Why a Solid Channel and Distribution Strategy Beats Direct in Emerging Markets

In the dynamic cybersecurity market, rapid advancement and constant innovation are essential to maintain competitiveness and protect customers against emerging threats.

However, entering new and emerging markets, such as Latin America, presents a unique set of challenges that require careful strategic deliberation. One of the most critical aspects of conquering these geographies is the adoption of a robust channel and distribution strategy, as opposed to a direct approach to end customers.

Local Knowledge, Relationships Key in Emerging Markets

Using Latin America as an example where cultural and regulatory diversity runs deep, local distributors and channels have invaluable knowledge of the terrain, which is crucial for navigating business regulations and understanding consumer preferences. Moreover, they have already established trusted relationships with local businesses, making it easier to introduce new cybersecurity solutions to the market.

I learned this lesson during my years at Dell Computers. I recognized that while the brand had a massive local presence throughout the region, it wasn't enough to generate customer trust and support, especially in our move toward solutions-oriented marketing. I remember, more than anything else, transforming Dell into a distributor that worked quite successfully with the channels of its partners (Microsoft, Oracle, Symantec, EMC, etc.) where added value was deeply rooted in the SMB and midmarket.

Selling Direct Costs More

The costs associated with managing customer relationships directly, from logistics to technical support, can be prohibitive. A well-articulated strategy through channels and distributors can significantly reduce these costs, enabling a competitive pricing structure that is essential to gaining traction in price-sensitive markets.

Throughout the years I've worked for multinational IT companies, I've learned that everything is a cycle and that the dependence on the success or failure of the U.S. is significant. Over time, I've learned that the importance of ROI per head count (HC) is the biggest driver of local restructuring. Latin America, for example, "loses" market potential where ROI/HC can be much higher. Today, earnings before interest, taxes, depreciation and amortization (EBITDA) and annual recurring revenue (ARR) are basic. And that's where the correct indirect presence plays a very important role in taking care of "our people" and business continuity.

Distributors/channels bring agility and scalability: Time-to-market (TTM) is essential in the cybersecurity business. Working with channels and distributors allows for faster and more agile expansion in the market, enabling the ability to leverage existing networks and resources to scale the business and respond to market opportunities in a timely manner.

When I was at Sophos, after learning from the mistakes and successes in my previous roles where I wasn't the one defining the go-to-market (GTM) execution, we began to give importance to the human factor, not only internally but also with our channel and distribution partners. And that improved every year, first by respecting the channel and its independence in its accounts and with honesty and transparency working together in the education of their people, and then by understanding that wholesale distributors treated as real allies are the ones that help us automate sales and renewals and cross-sell (especially in SMB). This approach allowed the channel or service provider to sell their own services without fear and, as a result, Sophos Latin America grew by leaps and bounds over eight years, growing its CAGR 26% in the last four. It's all due to having impeccable respect for the channel and never being perceived as a competitor.

Distributors/channels bring training and support: Cybersecurity solutions are technologically advanced and require a significant level of training and support to maintain them. Local distributors and channels can provide this essential training and support, ensuring that solutions are implemented and used effectively, thereby improving customer satisfaction and retention. This has always been a challenge at the previous companies I've worked for due to a lack of understanding many companies have around Latin America, where Portuguese and Spanish are spoken. Trying to "pressure" the channel to speak English, for me, shows a lack of respect for our culture. We made good attempts, but never invested enough, a mistake from which I have learned a lot.

Distributors/channels let companies focus on innovating products: By delegating customer relationship management (CRM) and support to channels and distributors, companies can focus on what they do best: innovate. In a rapidly changing field like cybersecurity, maintaining focus on product development and improvement is crucial.

Innovation isn't something everyone does. There's comfort for some around selling legacy solutions.

Latin America is an excellent market to "test," learn about regional technology requirements, and then innovate around them. For example, in Latin America, prior to joining SonicWall, I was with Sophos, which saw incredible cybersecurity-as-a-service (CSaaS) growth while I was there. The company saw 31% of billings come from an engine where service providers sold their own security services, using Sophos as an additional "power." We never sold direct. It was always through the channel or the service provider. This business strategy ended up being replicated worldwide, and I am proud to see that it is now part of the company's slogan. The challenge is and will always be to innovate while respecting the ally, without being dazzled by EBITDA.

Distributors/channels reduce barriers to entry in emerging markets: Entering new markets is challenging. Established channels and distributors can help mitigate many entry barriers, from navigating bureaucracy to accessing potential customers. Additional barriers that distributors and channels can help with include taxation, import costs, network usage regulations, data protection laws and more.

Distributors/channels offer price flexibility: Pricing flexibility is vital to address the wide range of payment capabilities in SMBs, the midmarket and even in corporate America. Distributors can offer customers flexibility by adjusting prices according to local market conditions, and manufacturers can also adapt their costs to local economies.

Using Latin America and other emerging markets as an example, a direct sales strategy in these regions can present substantial risks in terms of costs, efficiency and market acceptance. On the other hand, a strong channel and distribution strategy not only mitigates these risks but also capitalizes on the unique opportunities present in these dynamic and diversified markets. This strategy allows cybersecurity companies to expand effectively, meeting critical security needs in these growing regions.

There's No One-Size-Fits-All CX Approach

As a businessperson based in Latin America, we must make leaders in larger and global markets understand that a single global customer service strategy simply does not exist. While the routes to market may be similar, the way to approach markets such as Latin America, Europe and Asia isn't the same as for the American market. This is why distributors and channels in Latin America and emerging markets are a necessity for long-term business success.

When playing sports, my father used to say to me, "Don't change what works well." Roughly translated here, if your GTM works well in a region as complex as Latin America, don't change it. And if it's not working, it's probably because you've strayed too far from the distributors and the channels. If you've gotten to the place where you're being perceived as a competitor to your partners today, you've probably gone too direct.