’t feel we were on our own,” Buberman recalls. According to Migoya, who now sits on Endeavor’s board of directors for Argentina, the organization’s main value lies in its ecosystem, which supports companies as they turn from early-stage businesses into high-impact multinationals.
In addition, young companies need to be careful not to underestimate how much funding it will require to successfully land into a new market. Unsurprisingly, startups tend to make sure to secure significant rounds of funding before consolidating their presence in other markets. For instance, cloud-based HR platform GoIntegro raised no less than $5 million last February when it decided it was time to expand its commercial efforts in Brazil and Mexico.
Acquisitions as an Accelerator
For well-funded companies, there comes a time when they need to decide whether to open their own offices abroad or acquire a local player. According to Migoya, both solutions have benefits and costs, but acquisition is clearly the winner in terms of speed.
As a result, Globant took over control of several companies over the last few years, including Argentine firms Accendra and Openware in 2008, American app maker Nextive in 2011, Brazil’s TerraForum in 2012 and multinational software developer Huddle Group in 2013.
As for Bloisi, he is now a firm believer that acquisitions are the best expansion method money can buy. He also notes that Movile was prepared to do everything necessary to grow as fast as possible, having received funding from South African media giant Naspers precisely for that purpose. “As an anecdote, we had started offices in Mexico and Argentina before [buying Cyclelogic] but they were very small until the acquisition,” he recalls. “Increasing the headcount with Spanish speakers from these countries made a huge difference.”