Latin America

MiamiNovember, 2012

The immediateThe longer termOpportunities

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Legal notice

Wherever possible, AMI has verified the accuracy of information provided by third parties, but does not under any circumstances accept responsibility for such inaccuracies should they remain unverified.

It is expected that the reader will use the information provided in this report in conjunction with other information and with sound management practices. AMI therefore will not assume responsibility for commercial loss due to business decisions made based on the use or non-use of the information provided.

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Your Presenter

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What we do…

Customer• Market

Research

Competitor• Competitive

Intelligence

Climate• Economic

analysis• Political risk

analysis

bespokeMarket Intelligence

that answers strategic questions

• Should we enter the market?

• How do we compete against the dominate local player?

• What do local customers expect from their supplier?

• In which market will we gain the most growth in 2013?

• Should we buy or greenfield?

• Who is the best local firm with whom to partner?

• Do we face regulatory risk?

• If the opposition wins, will they support our investment?

• What products will our competition launch next year?

• What is the optimal product mix to serve our target market?

in Latin America

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Eight strong industry practices

Financial Services• 160 LatAm projects since 1994• Consumer & corporate cards, pre-paid cards, insurance,

banking, consumer loans, trade finance, more..

Retail & CPG• 170 LatAm projects since 1992• Food, beverage, snacks, appliances, beauty products,

toys, entertainment

Healthcare• 80 LatAm projects since 1993• Pharmaceuticals, supplements, vaccines, medical

equipment, devices, hospital services, health policy, more…

Telco, IT, Media• 70 LatAm projects since 1993• Telco – wireless, ISP, services, equipment; IT – computers &

accessories, ERP, AMT; Media – gaming, pictures, print, TV, radio, signage

Industrial• 105 LatAm projects since 1994• Transportation, manufacturing, chemicals,

metals, plastics, paper, packaging, safetyNatural Resources• 90 LatAm projects since 1992• Mining – exploration, equipment; Energy – oil & gas,

alternatives, petrochemicals; Agriculture – commodities, fertilizers, technology

Automotive• 110 LatAm projects since 1993• Cars, trucks, buses, OEM parts,

aftermarket, service, finance

Logistics• 75 LatAm projects since 1993• 3PL, air cargo, FTL, LTL, rail, ocean, warehousing,

distribution, equipment, software

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AMI enjoys a global partnership with the GIA, the world’s largest network of market intelligence companies

• GIA Group embodies 24 offices globally, of which AMI operates Mexico and Miami.

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The Immediate (2013)

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Exogenous Forces – trending positive

USA+ manufacturing+/- Energy sector? Fiscal cliff

Europe+ ECB ? Merkel

China+ Migration+ New political cycle ? Economic shift

Syria & Iran+/- Oil shock- Financial instability

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Spheres of Economic Influence – China predominates

USA- Mexican manufacture

exports- Mexico bound FDI- Central American,

Caribbean and Mexican remittances

- Central American manufacture exports

- Caribbean tourism- Caribbean banking- Andean bound FDI- Andean product exports

China- Food imports from

Brazil, Argentina, Paraguay, Uruguay

- Metals imports from Peru, Chile, Bolivia, Brazil

- Energy imports from Venezuela, Peru, Colombia

- Mining investment in Ecuador, Peru, Bolivia, Venezuela

- Infrastructure investment in Panama, Caribbean, Central America, Peru, Ecuador, Venezuela, Brazil

- Bi-lateral loans in most markets

Europe- Caribbean tourism- Caribbean private

banking- Caribbean exports- South American

commercial and institutional lending

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Consumption Growth (%) X-change rate (2010 = 100)

2011 2012 2013 2011 2012 2013Brazil 4.8 3.5 5.1 100 83.0 80.5Mexico 4.5 3.8 3.7 100 93.7 96.5Argentina 9.5 4.3 3.5 100 93.2 84.0Colombia 6.6 4.6 5.3 100 102.7 102.3Venezuela 4.0 7.5 1.0 100 100.0 74.1Chile 8.8 5.9 5.9 100 99.0 98.0Peru 6.4 5.9 5.6 100 104.2 106.6Ecuador 5.8 4.4 3.1 100 100.0 100.0

Country Forecasts – a predictable tale of the usual suspects

Regional growth will increase from 3.1% to 4.0%- Commodity prices are rebounding- Credit is loosening

2013 versus2012

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US Elections – Latin America still won’t matter come Nov 7th

Possible overhaul of immigration including amnesty to illegals, might expand H1B

Immigration

Lessen enforcement of employers, possibly expand temporary worker plan, expand H1B

Record levels (due to sharing databases) helps justify amnesty

Deportation

Likely to continue because of lack of amnesty

Latecomer to the political benefits of trade. Would support symbolic new trade agreements if politically convenient.

Trade Wants to sign more free trade agreements in LatAm, Brazil especially

Gun shy on further liberalizing of relations with Cuba after Castro snub. Continue non-intervention with Venezuela.

SanctionsWants to reverse Obama’s easing of Cuba embargo. Strong rhetoric against Chavez – possible sanctions?

Likely shrink as a result of other priorities. Aid Likely shrink as a result of budget cuts.

Cited as a priority but not acted upon as such. Drug trade to US is in decline on its own.

DrugsMay push for “Plan Mexico”. Strengthen DEA enforcement efforts. Deepen investigation in Venezuela.

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The Longer Term (Societal Trends)

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Latin America is entering an optimal demographic phase

Source – www.investmentu.com

GLOBAL RANK COUNTRY MEDIAN AGE33 Cuba 38.448 Uruguay 33.656 Chile 32.161 Argentina 30.571 Brazil 29.378 Colombia 28.082 Mexico 27.185 Peru 26.286 Dom Rep 26.186 Venezuela 26.187 Ecuador 25.794 El Salvador 24.395 Jamaica 24.2

103 Bolivia 22.5114 Guatemala 20.0

LatAm’s 40 year demographic window

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Modernizing LatAm Household structure the age of segmentation has arrived

CAGRPercentage Growth of

market share1990-2010

Source: ECLAC

Often brutal economic reforms in the 1990’s eroded the real incomes of middle and working class segments, forcing both parents to work. Modernizing ways encouraged SES A, B, C+ women to hold onto their careers.

Latin America’s fastest growing segment is elderly living without children

Emigration and divorce have created more single mothers

Non Family14.5%

Nuclear Family61.6%

Other Family Types23.9%

Two Parents with Kids42.0%

Extended Family21.7%

Dual Income19.8%

Unw

ed, S

tude

nts

Frie

nds

5.0%

Single Income22.2%

Livi

ng A

lone

9.5%

Sing

le In

com

e4.

7%

Dual

Inco

me

3.4%

Coup

le, n

o ki

ds8.

1%

Sing

le P

aren

t (F

emal

e) 9

.9%

Sing

le P

aren

t(M

ale)

1.5

%

Com

posi

te F

amily

2.2%

Wor

king

Mot

her

6.3%

Une

mpl

oyed

M

othe

r 3.

6%

100%

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Credit will continue to expand but at a slower rate

USD

Billio

ns

CAGR = 21%

CAGR = 7%

Source - EIU

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The emergence of a new viable market2015 Analysis using 2005 constant USD prices

Based upon WRI and EIU figures and AMI Analysis

ABC1 = HH income of over $20k USD or $15k per year (constant 2005 prices)

Top of the Base of the Pyramid• 40.3 million homes• $417 bn total spend

ABC1• 34.4 million homes • $1,342 bn total

spend

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Crime & corruption will continue to plague the region

Sources – Transparency International, World Bank

City Murders /100,000

1 San Pedro Sula, Honduras

158

2 Ciudad Juarez, Mexico 1473 Maceio, Brazil 1354 Acapulco, Mexico 1275 Tegucigalpa, Honduras 996 Caracas, Venezuela 987 Torreon, Mexico 878 Chihuahua, Mexico 829 Durango, Mexico 79

10 Belem, Brazil 7821 New Orleans 6930 Detroit, USA 4831 Bagdad, Iraq 4843 St. Louis, USA 3544 Cape Town, South

Africa34

The World’s Deadliest Cities

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2009 2010 2011 2012 2013 2014 20150%

10%

20%

30%

40%

50%

60%

70%

80%

Cellphone ownership

Computers per capita

Latin Americans clamor to connect

Source - EIU

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Latin Americans are the greatest consumers of social media on earth and distrustful of traditional media

2010 2011 2012 2013 20140

50

100

150

200

250 Facebook subscribersLinear (Facebook subscribers)

mill

ions

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Older & Wiser

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1990 versus 2020

1990 household

•5.3 pph•Ages 30-40 fastest growing•US$2,720 GDP per capita •3% car ownership•<3% have credit cards•Shrinking middle class•Economic crisis•Conform to tradition•Fitting in (collective)•Undemanding consumers•Cost conscious•Traditional media, Predictable opinions

2020 household

•3.3 pph•Age 60+ fastest growing•US$15,390 GDP per capita•21% car ownership•>25% have credit cards•Expanding middle class•Social crisis•Seek pleasure•Gaining power (individual)•Very demanding customer•Value & convenience driven•Social media, unpredictable

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Opportunities - How to win tomorrow’s Latin American customers

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Utilize Modern Segmentation Techniques

GeographyIncomeAgeGender

Traditional Segmentation

IncomePsychographics Lifestyle Values Interests & Hobbies Loyalty Purchase Timing Usage levelGeodemographics

Modern Consumer Segmentation

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Build value, service & convenience and they will come

Demanding Consumer

Choice

Time

Credit

Empowerment

Best value, not lowest price

Solve my problems

Treat me as an individual

Inform me now

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Introduce a wider spectrum of products

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2

3

4

5

6

7

8

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Luxury

Mid-price

Old thinking: Introduce (dump) three products into the LatAm market

New thinking: Introduce multiple

niche products

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Embrace testimonial marketing via social media

• Our product is great• You’ll love our product or your

money back• Recall our brand, recall our brand,

recall ….• Traditional advertising• Unsubtle PR techniques (journalists

for sale)• No objective 3rd party opinion in

sight• Metrics: Eyeballs, awareness• Research methods: surveys

• Did I tell you I test-drove the new Harley-Davidson?– What did you think of it?– Loved it. You should try it.– 54 of your friends liked it, 6

disliked it• Don’t take our word for it, ask your

friends• Convince credible opinions to try your

product• Metrics: brand emotion, usage,

recommendations• Research methods: Observational

research

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Leverage Latin America as a Base of the Pyramid Laboratory

Why start your global Base of the Pyramid strategy in Latin America?• Middle income• Distribution systems • Communication• Homogeneity• Free trade

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John PriceMarket Intelligence

jprice@americasmi.com+1.305.773.1141