Doing Business in Latin America: Is It Worth The Trouble?

Hey, folks.

As regular readers may know, I've been playing around with doing business in Latin America.

latinamericabusiness

Although I never intended to go down this path, it isn't altogether surprising - as a LATAM fanatic and as someone who's always been interested in creative ways to earn an income, it makes sense that I'd eventually try a venture down here.

My business partner and I have been working together on a project for a little less than a year now, and things are going well. Profits are increasing steadily each month.

 

Now, I'm far from an expert, but I thought I'd share my thoughts with my fellow Mexico, Central America and South America enthusiasts about whether starting a business in Latin America is worth it.

Let's get into it.

P.S. We're working in the women's clothing industry; my observations are based on that. 

 

 

 

The Challenges

If you've read my other posts about doing business in Latin America, you'll be familiar with the challenges I've laid out.

I'll go over some of them again - it's worth driving home for anyone thinking of starting a venture south of the border.

 

  • Terrible logistics - The postal service in Latin America is wildly inefficient. You can't assume the product you send will arrive, particularly if you're sending it internationally.

 

  • Low credit card penetration - Not too many folks have credit cards; most prefer to pay by cash or bank transfer.

 

  • Less disposable income - Simply put, many people in Latin America don't have money to buy frivolous things. There are far fewer options for super-niche products than there are Western countries.

 

  • Lack of suitable payment gateways (*for an online store) - Since PayPal isn't used much down here, and popular payment processors like Stripe aren't available, you'll be stuck relying on less-than-ideal payment options. All of the ones that work down here have abysmal customer service and take a healthy chunk of each transaction.

 

  • Culture - It's a hurdle understanding the cultural differences in terms of buying practices in LATAM compared to the United States or Canada. Every time I think I have things figured out, something happens that tells me I don't. 

 

  • Unrealistic expectations (*for an online store) - Because not many people shop online down here, they don't know what to expect when they order from an online store, namely in terms of shipping time. We've had customers on the other side of the country message us on a Monday morning asking why their package hasn't arrived when they ordered it Sunday night. This, combined with inefficient delivery services, makes for a few angry customers.

 

  • Strict import laws - A lot of Latin American countries have strict import laws that are designed to protect local industry. In Mexico, for instance, if you order an item over $50, you'll have to pay a hefty tax to receive it. Since they aren't shy about corruption down here, they'll often charge you duty even if your package is clearly under $50. If you plan on importing products without a license to sell (which is illegal, so don't do this *wink *wink), this could throw a wrench in doing business in Latin America. That's if your product arrives in the first place...

 

  • Legalizing your business - This isn't as hard as you might think. In many Latin American countries, a foreigner can legally own a business, even if they don't have residency or citizenship in that country. However, where it gets difficult is actually trying to work at the company you own. In order to do that, you'll need a work visa, and getting one isn't easy. One option is to "hire yourself" as an employee for your company, but come tax time you'll be hit twice - once as a business, and again as an employee. Not ideal. Also, some Latin American countries (I believe Panama is one) require you to hire a certain number of locals to work at your business. If you're just starting out and aren't sure how things are going to go, you're probably not going to want to sink costs into the wages and benefits of employees you don't even need yet.

 

 

 

The Upsides

  • Less competition - To be frank, most of the folks doing business in Latin America aren't using all of the tools at their disposal. You'll find that many popular stores or restaurants don't even have an online presence. Coming from the United States, where the competition is cutthroat, you'll immediately see ways to capitalize on all of the things your competitors are not doing. I've found that growing a social media following, increasing engagement and converting customers using very basic strategies has been effective.  

 

  • Increasing standard of living/growing middle class - The middle class is growing rapidly in Latin America. Countries like Colombia, Mexico, Brazil, Paraguay and Peru are all expecting decent economic growth for 2018. That ultimately means that people will have more money to spend.

 

  • Massive growth in e-commerce - E-commerce is exploding in Latin America. In the more developed nations, it's growing by double digits each year. If you can solidify your presence early, you will be rewarded in a few years when e-commerce starts to catch fire. Best of all, in most Latin American countries, you don't have to compete with the likes of Amazon. While Mercado Libre has a strong hold on online shopping, there are many things you can't find on there that are in-demand.

 

  • More untapped markets - There are thousands of ideas that have taken hold in the United States and Europe, but haven't quite made their way down to these parts. Latin America is largely a copycat market, so if something is wildly popular in the United States, chances are that there will be a market for it down here soon enough. Not everything mind you - you'll have to do a little cultural calibration before determining if a product will be a good match for your Latin American market.

 

  • Low cost of living - Looking to bootstrap a business? Even in major cities in Latin America, you can get by on $1000.00 a month. If you always wanted to start that venture but weren't sure you could support yourself in the meantime, doing business in Latin America may help eliminate those concerns.

 

  • Similar tastes/language across countries - I was pleasantly surprised to discover that the products we were selling were almost as popular and in-demand in Ecuador and Colombia as they were in Peru (which is our base). Since these countries all speak the same language, we didn't have to change a thing about our marketing campaigns. Unfortunately, it's difficult to accept payments from other countries, and shipping internationally is unreliable at best.

 

 

 

Doing Business in Latin America vs. Doing Business in Western Countries

Little known to most, I had a copywriting business in Canada...registered and everything! It targeted the hotel industry. Ultimately, it failed due to my own indifference, but I learned a few things about conducting business with people from a few Western countries (I had clients from Canada, Denmark, Norway and the United States).

I've also chalked up a couple years experience in sales positions and as a shipping manager, so I know a bit about logistics and how to sell to western (or, Canadian and American, at least) customers.

Again, I'm no expert, but here's what I noticed regarding doing business in Canada vs. doing business in Latin America.

doingbusinesslatinamerica

I'll tell you right now: the difference between selling to Canadian and American customers vs. Latin American customers isn't as large as I expected. Many things remain the same - sales techniques that work in the United States will also work in, say, Costa Rica. We're all humans, after all, and psychology is psychology. Marketing through Instagram and Facebook is just as effective here (if not more effective) as it would be in the United States or Canada.

Obviously, there's the language hurdle you have to consider, but even that isn't as daunting as you may think - many popular advertising campaigns from Coca Cola or Pepsi are simply direct translations from English to Spanish.

One major difference I will note, though, is that people don't use Google as much down here...at least, not yet. Ranking in Google for "where to buy women's clothes in Quito" in Spanish will not earn you as much traffic as ranking for "where to buy women's clothes in Chicago" in English

What's worked best for us is investing all our ad money in social media, specifically Facebook and Instagram. With a few bucks, we've been able to generate direct sales as well as garner the attention of bigger stores who have bought clothes from us on consignment.

Doing business in Latin America does have it's differences, but the core principals of sales, lead generation and customer retention remain the same.

 

 

 

Here's Why I Think Most Expat Businesses Fail

I'm a member of several different expat groups on Facebook (it's basically the only reason I use Facebook anymore...). I did an experiment, and asked about any expat that had a business in their country of choice (Ecuador, Peru, Mexico, Argentina, Colombia etc.). I inquired about the process of opening a business in said country advice, difficulties, legal problems etc. 

After doing this in about 5 different groups, I was met with a fucking onslaught of expats who have started businesses in Latin America pleading with me not to do it.

I could fill an arena with the amount of horror stories I received regarding corrupt officials, jealous locals, theft, terrible employees, etc.

Initially, it put me off the idea of proceeding with something down here.

But after reading these messages and categorizing them, I noticed a common theme.

Most expats were having terrible experiences either because:

 

1. They were trying to adhere to all the rules, and...

2. Because their businesses were way too out in the open.

 

What do I mean by this?

Regarding the first point:

If you try to follow all the rules and regulations down here for running a business, there is no way you're going to be profitable. If locals, who have the advantage of understanding the culture and have ties to the community, are taking shortcuts and circumnavigating certain laws, what chance do you have as an honest foreigner?

Basically, none.

My partner and I skirt around some rules down here. Nothing that will get us in jail or anything, but we certainly do stuff that, on paper, you're not supposed to do, but in reality, no one cares and no one will catch you for it.

The majority of expats come from high-trust cultures, where breaking any law, no matter how small or stupid, is seriously frowned upon and they're morally uncomfortable doing it.

I get that and respect it.

But it doesn't make for good business in Latin America.

If you try to follow all the rules and adhere to any bullshit regulation that a corrupt official tries to lay down on you, it'll be nearly impossible to succeed. There are things you can do to avoid this, which brings me to my next point.

Regarding point number two.

If you're an expat that starts a business down here and people in town catch wind of it, you're going to be a mark. Everyone from local thugs to corrupt officials will try to get money out of you for bullshit reasons like "neighbourhood taxes" or "new regulations." If you don't pay, they'll do their best to shut you down. This goes for local competition as well - if you roll into town and threaten their livelihood through competition, instead of trying to better their own business, they will just do whatever they can to fuck your shit up.

At least, this is what I gathered from the responses to my questions (and also from the few expats I know doing business in Latin America).

You need to do whatever you can to keep a low-profile. If this means running your business entirely online, or out of your apartment, do it.

businesslatinamerica

The businesses that most expats in Latin America flock to are way too high profile. Things like bars, hostels and restaurants. They are too easily exploited.

The majority of successful expat businesses that I'm aware of exclusively target tourists and are low-profile. That's an option, and a good one. Small tour companies out of Lima, Mexico City or San Jose aren't likely to be targeted as much by gangsters or corrupt officials. Businesses that exclusively target foreign tourists and have a minimal physical presence are more off the radar than a hotel or a restaurant. 

Something else to keep in mind is this:

If you're operating in a smaller city in Latin America with a strong criminal presence and you want to set up a local business, you'll have to pay the piso, which is an unofficial fee to the local criminal organization. This could be an upfront payment, or a monthly one.

Yes, it's extortion, and yes, it would be unheard of in developed countries, but it's a thing here.

If you want to do business in a place like this, you pay the piso. If it's not worth it to you, relocate.

The last thing you want to do is keep your business open without paying.

 

 

 

Is It All Worth It?

If I scared you off with that last bit about the piso, don't worry. You won't run into that in major Latin American cities, or small towns without a huge criminal presence.

Here's what you want to know:

At the end of the day, is all this shit worth it?

Well, as you might expect, it depends a lot on the person.

If you want to eventually live in Latin America, starting a business can be a vehicle to residency and eventually citizenship, which can be hard to come by without either a huge financial investment or getting married. 

It's also goddamn exciting, which may be a draw for some folks.

Not only that, but there are profits to be eked out! Contrary to popular belief, there are people with a great deal of money in Latin America, and if you can find a way to get them the things they want that aren't available, you too could make a great deal of money.

Effectively, what I'm trying to say is that it takes three things.

 

1. An adventurous approach to earning an income

2. An interest in or desire to live in Latin America

3. A willingness to be a bit "creative" with local laws and regulations

 

 

 

Conclusion

So, business in Latin America...

It's a cluster fuck, basically.

But there is fun to be had and profits to be uncovered.

Although it isn't without its difficulties.

If you're a foreigner doing things off the books, you risk a huge fine for violating your tourist visa, along with deportation. Then again, who wants to go to all the trouble to register a business in a foreign country if they aren't sure it's going to work?

At the end of the day, I suggest you do things by law as quickly as you're able.

(My Latin Life is a family site, after all.)

As for the other difficulties you'll face...

First. Do your best to observe the local culture. Watch people, talk to them. For instance, our "market research" for women's clothing was simply to look around and see what clothes the cool kids were wearing. Or go out and see what they'd wear clubbing. Then, we backtracked and sorted out what celebrities, websites, Instagram accounts they got those trends from, or stores abroad that they bought them from. It's often as simple as asking them. From there, we figured out how to introduce popular clothing trends to the city before anyone else could (i.e we imported things or found talented seamstresses who could make similar clothes, often adapted with our own pattern alterations to better suit the local market).

Don't overthink things, it can be this simple.

Second. Make sure your customers have all the options under the sun to pay you. You'll need to accept cash, credit cards and have a local bank account for accepting bank transfers. This is easier said than done as a foreigner.

For all the information you need, check out this post.

Third. Pick your country carefully. In my opinion, there are only a handful of Latin American countries where a foreigner can operate a profitable business (especially an online one), without too many hurdles. Somewhere not particularly crime-ridden, somewhere where the citizens have some disposable income and somewhere with not too much red tape.

For more information on this, check out my article on the top 5 Latin American countries to start a small business.

Forth. Have a backup plan! Shit can go down. I wouldn't suggest pouring all of your funds into any business in Latin America. Although my partner and I are now earning four figures each a month (modest, but a good wage down here) I still haven't ditched my other online income sources. It's been quite a lot of work, but if things go south with this, which they easily can, I don't want to be left with my dick in my hand.

In closing, conducting business in Latin America is an option for foreigners. If nothing else, I wanted to open your eyes to that.

It's a hell of a learning experience, and you'll have to have an ungodly amount of patience if you're used to commerce in developed countries.

But it is an option.

Whether you want to test it out is up to you.

 

 

 

 

Thanks for listening.

 

Until next time,

Vance