Alexander Monge-Naranjo (2014) reports: “From the Rio Grande in the north to Tierra del Fuego in the south, Latin America is made up of countries with commonalities in history and language but also remarkable differences in ethnic makeup, size and cultural traits. Differences also abound in the countries’ levels of income and in their investment and commercial relationships with the U.S. and the rest of the world. Understanding these large differences—with the U.S. and among fellow Latin American countries—is vital to understanding the challenges and opportunities for the U.S. south of its border.” (Monge-Naranjo, 2014)
For example, per capita income differences among Latin American countries vary greatly from country to country and within each country as well. This “presents opportunities and challenges. On the one hand, the well-off, well-educated elites are natural markets for goods and services from the U.S.; these people can also provide business partners and contacts in the region. … Moreover, inequality could also mean low wages in those countries, which could be attractive for U.S. businesses producing in the region. Regarding challenges, inequality—especially if it is rooted in the lack of social mobility—can lead to political instability, which can cause disruptions, expropriation risk and other problems for business. Furthermore, lower wages are often accompanied by lack of skills and productivity. … [Additionally,] the failure of a comprehensive, global, multilateral free-trade framework, i.e., the Doha or Uruguay rounds of the World Trade Organization (WTO) negotiations, countries around the world have sought bilateral trade agreements. Latin American countries have been part of this strategy, and a free-trade agreement (FTA) with the U.S. has been a major issue of contention.” (Monge-Naranjo, 2014)
Adding to the challenges the U.S. faces in doing business in Latin America, the U.S. now faces stiff competition for Latin American goods and services from China. In fact, “the Chinese have become a competitor for the U.S. as a source of investment in most of Latin America…. In the past few years, the Chinese have provided the financing and technological support for infrastructure and for the development and extraction of natural resources, all of which could have been of strategic value for the U.S.” (Monge-Naranjo, 2014) This is supported by a report by Patricia Rey Mallen (2013) which asserts: China received more Chilean exports than any other nation for the first time in 2007, when it surpassed the United States for that distinction. That year, exports to China represented 15.5 percent of Chile’s exports, whereas the U.S. accounted for only 14.7 percent of exports. [and] Before then, the U.S. had been Chile’s biggest export market, especially after the Free Trade Agreement between the two countries came into force in 2004. By 2009, bilateral trade between the two countries increased 141 percent to $15.4 billion. But as China’s FTA agreement came into force in 2006 — the first of its kind with a Latin American country — China took a particular interest in Chile’s copper industry, the world’s largest. As a result, 80 percent of the country’s exported copper in 2012 went to China, totaling $14 billion. Non-mining produce, like fruit, grew 83 percent in exports to China between 2005 and 2012. (Mallen, 2013)
Globally minded leaders must not ignore Latin America’s importance in the global marketplace. How is it that China has recognized the value of doing business with South American nations, and what can we learn from their success? Is it a matter of focus? Or is it a lack of interest in overcoming barriers? With South America so close, it would be in our best interests to aggressively seek to understand the structure, the people, the language and the cultural diversity that resides right next door to us.
As Alexander Monge-Naranjo (2014) points out: “FTAs would not correct all the problems of doing business in the region. With or without them, international trade in the region remains on average a long and costly endeavor, partly because of bureaucracy and partly because of subpar infrastructure.“ (Monge-Naranjo, 2014) Yet, China has found innovative ways to succeed in this market. What is their secret?
It seems to this writer that all agreements and transactions are conducted not just between nations, but ultimately between people. For example, are we connecting with Latin Americans in mutually beneficial ways? If we don’t know the answer, we can certainly begin by setting aside any preconceived perceptions and biases and engage in educating ourselves about the languages and cultures of South America. Daniel Dominguez (2013) provides some straightforward but important tips for anyone interested in doing business in Latin America: know your geography (a historically sensitive issue); pay for the meal; avoid any discussion about ethnicity; if invited to eat with your customer or host, choose the local (nor American) cuisine; share family stories if asked; sports are safe topics, especially soccer; unless you are a native Spanish or Portuguese speaker, use only English – especially in Brazil; don’t discuss any politics – not even any kind of presidential opinions; never mention corruption; and above all, be patient: “Businesses in Latin America are strongly based on Relationships. Bottom line, people work with people they like and trust.” (Dominguez, 2013)
Monge-Naranjo, Alexander. (2014) Business Opportunities and Challenges for the U.S. in Latin America. Federal Reserve Bank of St. Louis. Retrieved from: https://www.stlouisfed.org/Publications/Regional-Economist/July-2014/Business-Opportunities-and-Challenges-for-the-US-in-Latin-America
Dominguez, Daniel R. (2013) The Dos and Don’ts of doing business in Latin America. (June 4, 2013) One Business Avenue. Retrieved from: http://www.onebusinessavenue.com/the-dos-and-donts-of-doing-business-in-latin-america-the-dos-and-donts-of-doing-business-in-latin-america/
Mallen, Patricia Rey. (2013) Trade Between Chile And China Grew 22 Percent In 7 Years As China Became Chile’s Biggest Trading Partner. International Business Times. (September 6, 2013) Retrieved from: http://www.ibtimes.com/trade-between-chile-china-grew-22-percent-7-years-china-became-chiles-biggest-trading-partner