Why Latin America is the Next World Growth Engine
The world is becoming smaller day by day. Of course, we’re not talking about physical landmass, but instead, the way in which businesses are operating and choosing to expand into new territories and become global brands. Indeed, thanks to the internet, it’s easy to sell your products and services online and develop a brand presence through social media and influencer marketing practically overnight, and lower barriers to entry mean that opening physical stores and offices is also cheaper and more relaxed than it has ever been before. In simple terms, the business world is merging, and CEOs are taking a global approach toward their businesses.
Below, we give you an introduction into the Latin American market and explore why Western brands are flocking to the territory to invest and open up new businesses. Whether you run a startup business or you’re an entrepreneur looking for your next challenge, we hope that this piece will open your eyes to the immense opportunities in Latin America, establish a presence and dominate the market before your competitors have a chance to make their mark.
The most obvious reason why Latin America is such a popular choice for business is its thriving economies. It’s easy to assume that Latin America is rife with unemployment and low wages, and whilst their economies cannot compete with the likes of the United States, figures are on the up. Of course, there are threats to growth at the moment, including upcoming elections across the territory and the potential trade war between the United States and China, but generally speaking, things have been looking up across the region, with most countries enjoying growth.
According to the Inter-American Development Bank (IDB), Latin American economies are set to grow by 2.2 per cent in 2018, and by as much as 2.6 per cent by 2020. Colombia, for example, is expected to grow by as much as 2.6 per cent in 2018, thanks to lower interest rates, reduced corporate taxes, higher oil prices and stronger infrastructure spending all boost the country’s investment and allow it to get ahead of its rivals. Indeed, as inflation in the country falls, a rise in wages is also expected, which boosts the middle class and allows consumers to spend more.
Argentina, on the other hand, has still managed to pull off around 3 per cent growth in 2018, despite battling with four months of droughts which have slashed the country’s production of soybeans and corn harvests, two backbones of the country’s economy, which shows just how much growth such countries are experiencing thanks to manufacturing and foreign investment.
Foreign investments in Latin America have been high for a number of years; last year, Foreign Direct Investment (FDI) hit an eye-watering $161 billion dollars across Latin America and the Caribbean. A great deal of FDI is spent in the natural resources sector, whilst manufacturing has seen an increase in investment in the past couple of years, perhaps mostly thanks to its cheap labour costs and low barriers to entry when compared to other manufacturing powerhouses, such as China, which is seeing an increase in costs and trade barriers adding additional taxes.
Investment in the automotive sector across Brazil and Mexico, for example, stands out. Mexico manufactures an incredible 328,000 cars per month as of February 2018, up 6.2% on 2017. The country has now surpassed Brazil as the largest car assembler in Latin America, with millions of cars exported to Canada and the United States of America every year. As industries like these continue to grow, there’s no doubting that Latin America is the world’s next growth engine.
Ease of access
As we have already touched upon, expanding a business into Latin America is simpler than you may think. Once you have decided on your country and developed a business plan, you can start the process of company incorporation and be up and running in no time at all. Some Latin American countries have very relaxed laws when it comes to foreign investment and visas for entrepreneurs, meaning you can effectively enter the country and begin trading within weeks. Of course, it makes sense to take your time to understand that you’re entering the right market, but as more and more entrepreneurs look to enter the territory, we’ll no doubt see a huge increase in the number of foreign businesses opening in Latin America, fueling the ‘growth engine’.
A growing middle class
As Latin America’s economies continue to grow, so does its population’s middle class. This is great news for businesses offering luxury products and services, as they will be able to tap into the territory’s consumers who have higher levels of disposable income. Fashion, food and lifestyle businesses are likely to benefit the most, but specialist business services should also fare well with consumers who demand a higher level of service and are prepared to pay for it.
It’s important that you position your business as a ‘middle class’ business should you wish to target such consumers. Start by focusing on your branding and marketing, and focus on the way in which your business differs from local and international competitors. There are so many ways to stand out from the crowd, but unless you actively promote them, people just won’t care.
Latin America is, without doubt, the next world growth engine because of its untapped potential. The ride-sharing market, for example, is thought to be worth more than $895 million US dollars in 2018 in LATAM markets, but the world’s largest ride-sharing company Uber is only just beginning to enter the territory. This has given 99 (formerly known as 99 Taxis) a chance to dominate the market with exclusive services, and build a name for itself in Brazil. China’s Didi Chuxing has since purchased the company for almost $1 billion, allowing it to take ownership of the market and get ahead of Uber. The same story is happening across a host of industries, and as a savvy entrepreneur, it’s up to you to find those untapped markets to dominate before other brands have a chance to get there. It’s harder today than it was five years ago, but it’s possible.
There’s no doubting that Latin America is home to one of the world’s most exciting clusters of economies — and a true growth engine. Don’t overlook the immense opportunities for businesses like yours, and consider making an investment into the region. We wish you the best of luck!