5 CHALLENGES FOR LATIN AMERICAN EXPORTS AND HOW TO OVERCOME THEM
Latin America and the Caribbean face significant growth challenges and their relationship with major global markets is key to the region’s economic performance.
Some of the most important challenges are related to improvements in international cooperation, lower export costs and greater versatility of the products involved in any business operation.
Below you may see what those challenges are and what Latin American companies can do to conquer and expand their business inside and outside the continent.
1.- Diversification is the key
When the trade relationship between Latin America and Asia is analyzed, the first thing that comes to mind is that trade remains concentrated in a few commodities.
Therefore, the key is diversification into products that have a greater competitive advantage in Asian markets, such as processed foods, for example. Asian demand for food continues to rise and the middle class in Asia is expected to reach 3.5 billion people by 2030.
Diversification also includes services, because opportunities are expanding in the areas of financing infrastructure for development.
Latin American companies seek to update themselves with new technologies and models in line with the challenges of climate change, and China, as South America’s main trading partner, is willing to invest in the development of Latin American countries.
Are Latin American companies ready to take up the challenge? Do they have what it takes to receive that investment?
2.- Reduction of commercial costs
According to the Inter-American Development Bank (IDB), Latin American exports to Asia could grow by 27% in the medium term if a significant reduction in tariffs, transport and logistics costs is achieved.
This cost reduction would mean the creation of new business opportunities in the order of US$69 billion. This would translate into more employment and more opportunities for South American countries.
Now, how can the reduction of tariffs, transport and logistics costs be achieved? By creating joint policies with governments that encourage trade and measure the impact that export growth has on the growth of regional businesses and the well-being of citizens.
3.- Understanding that exports are a two-way street
An interesting fact is that today, Latin American countries export more to India than to Japan and Korea. This means that there is capacity to push for reforms that will reduce trade costs.
In this sense, business leaders should remember that exporting is a two-way street. Thanks to cost reduction, Latin American exports to India could grow by 42% annually, while Indian exports to Latin America could also grow by about 46%.
In fact, there are already some success stories like the Brazilian Marcopolo buses or the Mexican software company Softtek. According to IDB data, these companies demonstrate that “once the entry barriers are overcome, business potential is within the reach of entrepreneurs.
These cases have shown that companies need allies to help them mobilize their businesses, and not only promotion agencies that facilitate contacts between entrepreneurs from distant cultures, but also companies that specialize in data, such as Credit Report, which can produce on-the-spot reports to help leaders make decisions about who to do business with on the other side of the world. After all, numbers and balance sheets are the true universal language.
4.- Encouraging academic exchange
Education, science, technology, and innovation are the oil of tomorrow. Another challenge that Latin American companies must overcome in the medium term is to establish cooperative relationships that go beyond commercial exchange.
Strengthening ties for education on issues of mutual interest can be very powerful in the consolidation of a long-term relationship between companies from different continents. We are talking about topics such as renewable energies, technology, health, agro-industry, biotechnology, and climate studies.
This is closely related to exports and the possibility of attracting new business in the future. If solid bridges are built between cultures, commercial exchange is just around the corner.
5.- Trade relations between Latin American countries
Another of the region’s challenges is to look inward and transform the border exchange among Latin American countries themselves. Europe’s experience in this regard is very illustrative: “50% of the added value of exports in Europe comes from exchange between its own countries, while in Latin America this percentage is only 15%,” according to data from the CAF-Latin American Development Bank.
Currently, countries in the region compete with each other for primary product markets, but strengthening intraregional cooperation with trade agreements made by and for the region could boost movement between countries and outward. Moreover, this happens in an increasingly uncertain global context that invites regions to become strong among themselves.
When talking about diversifying exports, it is also a matter of broadening the view towards new emerging markets, a sort of geographical diversification that expands business horizons. Ask yourself what is that other market you haven’t explored? We will help you evaluate companies in those new territories with accurate data, as we have done for over 55 years.