12 September 2011
When it comes to doing business in Latin America there’s far more to consider than simply what tapping into a new market will add to a company’s bottom line.
Issues like corruption, bureaucratic red tape, security, ease of travel, labor disputes and a host of other factors come into play as companies decide where to rev up operations, a gathering of multinational executives who oversee Latin America said during WorldCity’s CEO Club on Sept. 9.
Nowhere have those issues been more important than in Mexico and Brazil. Though the wider narrative has focused on violence in Mexico, the staggering growth of Brazil and the opportunities that come with that, many spoke of reality being contrary to perception.
“We’re starting to see a real big shift, especially in the auto industry, of companies starting to manufacture in Mexico, Volkswagen moved their engine production [there] almost a year ago… and the question is what about Brazil?” said Romaine Seguin, Americas Region president for UPS. “It’s a tough country to do business.
“Just for importing goods you send it express and you pay a 60 percent duty tax [and] an 18 percent value-added tax. It’s protectionism,” she added.
Despite the violence in Mexico, where about 40,000 people have died since President Felipe Calderón launched a war on the drug cartels in 2006, many executives said they feel more safe there than Brazil, and opportunities are equally as plentiful.
“Our business in Mexico is much more steady. Brazil is much more violent, and we have people killed every year,” said Dominick Bossart, vice present for Brink’s Global Service in Latin America. “We had one armored truck stolen in Mexico. The same vehicle turned up two days later and the money was still in the truck. The gangs needed the truck to move bigger stuff.”
The overall consensus of the group was that while violence is more overt in Mexico, it’s just as prevalent in Brazil, though everyone doesn’t openly carry semiautomatic weapons and the press doesn’t cover it as much.
Outside of security issues, a host of other considerations also affect where companies choose to grow in Latin America and by how much.
“The wage rate in Brazil is at least twice as high as it is in Mexico and the unions are very difficult to deal with in Brazil,” said UPS’s Seguin. “The severance you will be paying makes you want to fall off your chair, all management people are in a union. It’s very unusual.”
“Then you have the taxes you pay on salaries in Brazil,” said EDF Communications CEO Erich de la Fuente “To hire someone you need to pay almost 100 percent on each level.”
“Even though there are clearly some very valuable business reasons to be in the market, there’s no question,” that it’s there, said Henry Martinez, executive vice president and managing director for Discovery Networks Latin America. “With Brazil being so hot, in every sector there are basantes, people you hire to take care of red tape.”
For that to change, said de la Fuente of EDF Communications, reform will have to come from the top.
“Before Chile became better they addressed a lot of institutional corruption. The high-ranking changes against corruption are what have made Chile a good place to do business,” he argued.
Finally discussion turned to where companies are placing staff and Latin America, and whether Miami will remain the gateway to the region. The two cities that cropped up first were São Paulo, Brazil’s financial hub, and Panama City, which has increasingly become a business hub for the region as the 2014 opening of the expanded Panama Canal approaches.
In staffing headquarters further south, some warned that placing operations in Brazil may keep staff only focused on that country, due to its size and because it operates in Portugese while the rest of the continent speak Spanish. Placing headquarters in some countries may make attracting talent difficult as well.
“I see the ebb and flow happen as peoples’ reaction to a market that will provide a particular cost structure,” said Martin Ortells, president of McCann Erickson in Miami. There is “also the value of being able to attract multinationals, individuals from different countries. It becomes difficult to attract talent from different countries, you can get them, but not to the same degree you can get them in Miami.”
The CEO Club is one of seven event series organized by WorldCity to bring together executives on international business topics. The CEO series is sponsored by the University of Miami School of Business Administration, law firm Becker & Poliakoff and the Florida Marlins. The next session is set for Oct. 9.