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Why Are Business Expanding into Latin America?

By December 17, 2018 January 23rd, 2019 No Comments
Why Are Business Expanding into Latin America?

Latin America is the world’s blooming startup region. The Vancouvers, Lisbons, and Tel Avivs of the world may have something to say about this, but virtually every Latin American country appears to have a city or region that is the “Silicon Valley of X”, be it Guadalajara, Santiago, Lima, or San José. Investors’ gazes are shifting towards the varied shores of Latin America, and its riches are some of the world’s best kept secrets—and a Latin American expansion can reveal its most attractive features.

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Why Some Companies Are Moving to Latin America

There are many factors driving this shift to Latin American expansions. One often-cited explanation is the so-called “U.S.-Factor.” Many businesses are moving to Latin America due to:

  • Favorable production and operational costs
  • Fantastic transport links to and from the United States with manageable flight times
  • Huge expanses of coast which equates to massive shipping capacities
  • Similar time zones to the United States

Moving south even has a name; the phenomenon of ‘near shoring’ is beautifully executed in many LATAM countries—none more so than Mexico, which has in recent years emerged as a hugely competitive startup market.

Another potential driving factor is the significant progress in terms of infrastructural indices found in Latin America. The countries are modernizing at an impressive rate, and are more accommodating than ever for key considerations, including:

  • Road and rail networks
  • Improvements through large construction projects, such as those seen in the Panama Canal
  • Comprehensive expansion and betterment of internet access in the region

If we take Colombia as an example, the GSMA (Global System for Mobile Communications Association), a London-based company that promotes telecommunications innovation and accessibility, has assessed that nearly 95% of the country has access to 3G coverage. Indeed, it is estimated that by 2020, 76% of the continent will have access to mobile internet. The numbers are indicative of an increasingly transparent market with impressive accessibility to the most crucial tool of modern business: The Internet.

However, the development that has arguably had the largest impact on convincing companies to move operations to and establish a local entity in Latin America, has been the emergence of startup incubators and accelerator projects. Both private and government-backed projects are common, and have facilitated the entry into the Latin market to great success.

What Is a Startup Incubator and Is It the Same As an Accelerator?

Startup incubators and accelerators are relatively modern concepts, but both nurture new innovation. However, both terms are bandied about quite frivolously, and the subtle nuances of each institution are often lost.

Both institutions serve to support the development of young companies, but the difference is where and how the aid is distributed. An accelerator is perhaps simpler to understand, as it does exactly what it says on the tin; an accelerator provides support, consultancy, and crucial cash flow to companies in order to hasten the rate at which they grow. Candidates normally enter an application process, which will see them selected for the program. With this support and advice, companies have the support they need to pursue (and reach) their goals in a significantly shorter amount of time than had they not been in the program.

An incubator, on the other hand, has the same goal, but ultimately approaches the challenge from a slightly different standpoint. While an accelerator will take an already-existing young business and try to take it to ‘the next level,’ incubators look to offer direction, management, and financial support for a concept and aim to turn it into a functional, profitable business. The slightly more maternal nature of an incubator means that there is no time frame and is perfect for projects of smaller scale.

Which Model is Having Success in Latin America?

The answer is both. The most high-profile, government-supported programs fall under the category of accelerators. Programs such as Start-Up Chile—arguably the founding father of this trend—offers various packages for companies in their infancy. Since the projects inauguration in 2010, the Chilean government has invested over US$40 million in well over 1,000 startups. There are similar government-backed programs in Argentina and Peru, as well as privately-funded projects such as the Mexican Fondo de Fondos (Fund of Funds).

There are also many successful incubators that are transforming high-quality ideas into fully functional companies. An interesting and necessary development of many of these incubators, such as Santiago’s Socialab and Medellin’s Ruta N, is a focus on green, socially sustainable innovation. For many companies looking to enter this green space, or expand their operations by creating a branch and hiring remotely, these are just two of the many incubators nurturing socially-just minded focused on socially-just startups.

Make the Move into Latin America with the Right Expansion Partner

If your business is ready to implement its global expansion strategy and enter Latin American market (or is still in the planning stages), make sure you expand with an experienced partner. Velocity Global has helped dozens of companies expand into Latin America and around the globe. And for companies that are committed to establishing a permanent presence, setting up an entity in Latin America may be the right move—and we can help make it happen. Let’s talk.