Finding the right target market in Latin America
Latin America stretches over an enormous area; indeed the individual countries themselves are in some cases many times larger than Switzerland. It is therefore all the more important that companies initially focus on a single country when pursuing an export project. But which market is the right one? The following five criteria can be applied for an initial selection:
- Free trade agreements: Switzerland has concluded free trade agreements with various Latin American countries to the benefit of exporters. These include: Mexico, Chile, Colombia, Peru and the Central American states (Costa Rica, Panama). Agreements with Ecuador and Mercosur (Argentina, Brazil, Paraguay and Uruguay) are under negotiation.
- Market size: The middle classes are growing in Latin America, along with an affinity for branded products from abroad. The biggest market is Brazil with more than 200 million inhabitants, ahead of Mexico (121 million), Colombia (48 million) and Argentina (43 million).
- Ease of doing business: A statistic from the World Bank shows that Mexico, Colombia, Peru and Chile are considerably more pro-business than countries like Brazil, Argentina or Venezuela. In the latter countries, companies will have to battle harder with import duties, complex tax systems and inefficient domestic logistics.
- Proximity to major neighboring markets: Mexico is party to NAFTA, the North American Free Trade Agreement, and is thus strongly integrated into the value chain of the USA (for example in the automotive industry). This orientation towards the USA has an influence on consumer behavior, technical standards, etc.
- Political and economic stability/security: In 2018, presidential elections are due to take place in Latin America’s three biggest countries, Brazil, Colombia and Mexico. The election of a new president can hugely influence the economy within the country.
This list of selection criteria for the right export market in Latin America is far from exhaustive. Factors such as price level, the competition situation, regulatory guidelines and economic growth also merit careful consideration.
Business opportunities in Brazil, Mexico and Argentina
Most Swiss exports to Latin America are currently headed for Brazil, Mexico and Argentina. Two thirds of the products are destined for these markets, but in which areas do these countries offer business opportunities for Swiss companies? An overview:
In Brazil, agriculture is an important pillar of the economy, with 30% of GDP generated by this sector. Nevertheless, the agriculture industry is currently in a phase of transition, and new digital tools and solutions are in demand. Furthermore, the question of productivity in the dairy sector also creates business opportunities for Swiss companies in Brazil. Alongside agriculture, Brazil’s mechanical and electrical engineering industries and the life sciences segment are also of interest, and the country has a well developed dental industry that likely to grow further over the coming years (primarily in the area of dental equipment). In addition, the medical technology market in Brazil is the biggest in Latin America and is among the top 15 in the world. Here too, slight growth is expected. The cleantech sector also offers good business opportunities in Brazil. The Brazilian water supply industry rose by nearly 20% to a value of 28 billion dollars in 2016, and this is set to rise by another 57% by the year 2021. The biggest sector in the water supply segment is agriculture.
The automotive sector is currently booming in Mexico. The country is among the ten biggest producers worldwide and offers numerous supplier possibilities for Swiss companies, but the areas of aerospace and infrastructure are also among the engines for growth and offer business opportunities for SMEs.At the same time, the manufacture of pharmaceutical products has a long industrial tradition in Mexico, and the products are exported to various countries in compliance with strict standards. Forecasters expect to see growth in the pharmaceutical industry over the coming months. The country is now so economically robust and so appealing to Swiss exporters that it has long ceased to serve merely as a bridge between the USA and South America.
Argentina is a country with an enormous wealth of resources. Crude oil and natural gas extraction, for example, as well as energy production make it an important base for industry and trade. Argentina is thus a country with huge potential for Swiss companies, and in 2016 Switzerland exported goods to the value of 664 million francs there. These include, most significantly, pharmaceutical and chemical products, machines and watches.The export conditions for Argentina have become more attractive for Swiss companies over the last few months, since the government of President Mauricio Macri abolished the system of import permits that was used to restrict and to prevent imports along with a large proportion of the import restrictions shortly after taking office in December 2015.This list of business opportunities for Swiss SMEs in Latin America is still not exhaustive, however. Upon request, Switzerland Global Enterprise will produce market analyses through which you can accurately assess your company’s potential in Latin America. Information
Five steps to a successful market entry in Latin America
Different languages, different cultures, different circumstances: Anyone aiming to successfully tackle a market entry in Latin America should take note of the following five points:
- Plan all the steps in advance. The better informed and prepared you are, the greater your chances of success in the target market.
- Latin America is not a market for first-time exporters. Before you export to Latin America, you should already have some experience of internationalization.
- Understand the culture. Often personal relationships are more important in Latin America than technical expertise.
- Make use of a variety of business partners. Avoid working with only one partner in each country. Try to generate multiple contacts and to get information from various different sources.
- Trustworthy business partners. Corruption continues to play a role in Latin America. Any foreign companies wanting to make the move into Latin America will need good business partners. Switzerland Global Enterprise and the Swiss Business Hub Brazil help Swiss companies to find reliable business partners and to build up a network.