In multiple industries, Argentina offers rewards for those looking to South America for the next stop on their global expansion. Not only is it one of the world’s leading producers and exporters of commodities, but also represents enormous potential in terms of telecommunications market opportunities. Experts agree that structural improvements will materialize over the next few years as a series of recent reforms continue to mature.
That’s not to say that there aren’t certain challenges present in the region, however; far from it. While private organizations in particular are also likely to benefit from slowing inflation, current rates are still above the current administration’s target for 2017 of between 12 and 17%. Inflation will slow to about 34% in 2019, after an inflation rate of nearly 48% generated a sharp devaluation of the country’s currency.
The Major Challenges of Operating Under Argentina Inflation
Businesses will likely face organizational and infrastructure-related challenges while operating in Argentina. Chief among them is the ability to retain top-tier talent when operating in a country with such high inflation rates and currency depreciation. While challenging, employers should bear in mind that the principles of market-based pay still apply.
Employers may be enticed by the idea of paying employees in a hard currency as opposed to their local currency to save money, for example. However, not only can this be illegal in certain situations, but it can also significantly complicate paying taxes as well. Exchange rates are nothing if not unpredictable, so this is a volatile game that employers do not want to be a part of.
Instead, to address these issues, employers should consider making temporary “one-time payments” or “lump sum economic adjustments.” This will allow employers to make payments that both address current Argentina inflation and currency exchange rates in a way that is still easy to manage once the local economic situation “returns to normal.”
Keys to Retaining Talent in Argentina
Indeed, a general lack of motivation and rotation of employees is something employers may face soon after arriving in Argentina. To mitigate these risks, decision-makers should consider any number of the alternative solutions that many organizations have successfully experimented with that allows them to both attract and retain top talent:
- Retention bonuses
- Performance bonuses that are also tied to someone’s continued employment at the time the payment is received
- Innovative share plans that include extended vesting periods
- Additional benefits like the use of a company car, a company-provided cell phone, meal allowances, or school accommodation for children
- The payment of any (or even all) post-grad courses and technical qualifications
- Improved health care benefits for not only employees, but their extended family
- Flextime, or the ability to work remotely from home
When exploring these options, however, there are a few key factors employers should keep in mind. If certain types of benefits are not A) registered as remuneration, and B) subject to social security, that organization could be subject to fines unless it is able to prove that it is not, in fact, remuneration. To do this, one would have to prove that something like a company cell phone was a “work tool” that did not generate any type of economic advantage for the employee in question by allowing them to continue to further develop their skills.
Likewise, in the last year, labor unions also agreed with employer associations on salary increases between 15 and 30%, though some of those agreements are still under revision.
Mitigate Risks When Expanding into Argentina with an Experienced Expansion Partner
Expanding into Argentina under the current financial situation does not come risk-free—but organizations can mitigate these and other risks by teaming up with an experienced expansion partner.
Velocity Global’s International Professional Employer Organization (PEO) solution offers expanding organizations a dedicated team to handle all risk mitigation when expanding into Argentina or one of the other 185 countries in which we operate. From sourcing and hiring to streamlining payroll and benefits, International PEO offers organizations a simplified expansion process, freeing up decision-makers to remain focused on running their businesses.
Want to learn more about International PEO or how we can help you break into virtually any international market? Let’s talk.