An ICE USA keynote outlined the status, obstacles and potential of this growing region.

By Greg Hrinya, Associate Editor

Published February 17, 2015

 

German Laverde, who has more than 30 years of experience in the Latin American marketplace, delivered the first keynote presentation at ICE USA on February 11, 2015. The international business authority spoke for an hour on “Expanding Your Business in Latin America.”

Laverde has served in a variety of management positions with Battenfeld Gloucester Engineering, PTI and Cloeren Incorporated in North America. In his native Colombia, he held senior management positions at Exiplast and Plastilene.

Latin America is made up of 20 countries and more than 623 million people. Its dynamic economy makes it an intriguing option for converters and label industry professionals. Laverde highlighted the state, challenges, and potential of the region.

“Do you need to change your business style?” Laverde asked. “Can you keep your business style at this very moment, and are you willing to change it?”

State of the región

Latin America is home to several growing economies, including Colombia, Ecuador and Bolivia. The average GDP growth rate for Latin America is 1.3%, although Panama’s economy is growing at 6.6%. To put that in perspective, the United States has a rough growth of 3%.

Of the 623 million people living in Latin America, 80.5% reside in urban locations. That figure closely resembles the United States and Canada, where 81% live in urban areas. The bulk of the businesses are considered micro companies as opposed to multi-national companies, which do become more prevalent in Mexico.

Different press methods vary by region. Flexo is preferred in Mexico whereas gravure is more common in Brazil. According to Laverde, Brazil’s expectations make it a focal point for those with prospective business. Both countries conduct business in the pressure sensitive label market, but their preferred production methods vary.

“Brazil is a very interesting country in a very interesting situation,” said Laverde. “It was expected to grow around 1.4% and now they are calling for only 0.3%. So, a lot of expectations and a lot of speculation about Brazil, as we saw with the World Cup and the Olympics and all these types of things, the reality has been different.” The United States has also influenced Latin America.

The US shares similar values with Latin America and also provides access to the world’s largest market. Laverde believes that the United States offers better quality products to the region when compared with that of China’s. Financial and political concerns can sometimes dissuade the United States from conducting business in the area, however.

Challenges

Latin America faces a number of evolving challenges, and volatility remains one of the main variables.

The government’s involvement in different areas of Latin America provides one of the stiffest challenges for business. In Argentina, for example, the government controls the currency, which creates several problems.

“They control the amount of dollars that are coming in and the amount of dollars going out,” said Laverde. “If you want to buy a roll or a spare part, you have to ask for permission from the government to be able to use your dollars. To import is a huge struggle, and there’s a lot of bureaucracy.”

Brazil is perceived as an untapped resource, and these expectations have led many to believe that they can conduct business there. Inflation rates and government involvement have played a large role in Brazilian business, as well. Laverde said these concerns are driven by electricity prices and various other issues on the supply side.

For equipment manufacturers, Brazil is one of the most expensive countries regarding cost for kilowatts per hour. Many Brazilian customers have opted to go with European suppliers because of cost efficiency, both in energy and exchange rates.

“The cost was 0.18 kilowatts per kilogram in Latin America, and for the North American supplier, it was 0.34,” added Laverde. “For the local customer in Brazil, it was very important and finally they decided to go with the European supplier.”

This same issue is raised when companies try to import equipment to Brazil. In addition to the price of the equipment, taxes and fees create a “compounding effect” that could result in 35% greater costs.

Misconceptions about the region also raise challenges. Laverde believes that manufactures in the area are still trying to dispel the notion that Latin America is a third-world region when it comes to business. He said, “You can find a lot of activity and modern situations and applications that I don’t think we can call it a third-world region or third-world countries anymore. … If you focus and find a niche market, there can be good business there.”

Eliminating the disconnect between cultures can lead to more lucrative partnerships, as well. “One of the main issues for foreign companies trying to go into Latin America is the lack of familiarity with the region and how to do business over there,” said Laverde. “Not enough cultural awareness and willingness to absorb or learn or even talk about it.”

Potential

In order to expand one’s business in the region, Laverde stressed the importance of connecting with the locals. Bilingual languages vary by country, but speaking one of the three primary languages (Spanish, Portuguese and French) is a key factor in finding acceptable product quotes.

Latin Americans also strongly value family, religion, work, music and soccer. The willingness to show interest in local culture and a business associate’s life could go a long way in building the partnership. “Be willing to make friends, and friendship is a big step to good business in Latin America,” Laverde explained.

The region’s increasing middle class has the potential to create more opportunities. Due to increasing wealth and country growth, companies are coming to Latin America to open facilities and expand their businesses.

Patience and communication are two key factors as companies attempt to establish a presence in the region. Successful businesses will not be established overnight, and an ongoing dialogue will establish trust for both parties.

“There is a lot of work to do, but there is a lot of opportunity in flexible packaging and plastic products,” said Laverde.

Written for: Label and Narrow Web Magazine

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