Latin America Shows Promise for Growth
Friday, July 10, 2009 | Comments

 

 

 

  

By Steve Baroch


Starting a new business venture is always a challenge. Starting a business in a foreign country or on a foreign continent with a different language, culture and business practices is exponentially more difficult. Latin America is vast by any standard: population, square area, distance between important business centers and differences between cultures. Latin America is considered to be all of the countries from Mexico south, including Central America to the end of South America and the Caribbean Islands. This includes 21 countries and 10 dependencies; the population is more than 500 million.

In 2007, The NetMark Group, a manufacturers’ representative company for public-safety and telecommunications products, embarked on a venture to expand its business from North America into Latin America. We partnered with a native South American salesperson who had been working from the United States but travels often to work in the communications industry in Latin America. The firm’s key U.S. manufacturers allowed NetMark to promote their products in Latin America. In 2009, it is proving itself to be a success.

At a time when the U.S. population is concerned that manufacturing and international trade appears to be a one-way street, The NetMark Group has built an export market, primarily from scratch, for U.S. manufactured products. The company works with U.S. and Latin American distributors, or in some cases, directly with end users or government entities. Many North American and European technology manufacturers have generally ignored this region as a market because of its barriers to entry. As a result, Asian manufacturers have gained a strong foothold. This influence combined with smaller per-capita incomes and subsequently smaller budgets make the region price sensitive.

Telecommunications specialists in Latin America are exceptionally up to date regarding technology. In addition to access to trade shows that occur in North America, Latin America has many shows, such as Expo Comm Mexico, Americas Com and Andina Link that cover a variety of communications technology. More specialized shows like ExpoMina in Peru or security shows in Argentina, Colombia or other countries provide great opportunities for manufacturers to meet distributors and end users.

Politics and Conditions

While this region has been noted for frequent political instability during the past century, it may be the region’s finest hour. Mexico is waging strong opposition to its drug problems and corruption. While this has caused extreme cases of violence in the border states of Mexico — travel in the northern Mexican states has become exceptionally dangerous because of kidnappings, random slayings and vigilante retribution — ultimately it should provide for a more stable country. Central America is in a period of peace with virtually no civil or cross-border wars to discuss. South America, with the exception of Venezuela and Bolivia, has generally stable, pro-business governments. Colombia, remarkably, is more stable now than many countries and even its tourism trade has been increasing in the double-digit percentage range during the past few years.

At the same time, each region or country clearly has its own structure, opportunities and challenges. Potential problems exist in Venezuela and Bolivia. Venezuela’s problems are because of the turmoil that President Hugo Chavez has caused as he nationalizes business and displays an obsessive rejection of democracy and market economies. Bolivian President Evo Morales follows a similar path as Chavez. Even through these difficulties, Venezuela and Bolivia continue to be markets for communications products.

Tariffs need to be studied by anyone doing business in Latin America. Many countries have Byzantine tariff regulations that defy logic but can significantly impact the ability to export to a country. Depending on the type of product and country, tariffs can be so high that the country is impenetrable. Some countries offer tariff-free zones if products are manufactured or assembled in certain disadvantaged regions of their countries. Some trading blocs within Latin America attempt to reduce trade barriers between their member countries. Among the largest trade blocks are MercoSur, which includes full members Argentina, Brazil, Paraguay, Uruguay and Venezuela, along with associate members Chile, Bolivia, Colombia, Ecuador and Peru.

Regional Differences

Different regions act differently economically and culturally. Brazil and Mexico each act as self-contained economic units and prefer to deal internally when possible. For Brazil, this is partially linguistically driven, because the predominant language is Portuguese as opposed to Spanish. For Mexico, it is partially geographical because it is so far north. For each, their economies are so staggeringly large — Brazil’s is the 11th largest in the world and Mexico’s is the 14th — which they have the economic diversity and ability to act more independently.

Central America countries generally act as a unified block of nations and trade widely among themselves. South American countries demonstrate their cultural and historic distrust of each other. In many cases, Chileans and Peruvians are still suspicious of each other partly as a leftover from their war of 1879 – 1883. Argentines are often looked upon as wanting to act separately from the rest of Latin America with a greater desire to trade with Europeans than with other Latin Americans. This isn’t to say that business isn’t done between borders; clearly it is. Knowing which countries are willing or reluctant to do business with another country is beneficial.

Some areas may be unlikely to produce enough business to justify traveling to them. The countries of Guyana, Suriname and French Guiana in the northeast part of South America combine for less than 0.5 percent of the Latin American population and are well removed form other major populations centers and from major flight paths. Over such a vast area as Latin America, which covers about the same square area as China but with one-sixth the population, marketing should be strategic. However, depending on the specific business interest, the areas that are least visited, specifically because they are least visited, may be most productive.

Economic Growth

No doubt the economic problems that have impacted the Northern Hemisphere are and will continue to plague the Southern Hemisphere. But the impact on the South has been slower to arrive. Economic problems that begin in the United States tend to be more widespread and deeper than those that start in other locations. Because of the huge interdependence between North America and Latin America, there will be some impact. Martínez Lázaro of the Wharton School at the University of Pennsylvania says that 2009 will not be as economically painful in Latin America as it will be in other parts of the world. Lázaro predicts that in 2009, the Latin American economy will still grow by 2.5 percent. Projections for the United States, Europe and parts of Asia are much more dire.

The German news agency Deutsche Press-Agentur isn’t quite as optimistic as Lázaro, but still predicts a 1.9 percent rate of growth for 2009. Economist magazine predicts that Peru will have tremendous growth at 5.5 percent, helped by former President George W. Bush, who in his last few days in office, signed a free-trade accord with Peru. Argentina, Brazil and Colombia will show about 2 percent growth. According to Economist predictions, Mexico will contract by 0.2 percent, and Venezuela will have a difficult year with an economic decrease of 3 percent.

Trends in Telecommunications

The telecommunications market in Latin America is widely varied in its level of modernization and technology. Some countries such as Bolivia and many of the Central American countries are working with systems considered decades old by U.S. standards. Other countries such as Colombia and Chile are technologically advanced. Colombia has reached this technological pinnacle partly because it has had a huge infusion of funds and technology from the U.S. government to shore up its antiterrorist, antinarcotics efforts. This program has allowed the increased technology to migrate from the military to commercial markets.

Latin America has huge room for expansion. A good measure of technological advancement is the percentage of Internet penetration in a given market. In June 2008, North America had 73.6 percent Internet penetration, South America had 27.1 percent, and Central America had 18.5 percent. Clearly, there is room for technological growth.

Of course, some areas of communications have advanced more quickly than others; mobile telephony has grown tremendously. 2000 – 2003 saw an average growth rate of 33 percent in Latin America. “Explosive growth of cell-phone subscriptions indicate that emerging markets could rebound in the coming years — giving investors a heads up of impending profits,” says Irwin Greenstein of the Contrarian Profits investing Web site.

This bodes well for the communications market and is an indicator for the general economies of Latin America. Some areas of communications, such as location technology, are emerging. In October 2008, Navteq, a U.S.-based geospatial technology company released mapping for the full country of Argentina. In Guatemala, digital maps exist for Guatemala City, the capital, but not for the rest of the country. Demand outside of the capital is low, the population is relatively sparse and the terrain is rugged. This combination of reasons isn’t uncommon. Until demand for location technology increases, many areas will remain unmapped.

Two-way radio networks are still active, in part because traditional telephone systems have been unreliable and archaic in many parts of Latin America. Digital two-way systems and products are available, but relatively slow to make inroads in the region because of higher prices than analog. As cell-phone coverage gains ground, it could erode the two-way market as it has on other continents.

While any business venture is difficult and entry into a region exponentially more difficult, Latin America shows some promise in the short term and significant promise in the long term. Clearly the more fluent, accustomed to the language and familiar with the terrain a person is, the more successful the person will be. The technology markets in Latin America are active and ready to be nurtured and supported by those willing to make the investment in money and time.

Editor’s Note: An adapted version of this article appeared in the Quarter 3 issue of RadioResource International on Page 46.


Steve Baroch has worked in electronics and telecom for more than 20 years and is a partner in The NetMark Group, a manufacturers’ representative group covering the mountain states in the United States and all Latin America. The NetMark Group specializes in telecommunications and electronics products and was founded in 1993. Contact Baroch at sbaroch@thenetmarkgroup.com.

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