The world is changing at a rapid pace, and an increasingly complex outlook for operations in China is helping to uncover opportunities for businesses to extend their operations into Latin America. With growing innovation and a conducive regulatory environment, it may be time to head south to do business.
America has spent much of the 21st Century looking to China as a leading place to do business. According to a China Briefing survey, some 8,619 US companies are established and running in the Southeast Asian nation, and this heavy dependency could prove problematic in an increasingly uncertain geopolitical climate.
This dependence on China for critical supplies has seen imports from South and Central America fall behind. However, evidence suggests that Latin America is set to become the most sustainable location for business needs moving forward.
With the prospect of a Donald Trump Presidency looming large in 2024, a China-sceptic outlook for the United States could challenge internationally-focused businesses over the coming years. The solution may be closer to home than we think.
Unlocking the promise of Latin America
The tides are turning in Latin America. Once known for widespread political volatility, many nations south of the border are undergoing rapid digital transformation, which presents plenty of opportunities for US business leaders.
In a recent New York Times essay, Farah Stockman suggested that Costa Rica has utilised its stabilised outlook to mount a challenge to become the Silicon Valley of Latin America, with US support.
Stockman highlighted the vital role Costa Rica is playing in the US initiative to reduce its China reliance on microchips, in which more than 40% of the chips used by the US Department of Defense for weapons and infrastructure are dependent on Chinese suppliers.
With more than 90% of advanced chips produced in Taiwan, an island claimed by China, the development of chips in Latin America could be a major boost for the United States.
Costa Rican President Rodrigo Chaves recently ramped up his country’s efforts to appeal to American business, unveiling regulatory reforms, tax incentives, and a 99% renewable energy grid to aid the growth of national industry.
Crucially, these initiatives to build Latin American appeal to US businesses aren’t limited to Costa Rica, with widespread change spreading throughout the region.
The rate of digital transformation throughout Latin American economies has been truly impressive. By the end of 2021, GDP throughout more than half of the countries south of the border had exceeded pre-pandemic levels, and by 2022, regional growth was 3.8% to 4% higher than the likes of North America, China, Europe, and sub-Saharan Africa.
Fostering innovation in LatAm
Although only one Latin American nation, Brazil, ranks in the top 50 places of the 2023 Global Innovation Index (GII), many countries throughout the region offer excellent opportunities among the world’s lower-income groups, presenting themselves as high-potential locations to do business.
According to Mauve’s list of the 19 best countries to set up a company in 2024, the likes of Brazil and Mexico stood as leading options. With Brazil’s commitment to research super-deductions reaching as much as 180%, it’s clear to see why the region’s largest economy ranked so high.
Brazil isn’t the only nation that’s R&D friendly in Latin America. Chile and Colombia both offer a range of R&D credits, while Bolivia has undergone a revision of its incentives.
Although much of South America has built a reputation for manufacturing, these commitments to R&D incentives highlight the continent’s concerted effort to become an appealing place for a wide range of business requirements.
With nations like Brazil, Chile, Mexico, and Uruguay all posting GII scores of 30 or above, these nations are leading LatAm options for businesses. However, other high-scoring nations like Costa Rica and the Dominican Republic offer excellent potential for growth over the coming years.
In the case of the Dominican Republic, the nation’s economy has blossomed in the wake of regulatory modernisation, which focused on the adoption of measures seeking to integrate the domestic economy into international markets.
Additionally, the Dominican Republic’s growing physical infrastructure has helped to build a conducive environment for US businesses. International transportation throughout the nation is supported by eight international airports and 14 seaports located close to major production centers. Pellerano & Herrera, a leading law firm in the Dominican Republic, have released their 26th edition of ‘Doing Business in The Dominican Republic’, which outlines all ins and outs of doing business in the Dominican Republic.
With a comprehensive telecommunications system and rapidly evolving infrastructure, the Dominican Republic is a strong example of Latin America’s commitment to welcoming international business.
Taxation opportunities
One of the greatest advantages offered by Latin American nations over Asian locations is that requirements for entry are relatively low. To set up business in the region, it may be a case of making a small investment, buying property, or simply showing your balance sheets.
This represents a widespread initiative among LatAm nations to offer residence permits and citizenship. This makes factors like low taxes and minimal barriers to entry a key opportunity for US firms to invest in Latin America.
Additionally, nations like Uruguay and Paraguay offer low physical presence requirements, making it easier to do business without having to commit to a domestic residence.
Overcoming regulatory hurdles
While digital transformation is certainly accelerating in Latin America, the regulatory landscape has been slower to catch up to the rate of innovation. This means that compliance could be a hurdle for businesses seeking to grow in the region.
With many laws still yet to be clearly defined, one challenge could be that businesses will need strong local knowledge to efficiently manage operations regarding employment and payment models.
The lure of LatAm is global
Businesses seeking to take advantage of the opportunity to grow in Latin America should be mindful that the appeal of the region isn’t limited to US firms.
China is a heavy investor in Latin America as part of its One Belt and One Road initiative, with the multi-trillion-dollar project focused on resolving international dependence on the West by providing Chinese firms with access to new markets and materials.
This could act as an opportunity for US businesses, and high international investment in Latin America may benefit early adopters in the region’s nations during the early stages of their economic development.
Although China has long been the place to do business for many internationally-focused US firms, geopolitical uncertainty is helping to unearth the raw potential of Latin America. With nations focusing resources on building appeal to US firms in particular, the lure of LatAm could offer unprecedented opportunities for American businesses.
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Publish date : 2024-07-29 22:39:00
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