If you want to reside south of the border, you'll need to find a way to make money. An e-commerce business in Latin America is one of the ways to do this.
However, it's often overlooked.
The vast majority of foreigners down here will make their living doing one of the following things:
1) Teaching English
2) Working for a multinational corporation
3) Freelancing from their computers
It makes sense. These are the only immediately apparent options for expats south of the border who aren't citizens of their adopted country.
But unfortunately, these aren't always ideal work situations.
- English teachers don't make very much money
- Employees of multinational companies usually need years of experience before they can put in for a transfer
- Freelancing is somewhat unstable, and limited to services that can be delivered electronically
So, what do you do if you want make money in Central or South America as a foreigner, but aren't interested in any of the above options?
Fortunately, there's an alternative.
Opening An E-commerce Business in Latin America
It's Not as Crazy at it Sounds!
There is plenty of information on the Internet about sourcing products from Latin America and selling them through an online platform to customers in the United States and Europe. But there is virtually no information about selling products to the Latin American market.
There's good reason for this. On paper, it makes much more sense to sell to an American market, where clients have more money to spend and are much more comfortable with making online purchases, than it does to sell to a Latin American market where people are poorer, where only around 10% of the population have bank accounts and where online shopping is in its infancy/viewed with suspicion.
That, accompanied by the fact that you'll have to do business in a foreign language, is enough to send most people running for the hills.
But, being the contrarian that I am, I'm here to tell you why that should not scare you off.
First, let's take a look at the growth of e-commerce business in Latin America.
The fact that e-commerce is only just starting to catch on in LATAM means two important things:
1) It has huge potential for growth
2) Competition is still low
I'm always amused at how bad the marketing and advertising is in Latin American countries. With the exception of Brazil and Mexico, it is a train wreck. One common theme is for advertising companies to simply copy popular American campaigns and apply them to... well, anything.
For instance, on several occasions I've seen the phrase "What happens in Vegas, stays in Vegas" translated to market everything from popular nightclub chains to affluent residential areas (lo que pasa en ____ se queda en ____).
Websites for some of the biggest and most successful regional companies still look like they were built 20 years ago.
Large beauty salons will put out a blown-up, out-of-focus picture of Britney Spears or Nicole Kidman to advertise their services.
The bar is really, really low.
This is slowly changing as increased competition in major industries is forcing companies to up their game, but it is still nowhere near on the level that we see in North America or Europe.
In terms of marketing, it's like taking a time machine back 10-15 years.
With the right product, intermediate knowledge of SEO, Facebook/Google Ads and Instagram, along with a basic cultural understanding of your target market, you'll kill it down here much easier than you ever could in the United States.
Disadvantages and Advantages
If you're thinking about taking advantage of the growing e-commerce business in Central and South America as an expat, you will run into some very real hurdles. Before looking into the steps you will need to take to set-up a successful store down here, let me help you decide if it's even worth it for you.
- Less competition/saturation than in the developed world
- One of the fastest-growing regions for e-commerce
- More untapped markets (e.g. things that are currently popular in US that haven't made their way down yet)
- Many obvious opportunities for arbitrage
- Low start-up costs & unlimited income potential (unlike teaching English)
- Still a small market with low credit card penetration & less disposable income
- Legal headaches w/ registering business in a foreign country (if you choose to register...more on that later)
- A lack of suitable payment gateways
- Unreliable shipping
- Cultural differences
So, although there are good opportunities to fill gaps in the market and to build a presence via effective marketing, a small customer base and bureaucracy will pose difficulties to doing business in Latin America.
So, How Do you Do It?
Opening an online store in Latin America isn't much different than opening one in your home country. However, there are a few additional (and often annoying) things you'll need to do.
I'll walk you through them.
Step 1: Find Your Niche
This has two meanings.
First, you must choose what country in which you want conduct business in Latin America. You can do business in multiple Latin American countries, but this get's tricky when it comes to selecting a payment method. More on that later.
Second, you must find a product to sell.
You'll want to select a domestic market that has a decent-sized population with disposal income, and with notable credit card penetration.
This ultimately rules out smaller/poorer countries (Guatemala, El Salvador, Honduras, Bolivia, Paraguay...).
The following countries will be your best options for an e-commerce business in Latin America. based on population, and/or number of people using credit cards:
When deciding on a product to sell, a good starting point is to make a list of all of the products that are more expensive to purchase in the country than in the United States, and that are difficult to get. There's little point in trying to sell a product that locals can already get cheaply and easily. You'll have an advantage here if you've come from the USA or Europe - you'll immediately notice things that are missing from store shelves that are easily obtainable at home. A quick Google search will also give you an idea of what Latinos are paying a premium for in their respective countries but can be found cheaper elsewhere.
Consider what demographic you'll be dealing with. The people in Latin America with credit cards that shop on the Internet will normally be middle/upper class, and between the ages of about 20-50. What kind of things might they want?
Also keep in mind that manufacturing is fairly cheap in Latin America, so if you have an idea of a product that isn't yet available in your country of choice, you may be able to get it produced domestically to cut costs. This one major advantage of doing business in Latin America.
Step 2: Open A Bank Account
After you've decided on a country and a product, you will need to open up a local bank account. This can be a bitch depending on what country you're in, but it is more or less a necessity. Many payment processors will only let you display checkout prices in the currency that your bank account is linked to, and the bank transfers from your payment processor to your account will need to be in your bank's home currency.
For example, if you simply link your online store to your bank account from the United States when you're selling in Colombia, your Colombian customers will get confused when they see prices in USD, and you'll get hit with a conversion fee to convert their pesos into your US dollars. Without a local bank account, you'll lose money both on sales, and on the conversion.
Also, many people in Latin America are more comfortable paying via bank transfers as opposed to credit card. You will need a local bank account to accommodate this.
If you're a foreigner on a tourist visa without a cedula (local identification card), opening a bank account will be nearly impossible. The banks will claim that they are not allowed to open a bank account for you unless you have permission to work or study in the country.
Fortunately, this is Latin America, and the rules are often bendable.
For instance, if you obtain a reference from someone with a 'premium' account (i.e. basically just someone who earns a lot of money) most banks will make an exception and let you open an account.
A simple letter from someone with a registered business saying that they will be employing you (doesn't have to be legit) will usually do the trick as well.
And, if all else fails, banks in cities with a large expat population (for example, Cancun, Cuenca, Cusco) will be more open to the idea, as they are familiar with dealing with such requests from retirees.
When there's a will, there's a way. If you keep trying at different branches, eventually someone will let you do it. It's a pain in the ass, but it's necessary for doing business in Latin America.
Step 3: Choose a web platform for your store
Next, you'll need a platform for your online store. As you probably know, there are a few options for this. If you're new to this game, I'll make it simple: use Shopify. It's arguably the most common e-commerce platform, and one of the most user-friendly. It also supports payment gateways that work in just about every country in the world.
If you're experienced with WordPress, combining that with WooCommerce is also a good option for Latin America.
Squarespace, although very user-friendly with gorgeous templates, will only allow you to sell products in major currencies, won't allow you to change the check-out language from English and only works with one payment gateway (Stripe).
Best to steer clear.
Step 4: Select a Payment Gateway
Next, you'll need to link a payment gateway to your store.
Sounds simple, right?
Yes and no.
Popular payment gateways in North America, such as PayPal and Stripe, aren't good options here in Latin America.
This is because, fun fact, not many people have PayPal accounts in LATAM. And they are unlikely to go through the process of getting one just to order something from your store. This is because, for the most part, PayPal has made it impossible to transfers funds from PayPal into any bank account located in Latin America.
And, unfortunately, Stripe only supports a handful of currencies at the moment, so you won't be able to use their services to sell in the local currency (good news is that Stripe is currently beta testing in Brazil and Mexico).
If you're using Shopify, the best payment gateways to use will be 2Checkout or PayU, Latin America's version of PayPal.
PayU is a major and trusted payment gateway in the following countries: Colombia, Argentina, Brazil, Chile, Mexico, Panama, and Peru.
It will be extremely beneficial to have a PayU account, as it will allow your customers a way to pay you with cash at many local corner stores and supermarkets. Since people here aren't yet comfortable giving out their credit card over the Internet, having a PayU account will help you capture what would have otherwise been many lost sales. People trust it.
Problem is, getting a PayU merchant account as a foreigner requires things you may not have.
Here's what you'll need:
1) A National I.D. (often known as a 'cedula' or 'carnet')
2) Proof of your registered business
3) Your Bank Information
4) Proof that your bank account is active (i.e. photocopy of recent transactions)
5) Personal information (phone number, email, name, etc)
If you only have a tourist visa, you won't be eligible for a national I.D card. And, since won't want to register your business...at least not yet (I'll get to why later), you won't be able to provide proof of a registered business.
That would leave 2Checkout as your option. It's not the best payment gateway in the world, and it'll charge you a whopping $15 dollars to transfer money into your account (unless you're in Mexico, in which case it's free). But, unlike PayPal or Stripe, it will allow you to link a foreign bank account and display prices in your local currency.
...but there's another problem. Although it doesn't require proof of a registered business, 2Checkout will require proof of address and ID. If you want to sell in, say, Argentina, and your ID is from the United States, your application will likely be rejected.
So, what do you do?
You'll need a local. There's really no way around it. Either find someone you can trust and use their ID to open an account, or find a business partner. I know, this is sketchy as fuck since this person will effectively have control of your earnings, but this is what you'll have to do if you want to sell in a country where you don't have a national ID card.
Another alternative is to only accept bank transfers as a form of payment. If you go this route, you'll only need a bank account. On the one hand, this isn't a bad idea since many folks down here prefer to pay by bank transfer than with a credit card. One the other hand, it's a pain in the ass because the payment process won't be streamlined - each customer that purchases something will need to send you a confirmation of their bank transfer by phone or email. A bit laborious.
However, if your plan is to sell to multiple Latin American countries, your best option will be to base your store in the United States and sell in US dollars. Cross-border payments are a problem in Latin America (PayU claims they can accommodate cross-border payments, but when I called they told me they couldn't...liars!). People who shop online will be used to buying things in American currency, as the majority of the shit they buy internationally online (from Amazon, typically) will be in good ol' USD. Invest in an automatic currency converter app on Shopify so the customers can see prices in their local currency to avoid confusion. Just let them know that when it comes time to checkout, they will be charged in USD. This may lose you a few sales, but if you are selling internationally, it's much better for customers to see that they'll be charged in USD - a currency they more or less trust and understand - as opposed to, let's say, Colombian pesos.
Ideally, if you plan to sell into multiple LATAM countries, you'd have both Shopify Payments (best payment gateway available on Shopify) and PayU set up as payment options. Unfortunately, I haven't found a way to do this.
In short, if you want to sell to only one country, find a trustworthy local, get a bank account and use the local currency. If you want to sell to multiple countries, use US dollars as your store's currency.
Step 5: Hire Someone
Once you have your online store set up and looking the way you want, you'll eventually want to hire a fluent Spanish-speaker to help with website content, email inquiries, shipping, etc.
Initially, you can just use a friend, but once more orders, calls, emails and Facebook/WhatsApp inquiries come in (WhatsApp is a fairly common method of business inquiries in LATAM), you'll want someone to deal with that - at least until your Spanish is at an advanced level.
What About Registering Your Business?
Although it's possible to register a business on a tourist visa in many Central and South American countries, I don't suggest you do it. Contrary to popular belief, the tax authorities in these countries will actually make your life more difficult if you're trying to do things by the book. As a foreigner with a business on their radar, they may just decide to make your life hell.
The only hurdle you'll face if you do not have a registered business in Latin America is if, for whatever reason, you'd like to open a physical store as well as an online store. Not having a registered business will make this decidedly more sketchy, and it'll have to be cash only - there are no decent POS systems like Square down here for independent vendors (and these payment processors won't work down here if you bring them from home).
**You can, however, rent office spaces/storage lockers as a tourist if you need somewhere to store your stock.
When you're just starting out, you'll want to stay as low-profile as possible. Only when your business becomes successful should you consider registering it.
Having a registered business in Latin America will be beneficial in the long run because you will be able to "hire yourself" and use your own company as a vehicle to get permanent residency in the country of your choice.
Biz Latin Hub can help you with this.
A Few Words on Marketing
Marketing will be the thing that makes or breaks your business. Quality and customer service are important too, but not nearly as much as your brand's aesthetic.
One thing I've noticed about people in LATAM is that they aren't as concerned with, or appreciative of, high quality products or good customer service as North Americans. What is much more important to them, however, is image.
They need to feel that they are buying from a "cool" brand.
For instance, an affluent Latino may never buy a pair of sunglasses from a street stall in a bad neighbourhood, but take those same glasses and put them in a stylish store on the right side of town and they'll pay five times the price. This is true anywhere in the world, but it is particularly true down here.
The product photos, social media and brand message for your company must be on point. They have to look better than the competition's. Hire someone if you have to. Just get your shit looking as perfect as possible. You'll be selling a lifestyle first and your product second.
In the beginning stages, your product just has to be passable. When you're starting, branding is far more important. Focus on improving your product once you've got some traction.
Facebook and Instagram are sickeningly popular in Latin America (if you think the United States is bad you ain't seen nothing). You'll want to focus most of your advertising here. Find out who the big influencers are in your city/country, or successful, laterally-related companies that you're not in direct competition with. Give them merchandise or money in exchange for featuring your product.
Do not underestimate the importance of this. A popular blogger or a hip independent company vouching for your product can be the difference between huge success and complete obscurity. People don't seem to Google things too much here, so Facebook and Instagram will very likely drive the majority of your sales. Branding is extremely important when it comes to doing business in Latin America.
Opening an online shop in Latin America can be a low-cost and exciting way to earn a living. It's not without its challenges, and it's not the best fit for the digital nomad lifestyle, but the income potential is much higher than teaching English or working in a hostel.
If you're dead set on what country you want to live in and you want to give an e-commerce store a shot, I highly suggest going through the necessary steps to get a student or work visa, regardless if you have plans to study, or work for a company. This is simply because it will enable you to apply for an I.D card, which will make opening a bank account much easier.
Aside from that, good luck!
...And, as always, leave your questions or comments below!
Here's the rest of the series:
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