Six ways for your small business to expand into Latin America

There are many ways for small businesses to get their products into Latin American markets and the benefits from expanding into these economies can be great. In the second of two posts on this topic, Gabriela Castro-Fontoura, author of Doing Business with Latin America, takes a look at how it could work for you.

1. Agent

It is not easy to find agents in Latin America, and the line between a representative, an agent, an importer and a distributor is often blurred, writes Gabriela (left). There are some outstanding agents but they are not easy to find and you will have to rely on your contacts. Bear in mind that the agency structure is not as developed in Latin America as in Europe, and you won't be as well protected if your agent doesn't do their work.

2. Office/store

You could open your own store or your own office in Latin America. There are varying requirements in different countries regarding issues such as the foreign ownership of businesses and profit repatriation. I highly recommend you seek professional legal advice if planning to go down this route.

3. Free trade zones

There are free trade zones in almost every country across Latin America, with considerable benefits for foreign companies that operate in these areas, particularly around tax. They are complex structures that need to be researched in detail and I also recommend seeking professional advice.

"In the last ten years franchising has increased to 13% annually. The risk of failure for franchising start-ups is currently 15%, much lower than the average 80% for non-franchising start-ups."

4. Franchising

Franchising is undergoing a boom across Latin America and it is the preferred model for expansion for many businesses that need local knowledge and capital, but that have a strong brand that is successful in their home market. Did you know:

• The BBC recently published an article on franchising in Brazil. It highlighted that in the last ten years franchising increased 10 per cent to 13 per cent annually. The risk of failure for non-franchising start-ups was estimated at 80 per cent. It was 15 per cent for franchising start-ups.

• Dunkin Donuts plans on opening more than 125 stores across Latin America in the next five years. Starbucks is planning more than 350 new openings.

• Peru is one of the biggest international franchising centres in Latin America.

5. Licensing

Licensing is increasing in Latin America. In toys and gifts, for example, I have seen Mushi Monsters, Thomas the Tank Engine and Aardman's products across the region, to name just three British brands. When writing this book, I heard that the licensing rights for Mike the Knight had also been bought for Latin America (in Portuguese and Spanish).

"In the toys and gifts market,  I have seen Mushi Monsters, Thomas the Tank Engine and Aardman's products across the region, to name just three British brands."

If it suits your business, it is worth exploring. I interviewed Ian Murphy, a British international licensing expert from Innovi Business Growth, who gave the following view:

"Selling your products directly into every target export market requires a very substantial support infrastructure," Ian told me. "In some countries, there may also be restrictions on the operations of foreign-owned firms, which may make it difficult to establish a presence in the market. Where your product is based upon proprietary intellectual property rights (IPR), it can be very effective to enter into a licensing deal with a local partner"¦Licensing is well established in some industries and countries in Latin America. For example, the Brazilian aircraft manufacturer Embraer has for a long time been building light aircraft in Brazil, based on designs and technology licensed in from Piper Aircraft in the USA. Certain models are still produced in Brazil, now alongside aircraft which Embraer have designed and built to their own designs."

I would recommend consulting an experienced licensing professional, and a trusted UK-based solicitor with strong connections across Latin America, to give you the real picture of what to expect from country to country. Ian also advises that everyone always thinks of a solicitor first, but of course they can (if they have experience of licensing) only help with the terms and conditions governing the contract. They cannot advise whether a deal is strategically advantageous, or whether the chosen partner is well placed to develop the market for you. There are some very good reference materials at the IP Office website:

• http://www.ipo.gov.uk/licensingchecklist.pdf

• http://www.ipo.gov.uk/skeletonlicence.pdf

6. Other options

There are many other options to consider when expanding into Latin America. For example, you could have a concession within a department store. Or you could go for a joint venture. Different variations in terms of associations and acquisitions are possible. What matters is to be open and to research, research, research. The more complex your expansion, the more likely it is that you will need to invest in professional legal help to safeguard your brand and your investment. Gabriela Castro-Fontoura is the founder of Sunny Sky Solutions, which supports small businesses to do business with Latin America.

Learn to do business with Latin America for just £5

Gabriela's Doing Business with Latin America offers an introduction to small businesses to Brazil, Mexico, Chile and other growing markets. It's available as a downloadable eBook from the Enterprise Nation bookshop. Just click on the link below to find out more and buy your copy. [product id="68464"] Photo credits: Bruno Bense (traffic lights), Stéfan (children's toys), Steve Minor (restaurant) via Compfight cc