In the perspective of Asian economic performance, it is undeniable that Latin America region provides a substantial opportunity for companies seeking to expand to the international markets by venturing in this region (Vendrell-Herrero et al., 2017). From the economic growth point of view, Latin America has experienced a significant increase in GDP meaning that there is increased production and consumption. The region is also characterized by a rise in the rate at which international companies are expanding their operations in Latin American countries. Surprisingly, a majority of foreign investors fail to achieve the set goals because they fail to observe various aspects underlying the success of companies. In most cases, foreign investors enter into Latin American markets applying strategies that proved to be successful in their home markets without considering specific conditions for the new target market. The purpose of this paper is to analyze the strategic considerations for foreign investors to succeed in Latin American markets.
Foreign companies seeking to take the opportunity of economic growth experienced in Latin America by successfully investing in this region should come up with a strategic approach to understanding the contexts under which the target markets operate. Successful companies should start by analyzing the economic conditions of the country they are willing to invest (Stewens, 2014). Collecting data that is related to the economic performance and relations with other countries provide a basis for accessing and evaluating economic risks that would adversely affect the foreign direct investors thus providing alternative solutions in advance. For example, foreign companies are likely to succeed in a situation where the foreign country supports Free Direct Investment because it suggests minimal charges to foreign investors. Most of the Latin American countries have opened their economies to interns of foreign investment and trade thus increasing an opportunity for companies to expand activities in such markets. According to Garcia & Martinez (2012), Mexico and Brazil support free Trade and investment policy which creates favorable conditions for companies to expand their activities in the region.
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Analyzing economic context provides adequate information about the availability of appropriate strategies that can be applied in helping the economy recover from financial crisis. In this case, emphasize should be on the availability of financial institutions such as National Banks, International Monetary Fund System, and relationships with other countries that would support the country of interest in situations of economic crisis (Aizenman et al., 2015). It will be better for companies to invest in countries with access to such facilities and alternative approaches for addressing the economic crisis as opposed to regions without access to such relations. Economic fluctuation cycle may be a threat to a company's activities because it reduces the purchasing power of citizens compelling the business to experience loss thus ceasing their operations in the affected country. The effects of financial markets remaining primitive on the ways of handling economic crisis are revealed through the economic crisis experienced in Romania in 2008. According to Ciulu (2010) by the end of 2008, many of the foreign businesses people closed up their businesses due to the continued recording of loss.
According to Borda et al., (2017) companies willing to expand operations in Latin American countries should analyze the level of competition in the target markets. In situations where foreign companies seek to expand their activities in foreign markets and offer services offered by local companies, they stand a high chance of experiencing loss. In most cases, target customers tend to purchase commodities produced by local companies. For example, a foreign company seeking to engage in business activities in Brazil should not focus on investing in the agricultural, mining, manufacturing and service sector because the country is recognized for its successful performance in such sectors in large Latin America which will cause competition among to the foreign companies. According to Biachi (2006), the investment of Home Depot in Chile also failed to succeed because the company experienced competition from local investors in the Home improving retailing industry in Chile.
Business investors in Latin America should consider the social context within which the company is set to operate. Social setting evaluates the availability of aspects such as availability of skilled and semi-skilled labor force, literacy level, and the living standards of people in the target country. The success of a business in any environment depends on the availability of the company to hire skilled workers (Godinez & Liu, 2015). In most cases, companies rely on the supply of employees from countries where they invest which turns out to be a limiting factor in Latin American countries. Generally, Latin America is characterized by higher illiteracy levels meaning that the majority of the people provide unskilled labor force in the market. For example, Romania is characterized by the presence of many illiterate people and investors who extend their activities in this country should rely on skilled manpower from the home country (Korka, 2010).
Living standards of society are reflected through the levels of salaries, wages, and their spending habits thus determining the willingness and ability of consumers to purchase the products and services. In circumstances where people are poorly paid, it is undeniable that the market will have low purchasing power thus reducing consumption rates. In effect, investors in such regions will experience low sales volume thus reduced profits. Equipped with this information, companies investing in Latin America are likely to make essential decisions such as production expenses and prices for products and commodities. According to Chneider & Soskice (2009), most of the Latin American countries are poor and are characterized by low consumption levels making it unfavorable regions for foreign investments. For example, amongst the countries in Latin America such Chile, Mexico, and Brazil, Brazilian market has become the interest of a majority of foreign companies because of the increasing creation of middle-income earners in the country. Since consumption increases proportionally to income, the country provides a potential market for companies compared to Mexico.
Investors seeking to operate in Latin America should consider the culture of the people living in the target country. In this case, companies should focus on understanding the general way of life of the people such as attitudes to work and the population's values. Latin American countries are very homogeneous when it comes to values and attitudes experienced by people. Cultural factors have a significant impact on business performance because they play essential roles in a company's activities such as marketing strategies, designing the brand, and meeting the needs of the people. Most of Latin Americans engage in informal activities and tend to work until it is late in the day which makes it difficult for companies to provide the people with adequate information about their products. Equipped with the knowledge of their commodities, companies will be able to determine the appropriate time and the best marketing strategies that will reach the market.
Companies investing in Latin America should evaluate the political system of a country before commencing their activities in such nations. Political systems are essential in business activities because they determine the success or failure of a company. Country’s governance provides the legal frameworks within which business activities should be conducted and an organization that the political system of a country operates successfully because they face minimal charges for violation of stipulated rules. According to Francis et al., (2018) most of the Latin American countries such as Brazil and Mexico have legal systems governed by the civil law thus providing companies with a clear explanation of the procedures to be followed when establishing investments in Latin America. For example, Brazil and Mexico dictate that successful companies should enter the market through either joint ventures, franchising or corporations. The political analysis provides organizations with alternative approaches that businesses should follow to reduce adverse actions by the government.
Political governance creates an opportunity for examining trade partners and levels of corruption in the country. Corruption takes different forms such as bribery, nepotism, and the misuse of resources. Latin American countries such as Brazil and Mexico are characterized by high levels of corruption which may expose companies to the risks of experiencing loss in their investments (White, 2005). In some cases, companies find it easy to venture into foreign countries that have well-stipulated laws governing trade partnership or direct investments with their home countries than in a situation where such relations do not exist. Most of the countries in Latin America such as Brazil and Mexico have entered into trade partnerships with nations such as France and other European countries (White, 2005). Though Mexico experiences most of its foreign direct Investments from the US, China investors are entering into trade partnerships with Latin America reflected in the increased presence of Chinese investors in the region (Ellis, 2009). In effect, it is possible for investors from the US or China to thrive in Latin America than firms from other countries.
Analysis of Latin American markets reveals that foreign companies should consider various aspects such as economic, cultural, social, political, and the level of competition in the target market. An economic aspect provides essential information regarding the nature of the target market and availability support institutions such as World Banks and trade relations that would provide support to the country in case of economic crisis. The presence of such institutions guarantees the investor of continued operations even when the economy is in depression. Domestic companies provide a high level of competition to international companies reducing sales volume reflected in low-profit margins. Successful companies should consider the efficiency of local investors before making decisions on whether to invest or not. The cultural and social way of life equips investors with information regarding appropriate branding and marketing strategies as well as prices at which to sell the products. Political context exposes business people to the legal framework of the country they are to operate thus making the necessary approaches to venture into the target market.
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