The Invisible Barriers to Expanding Your Business in Latin America

One of the major advantages of building a technology company today is the ease with which foreign markets may be reached.  Latin America, as an ecosystem, has become increasingly conducive to the expansion of businesses into neighboring markets – especially considering cultural and linguistic commonalities among the region’s nations.

Nevertheless, exporting software, services and products requires the consideration of certain guidelines that are often overlooked. The borders to doing business may be more lax than in other moments in time, but there are certain invisible barriers that cannot be ignored.

Companies big and small must take note. “It’s surprising how often businesses forget, even if it is common sense, what entering into a new market means,” remarked Marcos Faundez, who heads Market Crossing. Faundez advises entrepreneurs and businesses looking to expand into foreign markets. He shared some essential pieces of advice with us:

Assume that expanding into a new market means starting from scratch. It doesn’t matter if your technology is good or bad, or whether it’s the right moment in the market – these factors won’t define your success. If you don’t start at square one, the probability of failure is high. Faundez emphasized, “Though you may be a success in your local market, or even if you’ve detected market potential and are sure this will work, you’ve got to replicate your same original effort abroad. Many businesses and entrepreneurs are overconfident when going into external markets, but the reality is that you’ve got to want to start over. On the startup level, this is often easier because they’ve got a shorter trajectory behind them. But you’ve still got to be careful not to skip over this step.”

Understand the local pulse of business. All business professionals do this in their local markets. And if you’re up to speed with your native market (statistics, politics, economy, data), you’ve got to do the same in the new market. “You can’t ask a local to do the legwork for you and explain everything to you – how businesses is done, what tips you should take note of, what idiosyncrasies are prevalent in the business climate. Exporting doesn’t just mean homologating technologies, it also means gaining a thorough understanding of the business terrain,” Faundez pointed out.

Respect the scale. You’ve got a good product, but is it enough for a much bigger market? When a Chilean company goes to Argentina, or an Argentine business heads to Brazil, the sizes of the economies and markets involved multiply. Do you have the resources necessary to confront much larger markets? How will you respond to the potential demand? “Size matters. The barriers you confront in Brazil and Mexico aren’t written down anywhere. If you can get in fast, you’ll see, for example, that Brazil closes business in Portuguese only. Moreover, you have to have a Brazilian partner, meaning giving up some of your shares, and you’ve got to deal with region-based taxes. No one explains this to you, and it’s a big headache later. You have to be aware of all of these circumstances in each potential market,” he explained.

Adequately present references. If you’ve got a strong client portfolio in your local market, it’s likely that you’ll want to exhibit it abroad. In that case, Faundez recommends organizing clients by specialization, not by name. He elaborated, “If a company is highly successful with a well-known local client and uses it as a reference in another market, it’s likely that it won’t be recognized, or at least that can’t be the expectation. Many companies assume that their audiences will understand the weight of their big clients, but it doesn’t work that way.”

The partnership question. The strategy of entering into a market with a local partner is an option that many believe eases the insertion process. “Partners are good when you do deep research that identifies synergy. If you find it, your partner must be willing to spend money on you. If not, there’s no commitment,” Faundez said. When there’s money in the middle, things work better. He continued, “There are markets in which partners help, but what I recommend is not reaching a partnership deal for a few years, or that the partnership be exclusive, because otherwise, you can’t get out. All contracts are designed in accordance with the country where business is being done – it needs to be something well analyzed and thoroughly considered. You can’t fall in love with the first potential partner that appears. It’s important to look at various options in order to avoid choosing the first, or at least make them compete.”

This text has been adapted and translated into English by Emily Stewart from its original Spanish publication.