Now is the time to consider launching your business in the Latin American market. That’s the message from one of the region’s leading advisors to businesses who are expanding across one of the world’s most dynamic – and resilient – economies. We talk to Fernando Merchan, partner with the professional services and Business Process Outsourcing group, Lopez & James, from their offices in London, about the prospects for inward investment.
“The fundamentals of Latin America make it a good bet for growth as the global economy recovers from an uncertain 2022”, says Merchan. “Despite all the challenges of the pandemic and political uncertainty, Latin America remains a story of positive fundamentals for investors: the demographics, a growing, affluent middle class, a young, digitally-literate population, urbanisation and development. Added to those fundamental factors, many sectors, services and consumer goods verticals are poorly-served or under-served by local players. Quality and niche brands have huge opportunities to find new customers. And the transformation in digital channels to market means that these segments can be reached and become loyal customers more easily than ever before.”
It’s an optimistic perspective echoed by many institutional commentators who analyse investment flows and the economic performance of the region. The uncertainty surrounding the US economy over the last 18 months, whose fortunes dictate so much of what happens in Latin America, appear to be receding. In an overview of the prospects for the region, JPMorgan said that 2022 data and economic conditions had been surprisingly positive. It now looks as though the long-anticipated US economic downturn may be less severe than predicted by many. Latin American inflation has likely peaked and consumer confidence will strengthen as a result.
“We are seeing a lot of new enquiries from European, Asian and U.S. based companies who see a much better outlook for 2023 than in Q4 2022. They are pushing forward with their expansion and investment planning”, continues Merchan.
According to Merchan, there are 4 factors why foreign companies continue to see the investment appeal in Latin America.
- There has been huge deal and investment activity in Venture Capital and Private Equity-backed businesses – as well as from corporate buyers. Over the last 5 years, foreign investors have been very active. There has been a maturing in the start-up and fast growth sector. Funds and corporates are finding that local founders and Latam management teams are better prepared and aligned to what overseas investors are looking for.
- Spectacular Latam company growth stories are everywhere you look. Businesses with CAGR (Compound Annual Growth Rates) of 20-40% over the past 5 years, are not uncommon. “Investors and corporates looking for acquisition opportunities will find plenty of interesting brands and targets across most sectors”, says Merchan.
- The financial services sector which, globally-speaking and in the region, has come through the pandemic in good shape, receives approximately 40% of total regional capital invested led by fintech, followed by Consumer Good & Services (20%) and Industrials (20%). But Technology, Digital Banking, Green investment and ESG investment are getting particularly focus. “From Healthcare to Luxury goods, our commercial teams are seeing businesses analysing the opportunities”, adds Merchan.
- Geographically speaking, Brazil, Mexico and Colombia are the markets who receive the most in-bound investment and attention. But Central America and other countries are also seeing plenty of attention.
That said, Merchan emphasises that there is a right way and a wrong way to approach business expansion and investment in the region. “What we say to clients is to keep in mind 3 points”, continues Merchan. “First, not all Latin American markets are the same. Each market has its own strengths and challenges. And it’s important to have someone to help you navigate through the legal, risk and cultural issues which vary according to country. The rule of ‘one size fits all’ definitely does not apply in Latin America.” Second, a great way to launch is to explore local partnerships. That means finding an established player, supplier or platform that knowns the market and has distribution channels already in place. This can de-risk the initial phases of expansion. Third, if you do decided to set-up something new without a local partner, do your homework. “The single most important thing is to validate your company’s product-to-market fit. Follow those tips, and you are off to a good start.”
As 2023 progresses, many commentators are expecting a steady and positive performance from the Latin American markets. That’s good news for investors and foreign businesses looking to find new customers beyond their current markets.
About Lopez & James
Lopez & James is the leading professional services group that provides commercial, legal, accounting and tax advice for high-growth businesses expanding across Latin America. The firm offers a range of ready-to-implement solutions including market entry analysis, customer research, virtual sales teams, business planning, trade and export permits, company incorporations and a full outsourced platform offering your day-to-day payroll, accounts and local tax needs.
Contact Lopez & James today for an introductory call and to find out how its teams can help the growth of your business. [email@example.com]