By Rebecca Sales, Campbell Dallas International Business Manager
In today’s fast paced global economy, many SMEs are looking further afield to expand their business potential. Beyond Europe, Latin America stands out as a region of opportunity and vast potential not to be ignored by UK companies.
Brazil is the fifth-largest country in the world, with a population of approximately 185 million. It is the UK’s most important trading partner in Latin America with bilateral trade in the first five months of this year in excess of $US 3 billion. It has natural resources in abundance, a developed industrial base and substantial human capital. On the world stage, Brazil is an emerging power and is enjoying its first sustained period of export-led growth in 20 years. Although Brazil has a booming oil and gas industry, opportunities for SMEs are not restricted to this sector. The main Brazilian imports from the UK from January to May 2011 include tubes of iron and steel; motor vehicles; insecticides and related products; whisky; engines and turbines.
Mexico is the second largest country in Latin America after Brazil in terms of population. The UK and Mexico have already established a strong business relationship. Trade between the two countries in 2010 was worth nearly £2 billion and there are currently 350 British companies with branches doing business in Mexico, as well as significant Mexican presence in the United Kingdom. Mexico covers an area about the same size as the whole of Western Europe and occupies a strategic global position, being the natural bridge between Latin America to the south and the United States and Canada to the north.
Although Latin America has the market potential to be an ideal destination for UK companies wishing to internationalise, research is essential. There are challenges to be overcome. Firstly the 11 hour plus flight time between the UK and the region can make frequent visits difficult for an SME with limited management resources.
We recommend you surround yourself with the best advice possible. Although in Brazil, the constitution grants equality to Brazilians, foreigners and their capital, there is a daunting taxation system. It is very complicated with each city having their own, regularly changing, regulations. Local content laws also make industry highly regulated and import tariffs are significant. Red tape is prolific and whilst foreign investment is welcome and actively encouraged, it must meet strict state and federal rules.
Similar levels of bureaucracy exist in Mexico. When trying to get funding, it can take at least twice the time as it can in the UK. Records should be kept for at least 5 years to prevent allegations of fraud for competitive advantage. However in order to encourage trade between the EU and Mexico, a Free Trade Agreement exists. As a result, only 9% of Mexico’s total imports pay duties making the country a credible option for investment.
For SMEs, acquisition often isn’t viable due to the requirement of deep cash reserves. At Campbell Dallas, we sometimes advise companies to partner not purchase. Partnering with a local company or working alongside a Brazilian agent is worth considering as this can save companies substantial time as well as helping with the onerous bidding process. Many companies see this as an ideal way to become established in, and familiar with, the country. Another preferred option is setting up a new company which, in Brazil, is not only relatively easy and inexpensive but counts as local content. For instance there is not a legal requirement for UK companies to include locally-based people on their board.
You may think you have a choice of organisations to partner with, but in reality the locals can take their pick from the many international companies touting for partners. Your company must stand out and showcase its skills and invest time in building relationships to the best advantage. In Brazil, expect to be asked about the extent of you and your company’s industry experience.
Making a good impression is vital. This is best done by adhering to local culture. British companies should make an effort to adjust to the relaxed way of working and honour the preference for face-to-face communication. Remember that doing business is a type of social interaction in Latin America. People need to get acquainted and comfortable with each other before getting down to business. On the phone, chat first and talk business second. Who you know is more often more important than what you know or what product you offer. It is important to be in the country as much as possible.
But success depends on more than just an excellent partnership. Basic business sense is important too. Don’t forget your company at home. Time must be devoted to market research so a sound strategy can be created. Long term planning is vital.
Although Latin America is a diverse region with many differences between countries, three golden rules of remain to give your business the best chance of success: do research, be bold in the face of the challenges and take the best professional services advice to reap the rewards of investment in Latin America. SMEs who invest in the complete preparation required for a move into an overseas market, have the opportunity to experience great rewards.
More information about Rebecca Sales
Rebecca Sales has ten years experience living, working and studying in various international locations such as Mexico, Spain and Equatorial Guinea. Rebecca has qualifications in international trade and emerging markets from the University of Barcelona. She specialises in advising oil and gas businesses on their internationalisation strategy with a particular interest in Latin America and Australia. Prior to this she was senior business development officer managing international trade at Aberdeen City Council and played a pivotal role in developing strategy for trade support to Aberdeen City and Shire oil and gas companies and promoting North Sea industry capabilities overseas.
More information about Campbell Dallas LLP
Campbell Dallas is an award-winning firm of independent chartered accountants with cross-cultural oil industry expertise and unrivalled clout in the renewable industry. Campbell Dallas is one of Scotland’s leading independent chartered accountants and is the only Scottish member of UHY, an international association of independent accounting and consulting firms, with offices in 78 countries worldwide. The Scottish company is also part of Aberdeen Renewable Energy Group, a group of local companies that are active in renewable energy across the supply chain.