7 Key Considerations Expanding From Europe to Latin America

Latin America has come onto the radar for a growing number of European companies in recent years. While there is a lot of potential upside for both sides in this dynamic, expanding from Europe to Latin America has yet to go mainstream. That makes it ideal for innovative investors looking for opportunities.

Latin markets have some critical differences from European ones, and this means it pays to work with experienced local professionals such as GEOS international in partnership with Biz Latin Hub for company formation and ongoing back-office support in Latin America and the Caribbean. 

Relations between the continents have been relatively weak historically, with Europe trading much more with closer continents such as Asia, Africa and North America. However, there are connections that go back hundreds of years across the Atlantic.

Certain European countries have always had closer ties with Latin America – most obviously Spain and Portugal with linguistic links. However, South America has English, French and Dutch speaking territories too. Argentina, to take another example, has strong German and Italian-descended family ties.

Then there are the lesser-known but profitable routes. Colombia and the Netherlands dominate the world in flower sales, so work closely together. South American leather is highly prized in the fashion houses of Milan and the Nordic countries drink plenty of coffee. German and French cars are to be found across Latin America.

All this adds up to a surprisingly rich tapestry of trade, yet still with plenty of room for growth and with space for new market entrants. The benefits of expanding from Europe to Latin America is still something that many companies have yet to fully appreciate, meaning that acting fast could reap great rewards.

Why Expand to Latin America?

The continent is an exciting place to invest in. Most countries in the region have had solid growth for decades and many took a big leap forward at the start of this century thanks to the resource boom. Like everywhere else, there was a wobble in the COVID/19 pandemic, but that has been ridden out and the region is back to growth again.

With a US$7 trillion economy, over 600 million citizens and a growing middle class, Latin America represents an attractive market for both foreign investment and company expansion. There is enormous diversity in markets, from giants such as Brazil or Mexico to specialized operators like Chile or Guyana.

With over (12%) of the world’s land mass, there is a lot on offer, including open and transparent financial markets, attractive incentives for companies to invest, an abundance of natural resources (lithium, copper, oil, gold etc.) a ready supply of human talent, well developed infrastructure, and at a low market entry cost, when compared to European and North American Markets.

Now is the perfect time to look at expanding from Europe to Latin America with bullish outlooks across the board for the region’s economies. However, you need to take some time to consider which territory is best for you, as they each have certain advantages for different sectors.

Expanding From Europe to Latin America: The Key Considerations

So, there’s plenty of reasons to invest in Latin America, but is it right for you? We have compiled a list of the most common areas that new market entrants should consider for company formation when expanding from Europe to Latin America.

Bureaucracy in Latin America

While many European countries are used to doing business in a straightforward manner, Latin America is famed for opaque and forbidding bureaucratic processes. With specialized local support services, however, you should have few problems navigating it. Some countries, such as Panama, are smoother than others, so consider where you find it easiest to operate.

Better yet, improvements across the region are taking root. For example, IFRS standards are increasingly used for auditing and accounting at larger businesses and UBO databases are coming online in a number of countries already. Digital signatures and specialized accounting databases for dealing with local tax offices are becoming standard.

Competitive Labor Costs

The cost of hiring an average worker in Latin America is nowhere near what it is in Europe, which is a great attraction for many investors. Especially in fields such as nearshoring, this means potentially cutting your overall labor costs quite dramatically.

However, you will need to make sure that you comply with local rules for social service contributions and so on in order to avoid suspension of operations and/or significant fines. This can be done by employing a local payroll specialist and legal support. 

Highly Skilled Workforce

While those workers might be cheaper to employ, there’s a good chance that you won’t see a drop-off in terms of the quality of new hires. Latin America has invested heavily in tertiary education over recent decades and that has come to fruition, with more graduates leaving university than spaces in the local market.

That means you will often be able to find well-educated and Anglophone young graduate workers at a fraction of the equivalent price in Europe. This is most noticeable in the tech sector, with engineers and programmers flooding out of local universities.

Time zone Differences

One of the unavoidable issues with expanding from Europe to Latin America is the difference in time zones. When the European day is starting, Latin America could be anywhere between four and 9 hours behind. In extreme cases, this may mean that one office has finished by the time the other starts.

Of course, this can’t be changed, but it can be managed with smart work. First, consider which country you wish to consider for partnerships, with Argentina and Brazil much closer than Mexico in terms of time. Also, you could implement asynchronous working in order to actually benefit from the difference in time. For example, you could be able to respond to clients over much larger windows of operation.

Cultural Compatibility

Europe and Latin America share many cultural similarities, thanks to their shared roots. Not only in day-to-day life is this true, but into the office and wider working environment. It is unlikely that you will have much friction in terms of what is expected by either side.

Having said that, you should be aware that Latin America tends to be a bit more formal than especially Northern Europe, both in terms of dress, behavior and language. However, personal space tends to be much closer. When it comes to communication, English is widely spoken among the graduate class in Latin America. 

Local Markets

There are two main reasons for expanding from Europe to Latin America. The first and most common is offshoring and outsourcing production or business processes. The second is often overlooked but has great potential: unlocking new markets.

How can GEOS help?

At GEOS, we’ve mapped out the entity setup & maintenance processes in 80+ countries and packaged it into a convenient platform/service. We also provide ongoing services like Resident Directorship, Registered Address & Tax/Accounting to help clients through the process of employing regional teams with their new entity.

Schedule a consultation with us here. 

This article does not constitute legal advice.