Doing Business In: Latin America

 Doing Business with Latin Americans

 

Latin America extends from Mexico to the tip of Cape Horn.

There are 32 countries in Latin America.

Arica, Chile an Atacama Desert mummy is more than 7,800 years old, 2,600 years older than the nearest Egyptian counterpart.

Mexico has about the same amount of oil reserves as Arabia.

Belief that all who work can be rich.

God created the world for all … Why differences?

Latin America was Evangelical by the end of the 21st century with Christianity Protestants the majority.

Evangelical … the good news of the redemption of the world through Christ.

LA, the work one does is directly related to the social class one is in.

“Caudillo” – owner, manager of power and authority.

“Patron” – man of power and wealth – merchant or money lender that sustains power and loyalty.  All powerful.

 

With a $4.8 trillion economy, approximately 600 million citizens and a burgeoning middle class, Latin America is a rapidly-growing market.

Latin America is comprised of Central and South America. An important trade partner, United States trade with Latin America is approximately $134.5 billion in exports and 20% of total exports.

Growth is the hallmark of this region as demonstrated by more than 50 million Latin Americans that have joined the middle class over the past decade. An expanding middle class with a well-educated workforce has created millions of new consumers for manufacturers.

Growth is the hallmark of this region as demonstrated by more than 50 million Latin Americans that have joined the middle class over the past decade. An expanding middle class with a well-educated workforce has created millions of new consumers for manufacturers.

Even though there are important and distinct differences within this major region of the world, there are some common habits and similarities within the Latin American culture. All speak Spanish, except in Brazil where the national language is Portuguese.

One pattern common across Latin America is a sharp gap between rich and poor. About 10 to 15 percent of people in this region belong to the upper or upper-middle classes, and another 20 to 40 percent fall in the middle class. That leaves about 50 to 65 percent of the population in the lower classes.

 

Companies that sell products or services in Latin America generally deal with this income disparity in one of two ways. The first strategy involves targeting the “A strata”, or households at the top of the pyramid. Although this segment of the population is small, that’s where the purchasing power lies in Latin America. This is seen as “high margin, low volume” strategy every time in shopping malls and urban centers such as Sao Paolo, Brazil; Lima, Peru or Buenos Aires, Argentina. The store windows are filled with luxury items that most people cannot afford.

The second marketing strategy is also popular. This involves targeting the bottom of the pyramid, where the purchasing power is small but consumers are plentiful. Companies that use this “low margin, high volume” strategy sometimes package premium brands of products such as toothpaste or laundry detergent in smaller containers. This makes quality products accessible to people in the lower strata.

Why should US companies consider expanding to Latin America?

The short answer is that it is a huge opportunity for growth and profit. As per the US Department of Commerce more than one-half of the US’s Free Trade Agreements, also known as FTAs, are with the Spanish speaking countries of Latin America. We are talking about countries like Chile, Colombia, Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Panama and Peru.

The International Monetary Fund forecasts a growth rate of 4.5 percent for these countries. These nations share a common language and similar business cultures. They have rapidly growing middle classes with a taste for US products and services. Each of the FTA countries has made commitments to open markets with the US. So far this year, US trade with Latin America is up 5.7 percent. The real question is “what are we all waiting for?”

 

What do US companies entering in this part of the world need to know well in advance of entering to be successful?

Business in Latin America revolves around people before transactions.  It is important to make a time investments getting to know strategic industry and business leaders in addition to business partners and customers.

Trust, or confianza, is critical and this is gained through building relationships. Confianza acts as a cement that reinforces the relationship between a US supplier to a Latin American customer and business partner.

How time is perceived creates the biggest divides for American companies doing business in the region. Time in Latin America is cyclical and unpredictable. Punctuality is not valued as it is in the US. Plan ahead for delays. Patience and not showing frustration is key when things run off schedule as they will despite the best of intentions.

Social status, power, and money play a big role in doing business. It is important to be open minded, learn how to capitalize on the nuances of hierarchical business environments.

What are the biggest mistakes a US companies make when entering Latin America?

Jumping into business too quickly and asking invasive questions before a relationship is established. Think of relationship building-building like the appetizer before a five course meal.

Displaying impatience and frustration when things do not go as expected, such as an unforeseen meeting delay or cancellation (is not advised). Flexibility and adaptability are essential.
Taking a short term approach to business, entering a market when times are good and exiting when times are bad. Any stock broker would confirm that the time to buy or invest in stocks is during times of uncertainty.  Senior industry leaders are more accessible during times of uncertainty.

Are a lot of US companies doing business in Latin America today?

Yes, and US multinational companies have been conducting business for many years. And given the regional growth rates and Free Trade Agreements (FTAs), sales are expected to grow substantially. According to the US Department of Commerce, Mexico is the Americas’ second largest export market for goods with $222.6B in trade and is up by 4.7 percent.

With more than half of all US FTAs in Latin America, new opportunities exist for SMEs in economies that are growing. Economic growth is expected to be 7 percent for Panama, 4 percent for Colombia and 3 percent in Mexico. We do not see these rates of growth in the US, which means that looking south is fertile for sales growth and expansion

What products are in demand? What’s hot?

The list is large and includes capital goods, industrial supplies, energy infrastructure, airport infrastructure, construction, consumer goods, automotive vehicles and parts, foods, feeds, beverages, telecom, IT and wireless.

In the United States, auto parts manufacturers achieved $77.5B in exports and more than one-third of those exports went to Mexico, which is a 9 percent increase.

The core countries to keep an eye on are those that form part of the Pacific Alliance and include Chile, Colombia, Panama, Peru and Mexico. The US has FTAs with each.

Another exciting area of opportunity is in the Energy sector. According to the US Department of Commerce’s Look South Initiative, energy consumption is projected to more than double in Latin America between now and 2030, and this will transform the continent’s energy sector creating new opportunities for US companies.

Chile has a projected growth rate in energy consumption of more than 6 percent. Colombia is looking to expand hydro-power generation projects through 2018. Mexico’s energy reform bill may open up new opportunities for US technology and services.

In all Latin countries, the attitude toward time is less rigid than among North Americans and a 30 minute delay should not be a surprise. In fact, among close associates, it is recommended that, when setting times for appointments, ask “la hora inglesa, o la hora espanol?” This means “the English hour” meaning “Promptly at the time specified” or “the Latin hour” meaning “If I say 7 o’clock, do not be surprised if I do not show up until 7:30 or even later”.

Latinos will usually stand closer together during conversations, so be prepared for that plus casual touching and, of course, the abrazo, or embrace, among good friends. You may even be startled to have a Latin businessman hold your elbow while conversing, or walk down the street arm-in-arm.

Latinos are very warm and friendly people and enjoy social conversation before getting down to business. This is a calculated process aimed at getting to know you personally. Latinos tend to be more interested in you, the person, than you as a representative of some faceless corporation.

The main meal of the day is usually taken at midday throughout all Latin American countries. However, this should not deter you from also hosting your business guests over dinner in the evening. Most Latin business people know about American dining customs and in their own country will entertain in the evening at a restaurant for special occasions. When toasting, the host customarily is expected to make the first toast with the guest then probably responding.

Published by The Academy of Market Intelligence
© Academy of Market Intelligence (AMI SINCE 1997)
http://www.mkintel.org