Lately, I’ve witnessed more and more the hurdles, risks, and challenges that people are facing when doing business in Latin America. Not too long ago, the Brazilian president Lula shut down the entire (legal) iGaming industry in the country, which led to many international corporations losing this part of their revenue basically overnight.
Since I myself had the experience of setting up my own digital media business in Colombia a few years ago, I thought I would throw in my two cents regarding what businesses often overlook when they try to expand to Latin America.
Highlights:
- The Latin American market has many possibilities, but you need to be able to pivot a lot more than in the European market.
- Partnering with local actors will get you a long way, since there are many unspoken rules that might not be easy to pick up on otherwise.
- Prepare for a variety of different outcomes, not just your ideal scenario.
Where Europeans Go Wrong When Doing Business in Latin America
The main issue that I came across when doing business in Latin America was that there is a certain disconnect between what you can reasonably expect to happen and what often happens. I’m going to generalize here quite a bit, but in my experience there is a fundamental difference in how you should approach the entire process. It all comes down to the systemic business environment, which includes, but is not limited to, the following:
- How easy it is to register the business, such as length of process and “unnecessary” paperwork.
- How easy the accounting will be. Will the framework around it change rapidly and unexpectedly?
- How easy it is to find skilled people to work with, such as lawyers, accountants, etc. Are you able to vet them properly? Do they have the expertise that they claim to have (regardless of what it says on paper)? Can you trust them?
- How much of your own time will be spent on running extra errands? These can either be regular errands or extra unforeseen errands caused by errors made by the people that you have hired.
- Will you face “unfair” obstacles regarding competition?
Europeans, as well as, for example, people from the U.S. and Canada, often have high hopes when they start doing business in Latin America. However, in my experience they far too often underestimate how much of a hurdle and volatility the above aspects will really cause. They expect the systemic business environment to go as (relatively) smoothly as they are used to, and when it doesn’t, they pretty much fall off a cliff and stand there with the expression of a deer in headlights.
Doing Business in Colombia as a Digital Media Consultant
From my own experience setting up and running an earlier digital media business in Colombia, I came across the following situations:
Colombia Investor Visa Hurdles
The Colombia Investor Visa was my biggest hurdle when setting up my business in the country, and if it hadn’t been for a final last push, then all of my previous efforts most likely would have been for nothing. The requirements for getting visas in Colombia did, in my experience, change frequently which made it difficult to plan ahead.
I even had a lawyer assisting me with the process, and when trying to apply for my visa, we got denied several times in a row. I then finally decided to take a flight from Cali to Bogota in order to solve it by myself as a last resort. It turned out that our visa applications online had been turned down due to a technical error.
Insane Banking Procedures
When you are running a digital media company in Colombia, or any other country, you for the most part have clients in various countries, so the individual invoices will be plenty. Getting each one of those international payments to your bank account in Colombia is not an insecure process, but definitely a lengthy one. That takes up a lot of time which could have been spent on other tasks.
Add to that the fact that Paypal is banned in Colombia by every single bank except the bank Davivienda. At least that was the case when I was doing business in Colombia.
Constantly Changing Accountancy Rules
At the beginning of every year, the accountants I had hired went nuts trying to figure out the new rules for corporate accountancy. The reasons for why this changed every year might be plenty, but one of the reasons was that any new administration in the tax body wanted to implement new rules just to show that they could “make an impact”.
It’s kind of similar to what happens quite often in the corporate world. Changes get implemented just for the sake of change, and not because they really represent an improvement.
Domestic Laws Threatening to Split the Business
A domestic law that is relatively uncommon in Europe but which you can see a lot of in the Americas is the common law marriage concept. Such a law states that if you have been living with a partner for a certain period of time, then you will be automatically regarded as married by the state even though you have never signed any papers at all. When it comes to the Colombia common law marriage legislation, we are talking about roughly two years.
Add to that the fact that the judicial process can be quite shady and falsification of “evidence” has occurred. I myself experienced attempts at this in my personal life, albeit minor. When writing this, I was at first tempted to state that “luckily” I didn’t fall into the trap. However, luck had nothing to do with it; preparation and keeping myself well informed reigned supreme.
At first glance, such a concept might not seem to have a relation to a discussion regarding business formation. However, I would like to argue that reality is very much to the contrary. If you are, against your will, classified as married by the state, then there is a very high risk that half of your business shares will now belong to your not-so-beloved ex partner, according to the legal advice I got. Needless to say, that opens up a big can of worms that can wreck your business. So check yo self before you wreck yo self. 🎶🎵
Extremely Volatile Local Currency
To say that the Colombian peso is volatile would be an understatement. It has gone through some radical differences throughout the years if you benchmark it against the USD and Euro. Hence, this is something to take into account when getting paid from outside Colombia, as the volatility of the currency will severely impact company finances. The same can of course also be said for making payments and sending money out of the country.
Things That Didn’t Happen to Me but Which Put a Torpedo in Other Businesses
If I’m going to pat myself a bit on the back, I would say that my biggest advantage when doing business in Latin America was that I planned ahead. Other foreigners in the country that were trying to set up their businesses weren’t always so “lucky”. Furthermore, I had put a lot of effort into learning Spanish in Colombia, which naturally was very beneficial when communicating with lawyers, bankers, accountants, the chamber of commerce, and various personnel from the municipality office.
I came across an Australian woman who in the end had to go through a lengthy process of switching banks just because she hadn’t checked a box in a form from the last bank about receiving payments from clients abroad. I came across a British company that were trying to implement an HR business model in Cali, Colombia. Some local Colombian company then contacted someone they knew at the municipality office to make them change some local legislation banning the business model of the British company altogether.
Now, these challenges did not only happen to foreigners. A liquor company brand from Medellín tried to expand and sell their liquor (called Aguardiente) in Cali, which then competed with a local brand. Local legislators then banned the Medellín brand altogether.
Brazil iGaming Regulation
Anyone involved in the iGaming business, or who has been following it, has witnessed how lately the entire industry came to a halt in Brazil. The Brazilian president Lula suddenly banned iGaming companies from doing business in Brazil and gave operators just a few weeks to shut down their websites. Now, after the implementation of the ban, congress has 120 days to vote on the matter in order for the legislation to stay in effect.
However, in my view it is pretty much game over already. If websites need to shut down, then that has long-lasting SEO-implications. Apart from that, there will most likely be very few operators who decide to keep the part of their staff that worked with those sites.
Maybe they will be moved to other internal tasks in some cases, but there will certainly be an internal ripple. That in turn causes a brain drain which would be difficult to recover from should the operators decide to start doing business in Brazil again if the ban does not stay in effect after the 120 day period.
All in all, European (for the most part) operators (that expanded and invested in the Brazilian market) now face a situation where a part of their business has pretty much imploded. Working under such uncertainty is never easy, and I know that all too well myself. Nevertheless, I will now in the following section make the attempt of proposing an alternate mindset that could be useful when doing business in Brazil, as well as other parts of Latin America.
How to Do Business in Latin America the Right Way
Now, the above explanation can seem apocalyptic in a business sense, but reality is a lot more nuanced than that. Less systemic business certainty gives rise to a situation with more uncertainty, which in turn makes planning the business roadmap more difficult.
The Upside of Volatility When Doing Business in Latin America
Nevertheless, at the same time, that same volatility quite often opens up more unforeseen possibilities in the same fashion when doing business in Latin America. First of all, if you indeed learn how to navigate the environment then you will possess a massive advantage compared to other entrepreneurs or business leaders trying to enter the same market. This is commonly known as having a competitive advantage due to the concept of ‘barriers to entry’.
Secondly, it might be a lot more difficult to plan ahead in a more dynamic business environment, but that same volatility and lack of systemic certainty make it easier to get to know business partners that you might not have gotten to know otherwise. Volatile regulation also gives you the possibility to make quick wins that you can then use to fund other parts of your venture.
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Plan for the Unexpected and Pre-Plan for a Multitude of Scenarios
The silver bullet, in order to get around all of this, is something of an elusive obvious. If you are operating in a highly volatile business environment, as often is the case when doing business in Latin America, then you can’t plan for only one scenario. Your planning work needs to include a multitude of ready-made scenarios ready to go. That will create a lot more theoretical work, but in my view and experience there is no other way.
- If your business model runs into trouble because local legislation suddenly blocks your business model, then you need to have several ready-to-go ex ante case studies that you can pivot to, in order to change the business model.
- If your entire industry gets banned in one Latin American country, then you need to have several ready-to-go scenarios which you can pivot to in neighboring countries. Alright, so Brazil banned iGaming, which might or might not stick after the congress has had their vote. Regardless of which, case studies should already have been made regarding favorable legislation and business opportunities in other countries, and a plan should be in place in order to smoothly transition versions of the same content onto websites localized for those markets instead.
- If a certain product gets banned in one region of the country, then you need several ready-made scenarios where you either change the product or change the target location.
Hence, it doesn’t become a matter of “don’t put your eggs in one basket”, but “how to move from one basket to the next as soon as possible and with a plan ready if the need arises”.
I would like to argue that the entire approach becomes very much philosophical. In metaphysics, we have the concept of possible worlds which in many cases are infinite. For the purpose of this article, we can equate possible worlds with possible business scenarios. Now, when planning business scenarios, it is not, at least not at the current moment, possible to plan for infinite business scenarios, but we can certainly greatly increase the number of business scenarios which we plan for.
By looking at the different variables in our business scenario (i.e. legislation factors, ease of entry, accounting difficulties, banking difficulties, etc.), we can also get a sense of how many possible business scenarios we need to plan for when expanding to Latin America. For each business variable that can possibly change we get new permutations, so the entire approach becomes very much mathematical. In this sense, we also need to plan for what we do not know, which constitutes a core concept in both philosophy and business management (i.e. risk vs. uncertainty).
Final Thoughts
All in all, it is not a matter of better vs. worse. Instead, the above elaboration merely highlights the necessity of understanding the business environment that you are operating in and being able to pivot accordingly.
His academic background includes a master's degree in economic growth and innovation, as well as studies in statistics and the philosophy of language. Johan is fluent in Swedish, English and Spanish.
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