30 August 2011
Latin America weathered the global economic downturn better than many regions of the world and in the process became home of some of the world’s darling economies and a growing middle class. Multinational corporations are increasingly finding opportunities throughout the region, but have also learned dealing with governments from across the political spectrum looking to protect their own industries is no walk in the park.
“We are in a two-speed world,” said Jerry Haar, associate dean and professor at Florida International University's College of Business Administration and director of the university’s Pino Global Entrepreneurship Center, referring to booming growth in the developing world and lagging growth in industrialized countries.
“There’s a two-speed track on the regulatory angle as well,” he said during WorldCity’s Government Affairs Connections on Aug. 24. “Certain countries may be lowering their corporate and individual tax rates, putting [business registration] online… and permitting using state-of-the-art technology like Chile, Ecuador and Panama.
“On the other hand we noticed this morning [Peruvian Prime Minister] Salomón Lerner just announced a $1 billion windfall tax on oil companies operating in Ecuador,” he added.
Regulatory discrepancies can be found across Latin America in a myriad industries, a gathering of government affairs officials from top multinationals said.
The best way to work with governments to reform regulations or processes such as customs inspections and business permitting is to “use examples that are working in some other country and… show them that they work in their model,” said Ana Gazarian, CEO of immigration and relocation firm EMS. “We reduced a process that took six months to a month.”
Despite companies lobbying foreign governments for more business friendly practices and some governments’ earnest effort to initiate them, it’s always a work in progress.
“Panama is one of the countries where you would say they make a great effort to make good government; to make it easy to do business yet it’s still not as easy as you would think,” said Jurg Zundel, general counsel for Latin America and the Caribbean for Caterpillar Americas Services.
If forming a company in some countries takes months and costs thousands of dollars, “who can do it?” he asked.
“If you tell me a tariff is 17.5 percent, it’s up to me to look at my supply chain to figure out how to deal with it,” Haar said. “If you put a non-tariff barrier in place I don’t know how to deal with that.
“They do it because their own industry is hurting because of all the bureaucratic red tape and nonsense, plus competition from China,” he added.
Those policies often lead companies to pull up anchor and leave a country entirely, as was the case with a pair of companies who declined to go into specifics as to which nations they recently divested from.
A final point of consideration was how technology affects doing business in Latin America, and how governments deal with it.
“What we find is that technology is moving faster than regulation,” said Patricia Rojas, head of public policy for Microsoft Latin America.
“By the time [a government] implements something we have to take our information and step it [back] five years,” said Stanislas Clement, senior regulatory affairs adviser for FedEx Express’ Latin America and Caribbean division.
Government Connections is one of seven event series organized by WorldCity to bring together multinational executives on international business topics. The next meeting is set for Oct. 21. Visit the website for more details and to register.