Doing Business In Latin America

Challenges and Opportunities

John E. Spillan, Nicholas Virzi, Mauricio Garita

• Publisher: Routledge
• Year: 2014
• ISBN:
  9781136195730
• Edition: 1
• Topic: Economics
• Subtopic: Exports & Imports
• Index: Economics

Success in today's globalized business environment requires deep knowledge of varied areas, and the willingness to engage in commerce not just across geographic areas, but cross-culturally and environmentally as well. Doing Business in Latin America offers an in-depth look at a complex region, integrating practitioners' and scholars' ideas to examine business conducted in Latin America through the lens of international business and globalization.

The book introduces, discusses, and explains in detail the historical, economic, cultural, political, and technological impacts of globalization and business conduct in Latin American countries. It also considers the contemporary business environment of the area, looking at how current country and regional factors have affected the process of starting and operating businesses. Finally, it looks forward to the emerging trends that portend the future of business in these countries.

With its combination of contemporary analysis and historical discussion, this book is a vital tool to all scholars and practitioners with an interest in the opportunities offered by the current Latin American business environment.

1

INTRODUCTION TO THE LATIN AMERICAN BUSINESS ENVIRONMENT

OPENING CASE: BUSINESS CASE—OPEN ENGLISH

Open English was established in Caracas, Venezuela in 2006 as an online English learning company. Over time the company expanded its offices to Bogotá, Columbia, Sao Paulo, Brazil, Miami, Florida and Panama City. The business is a multimillion dollars enterprise with an estimated 80,000 users in Latin America.

Andres Moreno, the CEO, originally started the company when he was 25 years old. His first business venture was Optimal English, an English learning academy for international executives. With his experience operating the English learning business in Latin America Mr. Moreno and his classmate, Wilmer Sarmientos, formed a partnership. In 2008, the company had just three employees and targeted a very small market. During their tenure administering the business, Mr. Moreno and Mr. Sarmientos noticed broader business opportunities in other parts of Latin America (Miami Herald, 2012). As such, they developed an online learning system that allows students to tune in from their computers to a live class with native English speakers. The program works by just having an Internet connection anywhere in the world. With this approach a student can continue his/her learning despite travels or other activities that would generally preclude them from attending traditional classroom lectures.

This online learning business strategy focuses on three traits: achievable goals, human interaction and fun. Students can achieve their English speaking goals by improving or expanding their English speaking capabilities; they can advance their human interaction because the classes are live with instructors who are native English speakers; and they can have fun because the classes are dynamic and entertaining (Andres Moreno, 2013). All of these program components have become part of the Company’s marketing strategy. By incorporating creativity in their advertising campaigns by using English language comedy that can be understood by persons who speak both English and Spanish, they have livened up the message and attracted a broader client market. Additionally, their advertising campaign has been so popular that their Facebook page has people in Latin America commenting on the advertisements. Presently, the company employs 1,000 people and, as mentioned earlier, serves an estimated 80,000 students in 20 countries. In 2013, they started an expansion to Brazil by using venture funding of $43 million dollars (TC, 2012). In 2012, the company grew 350% in their revenues and was expecting a 300% growth in 2013.

Their aim, apart from Brazil and other Latin American clientele, is the Asian market, with China specifically in mind. They will be using the same model that has helped them develop a $43 million dollar company by focusing on students in the middle class, businesses that need English to achieve their business goals and for other clients that need continuing improvement in their English proficiency.

This opening case provides an overview of a business that started small and took advantage of the opportunities existing in Latin America. Developing smart business strategies, being deliberate in its focus and using hard work gave this business the success it always desired. This case illustrates how people with ideas in the digital age can build a company that can reach all of Latin America. This is just one example of how innovative business people can take advantage of the challenges and opportunities that exist in this land of great potential.

In this chapter the aspects of business trends, combined with examples of popular business ventures, will give an idea of what is currently happening in Latin America and what will happen in the near future. Latin America is now a strategic region for investment and has the capability of expanding and competing with other regions through innovation, product development and localization. This chapter elaborates on the importance of these factors and how they have influenced the economic development of the region.

INTRODUCTION

Latin America is no longer the closed-off mercantilist system it once was, where trade was viewed as a zero-sum game, made up of only winners and losers. The forces of globalization, the exchange of ideas, information, and technology, and the processes of democratic consolidation have served to improve and expand Latin American market systems and thus potential opportunities for business investment in the region.

However, a one-size-fits-all approach to doing business in Latin America will not work. The important changes just mentioned have not occurred uniformly across the Latin American region. Some areas of the Latin American region, indeed, seem bent on a return to the anti-foreign, anti-trade past. The foreign investor seeking to do business in Latin America should be forewarned. Those countries embracing the challenges posed by the globalized economy will provide different business opportunities than those opting for more statist-oriented developmental models. This book will help readers determine which economies are more likely to prosper and thereby offer better business opportunities for the foreseeable future.

Latin America is a region worthy of further consideration by both academics and practitioners. The richness of opportunities is matched by its incredible diversity on many fronts: geography, ethnic, and racial composition; European heritage, religion, historical experience with the US—among many other lines of differentiation. In addition to the Caribbean, the region consists of 19 large, medium, and small countries in Central and South America.¹ It has a combined population of more than 500 million, and three main languages: Spanish, Portuguese, and English. The biggest economies are those of Mexico, Brazil, Colombia, Venezuela, Argentina, Peru, and Chile.

Without any doubt, Latin America represents a huge business potential for venturing entrepreneurs, especially as investment opportunities seem to be souring in the developed world. Investment and business opportunities in Latin America are growing, particularly in those countries that have committed to taking the first steps in developing efficient market systems. Rich in natural resources and with a predominantly young and hard-working population, the region has shown an ability to learn from US businesses, and others around the globe, and to successfully turn new capital investments into wealth and welfare, albeit with mixed success.

The business terrain in Latin America is ready to be worked. In a sharp break from its recent past, Latin America is a region with a predominantly market-oriented education and culture. The business class there is savvy. It speaks the same language and utilizes the same principles and concepts as do American business people and others from around the world. The region has the potential to grow tremendously, given the proper institutional settings. Culturally, Latin America is much closer to the United States than many people realize, and can thus present a much easier path for entry by Americans into its markets than is the case in other developing areas of the world. This is particularly so as the United States becomes more like Latin America, given the surging influence of Hispanics in the United States.

Care should be taken not to overstate the case. Much progress has yet to be made. Despite signal advancements, Latin America can still be characterized as a land of contradictions. For instance, it is rich in resources, but many of its people are poor. Sentiments of opposition to “Yankee imperialism” still abound, but most people want to buy American, and, given the chance, they’d want to be Americans. During the past fifty years, the Latin American population has grown to almost 600 million people (World Bank, 2013). However, GDP per capita growth has not kept pace with population growth.

Even though Latin America has presented a record of stable economic growth over the past decade, the sustainability of this progress is not guaranteed, especially as certain governments begin tinkering with ways to undermine the democratic process and efficient markets. With its incomplete and sub-par infrastructure, along with its political uncertainties, anything can happen to derail progress. Unfortunately for Latin America as a whole, in the past this has always been the case.

But all is not bad news. One of the major advantages of the large, growing population is the immediate access to a potential labor pool that is not only large, but also young. This is important for the future growth and development of the region, as it lowers expectations of future wages in the medium run. Latin America, for the most part, can expect to enjoy a positive demographic boom in the economic sense of the word—more workers, more consumers, more investment and employment opportunities, more democracy and, it is to be hoped, political stability.

It helps to tell the reader where the book is going. The remainder of this chapter is organized around several introductory, contemporary topics that have had a major influence on how business is done in Latin American countries. First, we discuss the geography of the region and how integrated it really is. Then we go on to discuss the various opportunities presented by the multiple phenomena of globalization, the rise of the middle class, the ensuing democratic consolidation, and the spread of markets and democracy throughout the region. After a brief treatment of the opportunities posed by these new phenomena, we move on to a frank discussion of the challenges to business and development still posed by poor infrastructure, cultural difficulties with modernization, social conflict, political uncertainty, ...