Latin America experienced extended economic growth between 2004 and 2012 due to rising prices of natural resources (minerals, energy, timber etc.). Things started going bad for the region in 2013 when prices of natural resources crashed. After almost five years of pain that hit the region’s corporates and individuals, things are starting to look better. GDP growth estimates in 2018 for the top six economies (Brazil, Argentina, Chile, Mexico, Peru and Colombia) range between 2-3%. Of course, major risks remain, such as what happens to NAFTA after President Trump’s actions to revoke several clauses, the outcome of elections in Colombia, Mexico and Brazil, and the US Fed’s actions on interest rates (Source).

Especially for companies with interests in sectors driven by “retail consumption”, LatAm’s bright growth prospects are attractive. For example, McKinsey predicts that the fashion industry will see a 2x to 3x growth in turnover between 2016 and 2018. However, this growth will be driven mainly by markets in the Asia Pacific and Lat Am markets. Their study concludes that more than half of global clothing and footwear sales will be outside Europe and North America (Source).

Other consumer product categories that are expected to record healthy growth in Latin America during 2018 and beyond include beauty and personal care products (4% CAGR till 2026); energy drinks (12% CAGR till 2021); pharmaceuticals (9.3% CAGR till 2028). The number of malls too is expected to increase at 5% per annum. Despite a dip in sales of mobile phones costing more than US$400, the wave of low-price smartphones from China has made them affordable to almost 80% of adults in Latin America (Source). In fact, China’s growing interest in the Caribbean and LatAm is reflected in its growing economic presence in the region. China is currently the second largest bilateral lender, the second largest trading partner and the third largest source of new FDI in Lat Am (Source).

As Mr. Jeferson Fernandes, Coty’s Supply Chain Head for Latin America points out in LS International’s recent Career Success podcast on What makes Latin America different, the region’s “lack of maturity will be a key driver of opportunity” (Source). However, Latin America is a unique market especially when compared with Europe or North America. As such, companies looking to do business there must give careful thought to the implications of these differences on their strategies and operations.

Despite language and cultural diversity, Europe is a fairly homogeneous market, thanks largely due to relative political stability and the unifying legal/tax structures of the EU. North America too is homogeneous in nature, allowing companies to integrate production, marketing etc. at a regional level. But such an approach cannot easily be applied to markets in Latin America, where each country has its own political nuances and differences in tax structures and rates. In fact, even within the same country, there are variations in tax rates between states. Also, unlike Europe or North America, where even towns with populations of 50,00 are seen as attractive markets for retail products, in South American countries, socio-economic disparities between urban and rural segments of the population mean that many products are available only in larger cities.

Even in the new millennium, Latin American countries have generally been characterized by poor innovation. Even their ability to assimilate new technologies that boost productivity is lower in comparison with most other regions in the world. This partly has to do with the weak legal system in the region that is often unable to protect intellectual property (IP). In turn, this makes IP owners and investors less willing to commit to transferring technologies to the region. In fact, inventors and entrepreneurs from the region head to Silicon Valley or other parts of North America to incubate their ventures and seek early-stage funding (Source).

But in recent years, this is changing. With the advent of cloud computing, new age ventures like Uber, AirBNB and Netflix are growing rapidly across the LatAm region. Although Venture Capital (VC) activity is still small relative to other parts of the world, investments in start-ups are doubling every three years. There is now thus greater hope than ever before that the benefits of technology-led innovation will accrue to citizens in this part of the world sooner rather than later.

Latin America is emerging as an attractive e-Commerce market, thanks to internet penetration that is at 61% and growing every day. As a direct consequence of internet and smartphone penetration, a growing number of consumers (more than 41%) research products and compare them online before even visiting stores. One in every three consumers search actively online for deals and promotion offers. It is estimated that online sales will grow at 19% per year- well above the global average of 11%. These trends have collectively created a huge opportunity for retailers willing to invest in e-Commerce infrastructure in Latin America. Not surprisingly, Amazon, Walmart and Alibaba are among the global giants ramping up their operations in various South American countries (Source).

But in Latin America the road to e-Commerce success is paved with additional challenges that include citizens’ limited access to banking services, security of online payment gateways and corruption associated with customs. In countries like Brazil, state-to-state variation in taxes adds another layer of complexity. Logistics represents another challenge mainly due to the relatively poor physical road and transportation infrastructure in the region. It is estimated that this adds a hefty 15% to costs, besides increasing lead times for delivery. Bloomberg and Simpliroute report that the time between order placement and delivery at the customer’s door could take weeks (Source).

All things considered, both companies that are already operating in Latin America and those that seek to enter must ensure that they adapt/plan suitably. Wherever possible, hiring mid or senior-level talent with a blend of local and global exposure will facilitate ease of doing business.

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