There is a decades-long misconception in many U.S. entrepreneurial spaces about Latin American markets: “There is not enough wealth in Latin America for people in the region to buy products and services.”
In other words, if you are part of a U.S. company trying to compete globally, Latin American markets are not economically relevant, so you should focus your expansion efforts on a different region. I’ve heard this many times over the years.
There is, of course, a significant amount of inequality, poverty, and political instability in the region, just like in many other parts of the world. However, there is a middle class comprised of a very large number of people who are aware of international trends, socially involved, and culturally engaged. They also have enough buying power and technology access to purchase the products and services offered by U.S. companies.
At the same time, Latin America offers world-class manufacturing operations for multinational groups and sourcing or raw materials continue to grow as supply chain issues slow the pace of business and frustrate customers around the world.
This is not news to everybody. Many U.S.-headquartered companies, particularly large ones, have been taking advantage of what the region offers for decades. They continue to ramp up their sales in Latin American markets as they increase their manufacturing presence and raw materials sourcing in the region.
Given the challenges and complexities of today’s business landscape, companies that are not doing business in Latin America may want to consider the opportunities available.
Technology as an Equalizer for Latin American Markets
Technology and financial services sectors have seen exponential growth in Latin America, thanks in large part to major investors from all over the globe. Many digital services providers, including some of the largest digital financial services providers, originated and have thrived in Latin America during the last few years. Several are now competing in other economies around the world.
Until recently, many people in Latin America did not have access to basic banking services and payment mechanisms. Technology, connectivity, and automation have changed the landscape. Banks and alternative digital financial services providers now can build relationships with consumers, regardless of location.
Technology has also helped the people of Latin America contextualize the always-present social and political issues of the region. This has not only changed how people communicate, but it has driven a shift in the way younger generations approach challenges of society with more information and a greater sense of empowerment.
Latin America’s Relationship with China and Other Asian Countries
Since the 1990s, any interest that many U.S. companies could have had in Latin America shifted to China and countries in Asia. Market size and potential manufacturing capabilities made sense from a “single global perspective.”
Since then, we have learned that logistics, cost-effectiveness, and social and ecological responsibility often don’t benefit from overconcentration of production. We have also realized that all markets have significant differences that need to be addressed individually and that many markets value regional commitment.
Selling to Chinese and other Asian markets, as for any other markets in the world, is challenging and requires in-ground effort and resources. Maintaining manufacturing operations on the other side of the world for U.S. companies, particularly if they will not be selling there, is complex.
In the ubiquitous digital economy in which many consumers expect instant fulfillment, supply chain efficiency is more relevant than ever, and regionally diversified manufacturing often helps. As a result, many U.S.-based companies have realized that doing business with a neighbor isn’t such a bad idea, and expansion or even nearshoring of operations to Latin America will increase in the years to come.
Although Latin America is culturally different from the U.S. to a certain extent, there are still many similarities that could simplify the marketing efforts of some U.S. companies that are expanding their sales and operations abroad.
Of course, the region and its characteristics are not relevant just to U.S. companies. Although most of the foreign investment in Latin America still comes from the U.S. and Europe, Chinese and other Asian countries’ investments in the region have seen tremendous growth. Many groups from China and other Asian countries now have a significant presence in Latin America. Such a presence often exists not only to address the Latin American market, but also the U.S. market.
Tax Benefits of Doing Business in Latin America
Free trade zones and special manufacturing and services regimes in Mexico, Colombia, Costa Rica, Uruguay, Panama, and other Latin American countries allow for international operations to be taxed in an efficient way. As competition for investment increases in the region, specific industry-related regimes are being developed. This, for example, has contributed to a thriving tech scene in Uruguay.
Discover the Economic Power of Latin American Markets
Some of the largest and most innovative companies from the U.S. and the rest of the world are already investing in Latin American countries, as markets and as production sites. There is still a massive opportunity for more companies to reap the same rewards, regardless of size or industry. If you’d like to discuss how your organization can benefit by building a presence in Latin America, please feel free to contact me at raramburo-williams@pragermetis.com.
