The news of Tesla’s investment in Mexico traveled the world, however it is not the only company that is expanding its operations in Latin America. Largest companies have plans to expand their operations into the region, especially in countries like Mexico and Brazil.
According to Inter-American Development Bank’s study, the nearshoring could add US$78 billion to Latam’s exports every year, from which US$35 billion would go to Mexico and US$7.8 billion to Brazil. Industries such as automobiles, textiles, pharmaceuticals, and renewable energy could benefit the most.
For their part, startups are also looking at Latin America. After raising funds for 2023 in investment rounds, many European tech startups are looking to expand their operations into the region.
An opportunity for business
Latin America has abundant natural resources, a growing population, and United States proximity. If we add to this scenario that the market is less saturated than in other regions, and that the current geopolitical context has increased the demands of new markets, we can see that Latin America is emerging as an opportunity for business expansion.
In this context, Latam provides an opportunity to invest principally on 3 fronts: Nearshoring, Consumption and Energy Transition. Also, there is a window of opportunity to Digital Nomads.
Nearshoring:
The COVID-19 pandemic exposed the fragility of global supply chains, disrupting the flow of trade around the world. With that in mind, big companies are implementing nearshoring strategies, that is, they are moving part of their commercial operation to a nearby country to reduce costs and search for suppliers in other countries.
Mexico is a privileged country for nearshoring due to its proximity to the United States and Canada. However, many international treaties provide advantages for nearshoring. For example, Chile, Peru and Colombia have trade agreements with the US that benefit companies that want to invest in these territories.
On the other hand, Brazil it’s a interesting option for IT nearshoring. Brazil has excellent electricity and telecommunications infrastructure and is also home to various IT giants such as IBM, Microsoft, and SAP. Also, according to an Evans Data Corporation study, there are more than 500K software developers in Brazil.
Consumption:
Latin America is home to 650 million people spread across 20 countries. This numbers are particularly attractive to consumption businesses for two main reasons:
- Middle class growth: According to Franklin Templeton, a global investment firm, the Latin American middle class has been expanding steadily thanks to growth in real wages, driven in part by the boom in demand for hard and soft commodities. Which translates into an increase in demand.
- The markets are merely less saturated than they are in other regions around the world: In Latin America, competition simply isn’t that robust just yet, and that’s something that an expanding business can take advantage of. In other words, when Latin American consumers looking at a product have considerably fewer choices than consumers in the United States or Europe, and that it’s a business opportunity.
In addition, many countries in the region declared their neutrality regarding the war in Ukraine. Which opens a window of opportunity for Russian and Chinese companies, as well as European and American ones.
Energy transition
Lithium-ion batteries are a key part of the world’s clean-energy transition. According to a S&P Report, 54% of global lithium reserves is in Latin America. Also, other key minerals like Copper, Cobalt and Nickel, are in the continent. This condition of the Latin American environment means that international companies will also have it as a target territory to make their next investments.
According to a Deloitte report, global lithium production is expected to grow up to 420,000 tons by 2031. With an increase of 250%, Australia, with an output of 141,000 tons in 2031, will remain the largest lithium-producing country in the world. Chile and China will more than double their outputs, and Argentina’s production will rise nine-fold to 57,000 tons, making it the second-largest global producer between 2027 and 2028.
What challenges come with the expansion?
To open operations in a Latin American country it is necessary to take into account several points. In principle, it is necessary to know if the country/region in which you want to expand the business has the necessary infrastructure to be able to operate. This point is key, since according to the Inter-American Development Bank, state investments in electricity, water, transportation and telecommunications are still necessary to be more attractive to foreign investment.
On the other hand, it’s necessary to contemplate the local workforce culture. Finding salaried professionals is probably not a problem, but finding the right people to join a global team can become a more difficult task. For this reason, it is important that the selection process not only focuses on technical skills, but also evaluates the soft skills of the candidates.
It is also necessary to know the characteristics of the expectations of the employees in each country, the benefits offered by other companies and what they value in order to offer a consistent offer.
At MBI Talent Group we have more than 15 years of experience supporting the expansion of global companies. Therefore, we can guarantee the delivery of 3 to 5 selected candidates according to the needs and culture of your company in just 5 days. Do you want to know more? Write to us in the comments and we will get in touch with you.
