Export To Latin America

Fundamentals of Exporting
to Latin America
Eric Nystrom 2013
Lake Atitln - Guatemala
to Latin America
Eric Nystrom 2013
Approximately US$ 355,691 million in trade between U.S. and
Central & South America in 2012

U.S. Trade with Central & South America has increased 19.8% from
2008 to 2012

U.S. Exports to Central & South America have increased 34.3%
from 2008 to 2012

U.S. Exports in 2012 to China = US$ 110,590 million
(US$ 536,234 trade total)

The U.S. exported 66.3% more goods to Central & South America
(US$ 183,866 million) than to China in 2012
Trade Facts
to Latin America
Eric Nystrom 2013
Highlights of this Presentation
The Basic Fundamentals of Exporting
(anywhere)

Latin American Export Strategic Plan
Elements

Latin American Strategic Issues

General Export Plan Tips,
Suggestions & Recommendations
to Latin America
Eric Nystrom 2013
Export
Success
Market
Selection
Partners
Marketing
Finance
Logistics
HR
Sales
Product
Selection
Entry Mode
Export Plan
Components
to Latin America
Eric Nystrom 2013
Assessment & Planning
Self-Assessment

Must-Have Conditions

Nice-to-Have Conditions

Global Strategic Plan
to Latin America
Eric Nystrom 2013
Self-Assessment
Useful at the beginning planning stages

Helps to set goals and get everyone on the same page

http://export.gov/begin/assessment.asp

to Latin America
Eric Nystrom 2013
SWOT Analysis
Strengths:

Weaknesses:

1. Strong Brand in USA

2. Production Capacity

3. Low Cost Producer

1. English only Marketing
Materials

2. Little International Experience

3. Not ISO 9000 Certified

Opportunities:

Threats:

1. Growing Latin American
Industrial Markets

2. Few Foreign Competitors

3. High & Low End Markets

1. Copycats & Pirates

2. Increased Latin American
Government Regulations
3. Rising Fuel Costs

to Latin America
Eric Nystrom 2013
Porters 6 Forces Analysis:
More robust than SWOT Analysis
Comp.
products/
Govt/
public
to Latin America
Eric Nystrom 2013
MUST HAVE Conditions
Upper Management Buy-In,
Commitment & Realistic
Expectations

Knowledge & Experience producing
& selling product or service

Sufficient Corporate Infrastructure

Solid Cash Flow

Production Capacity & Flexibility to
produce international products or
provide the service
to Latin America
Eric Nystrom 2013
NICE-TO-HAVE Conditions
International Expertise

Foreign Language Ability

Cultural Awareness / Sensitivity

Travel to Foreign Markets
to Latin America
Eric Nystrom 2013
Strategic Plan Layout
Strategic Plan Elements:

I. Creating a Vision

II. Forming Supporting Initiatives
i. Market Selection
ii. Market Entry
iii. Cultural Intelligence
iv. Export Plan Pillars
to Latin America
Eric Nystrom 2013
Creating a Vision Statement
1, 5, or 10 years out
Where do you want to be?
What do you want to happen?
How are going to do it?
Ex: It is January 1
st
2023 andwe have
become the go-to, influential market leader
in the Latin American markets we serve by
focusing on giving our customers
consistently outstanding service through our
local sales, distribution & after-sales service
locations. Our sales in Latin America are at
least $50 million and
to Latin America
Eric Nystrom 2013
What are the Initiatives that Support the Vision?
Which markets am I going to select and why?

What will my entry mode be and who will be my partner?

What other strategic issues will I have to account for when
I am building my:

Sales & Marketing Plan?

Logistics Plan?

Finance, Legal, and HR Plan?
to Latin America
Eric Nystrom 2013
Market Selection
Reactive
Strategy
Pro-Active
Strategy
Primary
Research
Secondary
Research
Qualitative
Research
Risk
Assessment
FTAs
to Latin America
Eric Nystrom 2013
Market Selection
Pro-Active Approach to Foreign Market Selection:
Create decision criteria/indicators to assess each markets potential.

Use secondary data to narrow the field or create a pool of
possibilities (5 to 10 markets)

Use primary data for final selection (1 to 3 markets; create a
list ranking all identified markets)

Use qualitative data as criteria to select or narrow selections
to Latin America
Eric Nystrom 2013
Market Selection
International commodity coding system that most countries
use to classify their products

6-digit HS Code is known as the international level or
subheading (e.g. 8429.39)

All imported goods are subject to duties based on the HS
code, value listed on commercial invoice & country of origin
of manufacture (not necessarily the country of export)

Key Factor in Secondary Research: Harmonized System Code

to Latin America
Eric Nystrom 2013
Market Selection
Harmonized System Code:

You can find your HS Code/Schedule B Number by using:

https://uscensus.prod.3ceonline.com/ (search engine)

http://www.census.gov/foreign-trade/schedules/b/
(by chapter)

to Latin America
Eric Nystrom 2013
Market Selection
Good Secondary Research Data Sites
Subscription Based:
Piers
Euromonitor
GTIS
USA Trade Online
Datamyne*
Kompass*
Free:
Export.gov (USDOC)
Global Edge (MSU)
World Bank Trade Data
Comdata (UN)
DCEO / OTI (IL)
to Latin America
Eric Nystrom 2013
Market Selection
Primary Data Sources: Direct data collection through
interviews, surveys and direct contact

More expensive, time consuming + personal
involvement

Tailored to your needs, gives specific answers

Private & Government offers this service

to Latin America
Eric Nystrom 2013
Market Selection
Qualitative Research: research dealing with phenomena that
are difficult or impossible to quantify mathematically, such as
beliefs, meanings, attributes, and symbols

Generally used for exploratory purposes; a small number of
respondents; not generalizable to the whole population;
statistical significance & confidence not calculated

Examples include focus groups, in-depth interviews,
personality tests

Can be time consuming, expensive & requires personal
involvement
to Latin America
Eric Nystrom 2013
Market Selection
Global Assessment Suitability Indicators:

Demographic population, literacy, education, per capita,
language, Human Development Index (HDI)

Macroeconomic GDP, growth, inflation, economic activity
index, industrial activity index

Government taxes, tariffs, political stability, corruption index,
ease of doing business index, non-tariff barriers, intellectual
property rights, Free Trade Agreements (FTA)

Environmental infrastructure, climate, geography
to Latin America
Eric Nystrom 2013
Market Selection
Risk Assessment Factors:

Political expropriation, terrorism,
instability, bureaucracy, corruption,
relationship with US Government, trade &
non-trade barriers

Economic currency exchange,
recession, inflation, financial, taxes

Legal intellectual property protection,
contract law, employment laws

Cultural nationalism, religion,
packaging, language, context
to Latin America
Eric Nystrom 2013
Description Detail Imported Product
(US$)
Brazilian-made
Product (US$)
Cost (FOB) Milking Machine
(8434.10.00)
50,000.00 50,000.00
International Ocean Freight Estimated Cost 2,000.00 0.00
International Insurance 0.3% of FOB & Freight 156.00 0.00
CIF Value (basis for calculation of
taxes)
Cost + Insurance +
Freight
52,156.00 50,000.00
Import Duty (ID) Federal Tax 14% on CIF 7,301.84 0.00
IPI Federal Tax
Industrialized Products (0- 5%)
0% on CIF+ID 0.00 0.00
PIS Federal Tax
Program for the Social Integration
1.65% on CIF+ID+IPI 1,185.59 1,108.65
COFINS Federal Tax
Social Security
7.6% on CIF+ID+IPI+PIS 5,460.92 5,106.50
ICMS State Tax (Sao Paulo)
Circulation of Goods & Services
18% on
CIF+ID+IPI+PIS+COFINS
14,510.71 12,339.91
Total Value after Taxes 80,615.07 68,555.05
Cost Differential +15%
to Latin America
Eric Nystrom 2013
Market Selection
Foreign Corruption Index: http://cpi.transparency.org/cpi2011/results/
Rank Country Score
1 New Zealand 9.5
2 Denmark 9.4
2 Finland 9.4
4 Sweden 9.3
5 Singapore 9.2
6 Norway 9.0
7 Netherlands 8.9
8 Australia 8.8
8 Switzerland 8.8
10 Canada 8.7
24 USA 7.1
Top Latin American countries:
Rank Country Score
22 Chile 7.2
25 Uruguay 7.0
73 Brazil 3.8
80
Colombia, El Salvador,
Peru 3.4
86 Panama 3.3
100 Argentina, Mexico 3.0
118 Bolivia 2.8
120 Ecuador, Guatemala 2.7
to Latin America
Eric Nystrom 2013
Market Selection
Ease of doing business index: http://www.doingbusiness.org/rankings
Economy Overall World
Rank
Singapore 1
Hong Kong (SAR) 2
New Zealand 3
USA 4
Denmark 5
Norway 6
UK 7
S. Korea 8
Iceland 9
Ireland 10
Canada 13
Germany 19
Japan 20
Latin American
Economy
Overall World
Rank
Chile 39
Peru 41
Colombia 42
Mexico 53
Panama 61
Uruguay 90
Belize 93
Guatemala 97
El Salvador 112
Argentina 113
to Latin America
Eric Nystrom 2013
Market Selection
Free Trade Agreements (FTA)
USA has 14 FTAs, 6 of which involve 11 LATAM countries:

NAFTA (Mexico)
CAFTA (Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica
& Dominican Republic)
Peru
Colombia
Panama
Chile

Free Trade Agreement of Americas (FTAA) Proposed - ???
to Latin America
Eric Nystrom 2013
FTA Tool - Check out tariff rates & schedules by
accessing FTA tool:

http://export.gov/fta/ftatarifftool/TariffSearch.aspx

Need HS Code (4 to 10 digits)

Select FTA partner

Pending FTA partners included
Market Selection
to Latin America
Eric Nystrom 2013
Market Selection
Market research conclusions
Top markets share certain traits, some are:

Domestic sales & dist. methods similar

Solid comparative advantage for product
with good sales potential

Stable political & economic systems

Low tariffs, restrictions and regulations

Relative ease of currency conversion &
favorable exchange rates

Realistic transportation costs as a
percentage of the cost of goods sold
to Latin America
Eric Nystrom 2013
Entry Modes
Choosing your entry method should be
based on the following factors:

How much feedback you want?

How much control you want?

How much access to overseas
resources you want?

How much infrastructure/resources
you currently have?

to Latin America
Eric Nystrom 2013
Entry Modes
Types of Entry Modes:

Indirect

Direct with no investment

Direct with investment
Turnkey projects
Wholly owned subsidiaries

Joint Venture
Strategic alliance

Licensing
Franchising
to Latin America
Eric Nystrom 2013
Entry Modes
What is the best mode for you?

Consider your current
infrastructure & plan

Start smart & build up expertise

Choose mode on a region by
region basis

Work toward direct foreign
investment mode

to Latin America
Eric Nystrom 2013
Entry Modes
Risk & Reward
C
o
n
t
r
o
l

&

C
o
m
m
i
t
m
e
n
t

Indirect
Licensing
JV
Direct+invest
Direct export
to Latin America
Eric Nystrom 2013
Mode Conditions Favoring this
Mode
Advantages Disadvantages

Exporting
(no investment)
Limited sales potential in
target country; little product
adaptation required

Distribution channels close to
production

High target country
production costs

Liberal import policies

High political risk
Minimizes risk &
investment

Speed of entry

Maximizes scale; uses
existing facilities

Trade barriers & tariffs
add to costs

Transport costs

Limits access to local
information

Company viewed as an
outsider

Licensing
Import & investment barriers

Legal protection possible in
target environment

Low sales potential in target
country

Large cultural difference

Licensee lacks ability to
become a competitor
Minimizes risk &
investment

Speed of entry

Able to circumvent trade
barriers

High ROI
Lack of control over use
of assets

Licensee may become
competitor

Knowledge theft , leaks,
spillovers

Licensee period is
limited
to Latin America
Eric Nystrom 2013
Mode Conditions Favoring this
Mode
Advantages Disadvantages

Joint Ventures
Import barriers

Large cultural differences

Assets cannot be fairly priced

High sales potential

Some political risk

Gov. restrictions on foreign
ownership

Local company can provide
skills, resources, distribution
network, brand name, etc.
Overcomes ownership
restrictions & cultural
differences

Combines resources of 2
companies

Potential for learning

Viewed as insider

Less investment required

Difficult to manage

Dilution of control

Greater risk than exporting
& licensing

Knowledge theft, leaks &
spillovers

Partner may become a
competitor

Direct
Investment
Import barriers

Small cultural differences

Assets cannot be fairly priced

High sales potential

Low political risk
Greater knowledge of local
market

Can better apply specialized
skills

Minimizes knowledge
spillover

Can be viewed as an insider
Higher risk than other
modes

Requires more resources &
commitment

May be difficult to manage
the local resources
to Latin America
Eric Nystrom 2013
Entry Modes
Indirect
Direct
EMCs, Export Agents,
ETCs, Piggyback
Marketing, Confirming
Houses
MODE PARTNER
Commission & Direct Sales
Reps, Distributors (regional,
master, retail) & End Users
to Latin America
Eric Nystrom 2013
STRATEGIC ISSUES: LEGAL
Common Law vs. Civil Law:
Latin America has a Civil Law legal system
In Common Law, prior decisions are binding, while in a Civil Law
system they are merely permissive

Economic Nationalism (discrimination against foreign business
interests)

Choice of Law Clauses in export contracts (party autonomy)
Most L.A. countries historically have not recognized party autonomy
More L.A. countries beginning to recognize the principle of party
autonomy

to Latin America
Eric Nystrom 2013
Uniform Commercial Code (UCC) vs. Contracts for the Intl
Sales of Goods (CISG):
UCC is good but some L.A. countries are uncomfortable with some of
the common law requirements (e.g. consideration)
Many UCC and CISG provisions are similar
If both countries accept CISG, then automatically in force
Be careful that offer acceptance mirrors the terms of offer
If you can choose which law to use, go with UCC most familiar &
most judges in state courts & foreign countries unfamiliar with CISG

Analyze local rules on Agent and Distributor Relationships
(i.e. title of ownership, commission fees, termination, exclusivity, etc.)
to Latin America
Eric Nystrom 2013
Organizational structures can differ significantly in scope & detail
in Latin American countries (i.e. partnerships, corporations, LLCs)

Intellectual Property Law:
If you want IP protection rights in a country, you must obtain the
protection under that countrys rules no automatic protection
Trademark registration requirements in L.A. can be very different
than those in U.S.
Get agents or distributors to obtain IP protection for their territory

Arbitration not often used in L.A. because L.A. countries
traditionally have not enforced arbitral awards obtained outside that
country. In order for arbitration to be binding, add an arbitration clause
to your export contract.
to Latin America
Eric Nystrom 2013
STRATEGIC ISSUES: Cross
Cultural Communication
Distortion or misinterpretation can occur
when messages are sent from one
cultural perspective to a different one.

This is because the sender is using a
different set of values, attitudes, beliefs,
expectations and preconceptions from
that of the receiver.
to Latin America
Eric Nystrom 2013
Latin America is more USA is more
Contextually focused
Communal Collective
society
Relationship oriented
Oriented to the past
Complex non-verbal cues
Hierarchical / Elitist
Want to like what we do
(work)
Threatened by uncertainty
Patient long term
orientation
Content focused
Individualistic
Task oriented
Oriented to the future
Straightforward non-verbal
cues
Egalitarian
Want to be the best at
(work)
Tolerant of uncertainty
Impatient, quick decisions &
results
to Latin America
Eric Nystrom 2013
Understand cultural framework

Customer service #1 focus

Be consistent but flexible

Be careful of granting exclusivity

Its all about relationships

Minimize perceived risk

to Latin America
Eric Nystrom 2013
STRATEGIC ISSUES:
Product Selection
Factors to consider:

What are the needs of your Latin
American customer (VOC)?

How easily can you modify your
product to meet Latin American
needs?

How will your packaging, labeling &
manuals change?

What about after-market sales
support, returns & warranties?
to Latin America
Eric Nystrom 2013
Export Plan Tips and Advice
Freight is your #1 variable cost. Getting your product to your
customer in good shape, on time and at the lowest cost should be a
top priority

Freight Tips:
Find a knowledgeable Freight Forwarder/Carrier you can work with
An average shipment is handled between 44 and 91 times during
transit & falls 2 meters (6.5 ft.) or receives a blow equal to a 2-meter
fall at least once during transit
Select packing materials that consider the mode of transport (e.g. air
or ocean freight), type of commodity & weather (e.g. desiccant)
Use international handling & instruction symbols
Be shrink-wrapped if feasible

Remember the ISPM 15 Regulation (keep bugs out!)
http://www.aphis.usda.gov/import_export/plants/plant_exports/wpm/wpm_faqs.shtml
to Latin America
Eric Nystrom 2013
Compliance

Most exporters are unsure if they are 100% compliant. Make
sure your international sales processes & procedures include:

List of specific export docs needed for each country
(tradewizards.com)

Your Export Control Classification Number (ECCN)

Use the Denied Parties List (DPL) on BIS website to check new
buyers

Having a Destination Control Statement (DCS) on key export
documents
to Latin America
Eric Nystrom 2013
Sales, Marketing & Promotion

Get FREE or low cost secondary research from International
Trade Centers, SBDCs, State Agencies (DCEO), Federal
Government (Dept. of Commerce export.gov)
Market Selection
Market Entry

Find new overseas reps, distributors & partners via:
Dept. of Commerce Gold Key program ($700 - $1300)
Go to trade shows & trade missions (STEP program)
Connect with OTI foreign offices

to Latin America
Eric Nystrom 2013
Finance

Using Credit Insurance (e.g. EX-IM
Bank) to gain new customers &
increase order sizes

Develop an Export List Price in local
currency to increase revenues 5 to
15% via foreign currency exchange
(FX)
to Latin America
Eric Nystrom 2013
Thanks, Gracias, Obrigado, Merci!

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