In today's globalized economy, each market represents local commerce and consumer trends. However, when these markets are considered together, they create a regional commerce landscape. Recently, Latin America has emerged as a promising region for businesses seeking expansion opportunities.
Traditionally, businesses have focused on Europe, North America, or the Pacific, but now Latin America is offering a favorable business environment for economic expansion. In this three-part series, we will delve into the topic of expanding into Latin America, exploring the market, its potential, and the challenges businesses may face. In this first part, we will analyze the current Latin American market, highlighting which countries are emerging as leaders and identifying key factors that business owners and corporate leaders need to consider when devising their expansion strategy.
It's no surprise that Latin America is becoming an attractive market for businesses looking to expand. Emerging countries like Mexico, Panama, and Colombia are providing growing and expanding classes of consumers, especially with the rise of a new middle class. In the past, infrastructure, technology, and business were the biggest concerns for companies looking to expand into the region. However, with the progress made in technology and infrastructure, Latin America has become a more viable option.
Additionally, the region's proximity to the United States and Canada presents a huge opportunity for businesses looking to tap into these massive markets. The three regions trade with each other on a large scale, making it an opportunity not just for US-based businesses but also for those in Europe and the Pacific. In this three-part series, we'll explore the potential and challenges of expanding into Latin America and provide key considerations for businesses looking to take advantage of this emerging market.
It's evident that the Latin American market is progressively becoming more conducive to business expansion. With the rise of a burgeoning class of consumers, advancing infrastructure, improved transportation networks, and relatively lower costs of expansion, it wouldn't be surprising to witness exponential growth in the region in the upcoming years. Despite the setback caused by the COVID-19 pandemic, it's reasonable to expect that the region will resume its growth trajectory in the next few years.
The Latin American region is composed of various countries, each with its own unique markets to consider. However, as a whole, the region is becoming increasingly attractive to business owners and corporate leaders around the world who are seeking new opportunities for expansion. Currently, Latin America is witnessing the emergence of a growing middle class, with people rising out of poverty and contributing to the region's expanding economy.
This, in turn, creates new consumer markets and heightened competition among businesses. Additionally, infrastructure developments in technology and transportation within the region provide added incentives for expansion.
All these factors combined indicate that expanding into Latin America is a wise choice, particularly as the costs of the such expansion remain relatively low compared to the US and Pacific markets. In the upcoming section, we will explore the potential for expansion, including opportunities and rewards. If you're interested in learning more, let's delve into the details.
In our previous article, we emphasized the growing middle class in Latin America and its impact on supply and demand. The increasing middle-class population is expected to create higher consumer demand for various goods, including foreign products like music, television, and fashion. Startupnation.com notes that online shopping is becoming increasingly popular in Latin America, with mobile eCommerce growing at twice the rate of traditional eCommerce.
With the development of technological infrastructure in many Latin American countries, the middle-class population is becoming more connected and eager to shop online. Therefore, businesses can take advantage of this demand by offering Latin Americans the opportunity to purchase foreign products locally.
Aligned with the growing demand in Latin America, it's reasonable to assume that the markets in this region are comparatively less saturated than other regions across the globe. In Europe or the US, consumers have a multitude of options when it comes to purchasing products, both in terms of product variety and retail options. In contrast, the competition in Latin America is not yet as intense, which presents an opportunity for businesses that are expanding.
There are fewer local providers catering to the needs of Latin American consumers, and the statistics support this claim. In 2016, 44% of online purchases were imported, indicating that there is ample space within the market for foreign businesses to enter and provide the products that Latin
American consumers are searching for. Leverage the Different Seasons Consumers in Europe and the US are accustomed to seasonal buying patterns. For example, fashion retailers typically stock swimwear in early spring and transition to sweaters and sweatshirts by mid to late August.
However, many Latin American countries are located below the equator and experience strong seasonal differences that businesses can leverage. When autumn arrives in the Northern Hemisphere, companies can continue to promote their summer swimwear lines in the Southern Hemisphere, allowing them to move inventory throughout the year.
These three benefits are just the beginning for businesses looking to expand into Latin America. As the markets continue to develop and mature, even more opportunities and advantages will become available.
Expanding into Latin America comes with its own set of challenges, as is the case with any business decision. In the concluding section of this three-part series, we will explore in detail the numerous challenges associated with business expansion into Latin America. While none of these challenges are insurmountable, it is important for business owners and corporate leaders to take them into account.
Startupnation.com highlights some significant challenges that businesses should take into account as Latin American consumers increasingly utilize the internet. Miriam C. Dowd, a writer for Focus Economics, mentions that eRetailers face hurdles in Latin America such as inadequate online payment security, low banking services usage, and substantial logistical issues.
This is a crucial consideration since some Latin American countries may be improving their mobile device 3G internet connectivity, but lack the necessary payment infrastructure to sustain a prosperous eCommerce industry. Consumer trust is vital. While eCommerce is thriving in other regions because users have faith that their sensitive information is protected during online transactions, if that trust is compromised, consumers may lose faith in eCommerce and instead choose to shop at brick-and-mortar retail locations with secure payment methods.
A Different Workforce
Expanding into Latin America also presents a workforce challenge for businesses to overcome. The region has a different way of life, and its underdeveloped status compared to other regions means that finding suitable workers for higher-level positions may be difficult.
The limited talent pool in Latin America may require businesses to be patient and wait for the market to catch up. Alternatively, businesses may consider bringing in their own personnel to manage the expansion initially, while building a local workforce for the long term. Despite the challenges, with careful planning and patience, successful expansion into Latin America is possible.
In the world of business, there are endless possibilities. Our world is beautifully diverse, with each country serving as a potential home base for emerging international businesses. Latin America is no exception, despite its young development. Despite the challenges and obstacles that come with expansion, there are numerous opportunities for business growth. In fact, Latin America offers a low-cost, high-reward expansion opportunity for international businesses, particularly those who enter the market early.
1. Grant your legal representative power of attorney (POA)
Your chosen legal representative should be able to draw up a POA for you to sign, which will grant them the power to act and sign official documents on your behalf.
2. Draft your entity’s company bylaws
The company bylaws outline the purpose of your business, as well as how it will be structured and function. To be accepted by local authorities, you will need to have them legalized by a notary public.
3. Register your business with local authorities
Once the company’s bylaws are legalized, your legal representative will be able to register your business in Mexico with the Public Registry of Property and Commerce. During this process, your legal representative must specify any real estate held by the company, as well as its commercial purposes, objectives, and goals.
4. Apply for your corporate tax ID number
Your corporate tax ID number will be crucial for identifying the entity on invoices and other official financial documents and will be granted by Mexico’s Tax Administration System (SAT).
5. Open a corporate bank account
When you receive your tax ID, you will be able to open a corporate bank account. Your choice of provider may be informed by the type of business you are involved in, or the geographic location where you are based, and your legal representative should be able to provide guidance.
6. Deposit your initial investment
The final step to registering a business in Mexico is to deposit your initial investment in your corporate account. Once that has cleared, and as long as it meets any requirements stipulated by the type of entity you have chosen, you are ready to do business.
CHY offers a variety of tax-related services.
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