As you can probably tell, I've been on a "business in Latin America" kick lately.
Today I'll be talking about what I deem the most suitable countries for anyone looking to start a business south of the border.
But before I get into all that, a few comments about how I determined the rankings:
1. The rankings are based on a B2C (Business to Consumer) model as opposed to a B2B (Business to Business) model.
This list addresses a B2B business model rather than a B2C. Think the guy who wants to open a store selling sunglasses as opposed to the guy wanting to sell security systems to corporations.
2. The rankings are based off a combination of research, personal experience in the countries and my own advertising campaigns/sales from a dropshipping business.
I know, it's not the most scientific of studies. But there are plenty of those out there (I'll save you the time: Chile usually wins as the best place for business). I wanted to share my opinion and results with you because they run almost completely contrary to the dominant opinions about the best countries to do business.
When I started my dropshipping store, I ran Facebook advertising campaigns in various countries. I spent the same amount of money on ads in each country to gauge consumer interest in an effort to figure out where to focus my attention on. I was soon able to get a clear idea as to what markets were viable. I'll discuss the results with you in the article.
3. The rankings are based on the best countries to start a small business. Not large scale businesses or start-ups
I assume most of my readers that might be interested in this kind of stuff aren't looking to start the next Wal-Mart or Amazon in Latin America. Normally, people who move to LATAM to start a business are looking to start something small that doesn't require outside investment or much initial capital, perhaps with the ability to scale in the future.
Let's get it going.
***Note: The dropshipping store I will be referring to throughout the piece is in the women's fashion industry. For two weeks, I advertised a photo gallery with pictures and prices of my products, as well as a giveaway for one of my products. I did this in the following countries: Mexico, Costa Rica, Panama, Colombia, Ecuador, Peru, Chile, Argentina. My ads were designed for gaining Facebook followers and gauging interest rather than for making sales (although I did make a few sales).
Mexico has relatively high credit card penetration as far as Latin American countries go, which is good news if you're looking to start an online business - a decent number of people will have access to credit cards, and they are more accustomed to buying things online than in other countries. Also, the country has both a growing middle class and a low cost of living. This means that one: you can start a business for relatively cheap, and two: many locals will have the disposable income to afford what you're selling!
Its proximity to the United States is also a huge bonus. You can easily travel back and forth between the two countries if you find that your business needs something that is hard to get in Mexico. Also, the close relationship between the two countries often means that the newest trends in the United States will also be popular in Mexico. Many businesses have been wildly successful simply on account of being the first to bring a pre-existing American trend down south.
Finally, Mexico is consistently ranked as one of the easiest countries in Latin America to do business. Although things will be a bit tougher for you as a foreigner, there is much less bureaucratic nonsense than in most other LATAM countries.
It will be hard to find a demand here that hasn't already been filled. With its proximity to the United States, as well as having Mexico City, one of the world's biggest metropolises, there isn't much people can't find in Mexico. Many US and European companies already have a presence in the country and are able to sell their products at a much cheaper price than you could reasonably hope to.
Also, if you spot a niche trend in the United States that you think could work as a business down here, you won't have much time to execute it. Due to its close relationship to the United States, the copycat market moves fast here; if you find a business idea that's working in the States that you think has potential in Mexico, chances are a handful of Mexicans have already copied it. That isn't to say you can't do it better, just that you probably won't have the advantage of being first.
My Dropshipping Facebook Ad Results
My results here were a bit lower than I was hoping. I had high expectations! Mexico is the country I'm most familiar with culturally, and I consulted a lot of people about what kind of fashion products were in demand, but hard and/or expensive to get. I was confident that there would be reasonably high demand.
In reality, interest was lukewarm.
My campaigns resulted in one sale from Mexico, and put Mexicans in 3rd place for number of Facebook page fans.
Recommended cities to start a business in Mexico
Chile always ranks in the top 5 best places to do business in LATAM. It often takes first place. And it makes sense. Along with Mexico, it is considered the easiest place to do business in Latin America. You can register a business online, it has strong and trustworthy banking institutions, low corruption, a stable economy, tons of free trade agreements and probably the best start-up environment in the region.
Chileans are well off by Latin American standards, and that means they'll have more money to spend on what you're selling!
Also, the postal system is among the best and most trustworthy in South America. Your packages will usually arrive. This is a huge plus if you plan on doing an online business.
But, perhaps more importantly, and the main reason why Chile beats Mexico in my opinion, is the ease of obtaining a longterm visa. Through Chile's retirement and periodic income visa for instance, all you need to do is prove that you are earning enough income to support yourself in Chile (so, like $750/month+) and you can get a visa that allows you to stay in the country. From there, it's a fairly straightforward process to temporary and eventually permanent residency. I'm all for doing cheeky little off the books businesses in LATAM, but Chile is without a doubt one of the best options if you want to open a completely legitimate business.
Everything is expensive here. You'll have to shell out a lot more money for rent (business and home) as well as other living expensive. The cost of labor is expensive, too. If you're thinking of manufacturing a product in Chile expect to pay very high prices. And if you want to import your goods, you'll pay a whopping 19% VAT. That doesn't leave very many options.
Another thing is competition. A lot of millennial trust fund babies have chosen Santiago as a start-up base due to its friendly business environment. They're quickly jumping on gaps in the market that they've noticed. You'll also face stronger local competition than in other South American countries. The people here have a stronger work-ethic and are more organized and efficient than in other SA nations.
Finally, Chileans strike me as cheap. All the Chileans I've known have been, well, niggardly. I got this impression during my (admittedly) short time in the country as well. Although they probably aren't as bad as Argentines, you'll have a harder time getting Chileans to part with their money or make impulse purchases.
My Dropshipping Facebook Ad Results
Dismal. Even worse than my low expectations. My campaigns resulted in zero sales and very little interest. I attribute part of this to a more reserved culture (one of my campaigns required shares and tagging friends to be eligible for the giveaway...seems Chileans aren't too enthusiastic about this kind of thing). It also may be that the demand for, in my case, women's apparel, is being sufficiently met in Chile. I know H&M is insanely popular there. Chile is in 5th place for the number of Facebook fans on my page.
But, alas, I'm able to look past my own failings to recognize that due to its wealth, the ease of doing business and openness to foreigners, Chile is still a solid choice for starting a business in Latin American.
Recommended cities to start a business in Chile
Colombia is going in the right direction. Economic growth and investment are expected to rise into next year. The middle class is expanding. There is no threat of a disastrous socialist political turn Venezuela-style. Although it has its share of problems, it's an economy on the rise, and now is the perfect time to get in.
This is the birthplace of PayU LATAM, the PayPal of Latin America, so people are more accustomed to buying online than you might imagine. And they are heavy users of social media. Facebook and Instagram ads work very well here.
Plus, for people interested in Latin America, Colombia is probably the most desirable place to live.
What makes Colombia a great place to start a small business is the fact that many consumer demands have low barriers to entry. For example, any business related to vanity is big in Colombia (mostly for women, but more and more for men these days too). Clothing, accessories, cosmetics...Colombians like to spend money on these things. And these things are fairly easy to produce cheaply (fabric and labor can be had cheap in Colombia). Now, while no one would argue that Colombia lacks stores related to clothing or beauty, I'd argue that with appropriate branding you could carve out a nice niche for yourself in either apparel, accessories or cosmetics.
Criminality. There are some places in Latin America where I'd feel comfortable attaching my name to a business or even running a showroom out of my home. Colombia is not one of these countries. There is no city, or neighbourhood of any city, where I'd feel at ease with people knowing I was running a business. Shit can go down in Colombia, and the lower your profile, the better.
Another thing is Colombia's postal service. Their national postal service (472) is not very reliable. If you're sending stuff within the country Servientrega is better. Unfortunately, if you want to import products from another country, the shipping will likely be handled by the national postal service. Beware.
Finally, Colombia is a cheap country. Clothing is cheap, food is cheap and personal products are cheap. Depending on what you're selling, it may be hard to compete on price.
My Dropshipping Facebook Ad Results
My results for Colombia were intriguing. There was a great deal of enthusiasm for the products - Colombians would dish out likes and shares like candy, and participated heavily in the giveaway. They also, by far, sent the most messages to the Facebook page inquiring about products. But, although interest was high, it didn't result in any sales (I had 2 attempted purchases from Colombia but the cards were declined...lol).
Colombians seemed to want to visit a physical store instead. A lot of the questions I received were asking if there was a location in Medellin, Cali or Bogota. That, or they were willing to buy online but didn't have access to a credit card (having a Colombian PayU account to receive payments would have solved this and perhaps resulted in more sales).
It's difficult to say whether or not I'd be able to convert that interest into sales if I had the products inside the country - I suspect the success of my ads for gaining interest and followers is more due to rabid social media use rather than people actually wanting to buy my shit.
But at the very least, there seems to be potential in the land of sex, drugs and salsa.
Recommended cities to start a business in Colombia:
I never thought I'd be recommending somewhat-socialist Ecuador as a good place to start a business as a foreigner. But hear me out! There are a few things that make this small South American country a surprisingly good option.
First of all, they use American dollars. Not a currency pegged to the US dollar like the Panamanian Balboa, but the straight-up greenback. This makes things a lot easier in terms of figuring out pricing, and also has other advantages such as the ability to spend your Ecuadorian cash in the US, or vice versa. Second, many consumer goods are damn expensive in Ecuador. Clothing, cosmetics, toys, shoes...basically anything fun costs a lot of money to buy here. I don't really understand this because their import VAT tax isn't that bad (12.5%)...Anyway, point is, if you can find an effective way to get products into the country, you can very easily compete on price.
Third, the selection in Ecuador for cool, stylish products is awful. Not many American or European companies have expanded here, and I've failed to come across many impressive Ecuadorian brands. That, and the marketing is awful. Watch Ecuadorian TV for 10 minutes and you'll see what I mean. Plenty of opportunity.
Fourth, like Chile, Ecuador is a county where it is fairly easy to get temporary or permanent residency. Basically, after a little less than two years of temporary residency (pretty easy to get), you'll be eligible to apply for permanent residency.
Fifth, Ecuador's economic outlook is looking better each day. Moreno, the newly-elected successor to Correa, isn't nearly as incompetent or socialist as everyone thought, and he looks to be putting the country on the right track again.
Ecuador isn't the easiest place to start a legitimate business. It is more bureaucratic than Chile or Mexico.
Also, online shopping had not taken hold as strongly as in other parts of LATAM. Credit card use is not the norm. In fact, there aren't any good options for accepting online payments, as PayU LATAM doesn't operate here. If you want to run a successful business in Ecuador, you will have to accept in-person payments and bank transfers.
Another thing is its strict import restrictions and its terrible national postal service. It's tough to import anything to sell without getting dinged extremely hard on import taxes, or without violating an import law (used clothes are banned from entering Ecuador, for instance).
But there are certainly demands that aren't being met here. If you can creatively get around all of the challenges, I believe you would be rewarded.
My Dropshipping Facebook Ad Results
A runaway success...much to my surprise. People in Ecuador loved my shit. Even though the country has a third of the population of Colombia (16 million vs 48 million) my campaigns resulted in nearly 100 more Facebook likes from Ecuadorians than Colombians. Truly remarkable. The other thing is that they actually bought products! I had 3 sales from Ecuador and more attempts from people wanting to pay cash (unfortunately I had no way of accepting it).
I think part of the reason for this is because I had items priced in US dollars on the Facebook ads and, since everything was written in Spanish, people probably assumed it was an Ecuadorian company.
It makes sense - I was offering cheap, stylish clothes to a country where clothes are neither cheap nor particularly stylish. I'm confident that if I someone could deal with the complexities of setting up shop in Ecuador, they could do a pretty good trade with the right product.
Recommended cities to start a business in Ecuador:
Peru is THE place to be for business right now. It is one of the fastest growing economies in Latin America, and that growth shows no signs of slowing down.
It's the perfect combination: a population with rising disposable income, but nobody capitalizing on the increasing frivolous demands of the people. In Lima for example, a city of over 8 million people, it's almost impossible to find decent coffee. It's also harder and/or expensive to find things that are readily available in other major Latin American cities. Like yoga gear. Simple things like cosmetics and face cream cost 2-3x as much in Lima as they would in Bogota or Mexico City. Basically, prices are all fucked up here for a lot of stuff. I don't really understand it. Fortunately, it means that there is plenty of opportunity to capitalize.
There is also Gamarra.
Gamarra is an enormous marketplace where you can find basically whatever you want for very, very reasonable prices. They mostly deal in garments and fabric. If you want to produce anything having to do with clothing on the cheap, this is where you need to go. You can find both material and seamstresses here for very cheap. I know of nothing else like it in South America. You'll need to bring a local along to negotiate the best prices, ideally a local who is familiar with Gamarra.
Also, Peru's postal service is better than most LATAM postal services. That isn't to say it's any good, just better than most. Serpost is the one that will handle your packages, and they are mostly reliable. Olva Courier is cheaper and also reliable, but it takes longer. Both are decent options, which is more than I can say for most countries' postal services!
Credit card use and online shopping are also rising bigly in Peru. The banking infrastructure is decent, and makes it easy to send and receive money. PayU LATAM also operates here (unlike in Ecuador), making it very easy to accept all kinds of payment options for your business.
Although online purchases are catching on, they're still not as prevalent as in countries like Chile, Brazil or Argentina. People are still more comfortable going the cash or bank transfer route. Also, if you're wanting to start a physical business, note that rent in popular neighbourhoods like Barranco and Miraflores is high. Lima is kind of stuck in a weird place where online shopping isn't quite popular enough to sustain a purely online business, and rent prices are high enough to make you think twice about starting a physical one. However, I think that if you get in the online business game now and market it well, you will be in a very good position a few short years from now.
My Dropshipping Facebook Ad Results
First place. My ads got the most likes, sales and Facebook fans than in any other country. The style of clothes I had on the site are expensive in Peru, and I was able to sell the same type of things for much cheaper (thanks to dropshipping from China). I'm not entirely sure why I got so many more fans from Peru than Colombia, a country with a similar population, but I'm thinking it's because clothes are significantly cheaper in Colombia than in Peru. Colombia also has more chain stores, i.e more selection. But I'm just speculating.
Recommended cities to start a business in Peru:
And there you have it! The best cities in Latin America to start a small business.
You may have noticed that I left some obvious choices off the list (namely Brazil, Argentina and Panama). Here's why.
Brazil: Economy is down, crime is up and the bureaucracy around starting a business is likely the worst in all of LATAM
Argentina: Economy is perpetually shaky & import restrictions are ridiculous (you basically can't get anything into the country)
Panama: With a population of only 4 million people, the domestic market is very small. But you may be able to find a niche
Like I said, this isn't the most scientific of studies, and as far as my dropshipping ad results go, they only apply to women's fashion. Nevertheless, based on my own research, observations and personal experiences, these are the places I'd hit up for a bit of business.
That's all folks! As always, leave your thoughts in the comments below.
And until next time,
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