Doing business in Latam

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ISG BBA PROGRAM Spring semester
BUS 470 International Business

Lecture 10 Doing business in
LATIN AMERICA
Tuesday, April 3rd 2007
Chapter 16
Guillaume Sarrat de Tramezaigues
www.gstblog.com
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Doing business with Latin-America Is it worth
the risk?
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Six years ago, at the turn of 21st century, we
could observe a prevalent sense of optimism with
respect to Latin America.We were going the
right way.
The Economist Intelligence Unit, 1997
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With 6 years into the century, are there
reasons for staying optimistic or its time to
turn to pessimism?
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Pessimism?
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Pessimism?
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But fundamentals show a different picture
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Countries risk A significant improvement in the
last two years
Source JP Morgan Country risk premium spread
in a 10 year bonus compared to a 10 year US
Treasury bond.
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Countries public debt is going down, rapidly
Source, IMF, April 2006
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Growth The IMF view for LAC 2006, optimistic
Global Context and Regional Outlook for Latin
America and the Caribbean , Presented by Anoop
Singh, Director, Western Hemisphere Department,
IMF, March 2006
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Inflation The IMF view for LAC 2006, optimistic
Global Context and Regional Outlook for Latin
America and the Caribbean , Presented by Anoop
Singh, Director, Western Hemisphere Department,
IMF, March 2006
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General perspective positive.And the business
climate, cheerful

• Much lower general risk.
• Acceptable economic growth, based in strong
  internal demand.
• Inflation controlled, with some exceptions
  (Venezuela, Argentina)
• Emerging risks?
• Yes A trend in the direction of populism, in
  some countries, could lead the area away from
  free markets policies and market reforms of the
  90s.

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But, risk exists
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Latin America Opportunities related too degree
of development and size of the market
Distribution of Population in Latin America, 2006
GDP/Hab, 2006 Argentina 4052 Bolivia
955 Brazil 3245 Chile 5775 Colombia 2136 E
cuador 2289 Mexico 6321 Paraguay 1157 Peru
2445 Uruguay 3794 Venezuela 4087
In of total population
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The rapid introduction of supermarkets in Latin
America

• During and before the 1980s supermarkets in all
  of L.A. were few. They were a niche market,
  oriented to wealthier neighborhoods. They
  accounted for 10-20 of national food retail
  sales.
• Rapid growth took place, basically, in the 90s.
• By 2005 supermarkets in LA had risen to occupy
  55-60 of all food retail sales.
• (comparable to 70-80 of USA or France)
• In USA this same process took 50 years.
  (1930-1980)

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Supermarkets as of national food retail sales
(Latin America)
Source Past, 2001 from Reandon, T. and J.A.
Berdegué, New Directions in Global Food Markets,
2002 2005 Estimation Adimark GfK
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Penetration is very difficult once a market has
developed
e.g. Carrefour in Chile
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Mobile Phones per thousand capita
Source IDB, 2005
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Doing business in Latin America Not an easy task
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2006 Corruption Index
From the least corrupted to the most
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Time ( of days) required to start a new business
Source Doing Business, World Bank 2005
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World Bank Doing business 2005
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New direct investment coming to LAC is decreasing
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Latin America Net direct foreign investment is
declining (Millions of dollars)
Source 2000-2004 Cepal , based on data of IMF.
2005 Standard Poors
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Who is investing in the area?Latin-American
companies!(The new phenomena, the Latin
American multinationals)
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Where are investors in LAC coming from?Top 100
mergers and acquisitions in Latin America
2004(Country of origin of acquirer)
Source Adimark GfK based on data of Latin Trade
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Banking and credit Both an opportunity and an
urgent need
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Credit penetration Way behind
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Home Mortgage Loans as of GDP
Source IDB, 2005
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Telecommunications in Latam An opportunity and
an urgent need, some areas are moving because of
strong competition.
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Latin Americas mobile phones battle(Millions
of subscribers- End of 2005)

Fuente www.securities.com/El Diario Financiero,
Santiago, Chile 24 Abril 2006
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Mobile Phones per thousand capita
Source IDB, 2005
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Internet users per thousand capita
Source IDB, 2005
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Computers per thousand capita
Source IDB, 2005
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Latin America Is it improving?

• Despite alarming signals of a widespread return
  to economic populism, Lac in 2006 is heading to
  one of its best economic performances in many
  years.
• Free market reforms of the 90s left healthier
  economic fundamentals.
• Local corporations are becoming global companies,
  aggressively taking positions in the area,
  competing with multinational giants.
• Many markets in the area present big
  opportunities, but the risks are also significant.