A Guide For APAC Businesses Looking to Expand to Latin America
Before 2000, there was little trade and business activity between Asia-Pacific (APAC) countries and Latin America. The two regions not only differ drastically when it comes to culture and language, but the physical distance between them also plays a role in relations. However, in recent years, there has been a steady uptick in trade partnerships and business activity. According to research from the Asian Development Bank Institute, trade between APAC and LAC countries is expected to continue growing, reaching at least $750 billion by 2020.
Both regions boast complementary advantages for businesses, including ample natural resources, affordable labor, and large markets with growing middle classes. Latin America’s agricultural exports are increasingly supporting APAC’s economic growth. Meanwhile, APAC’s competitively priced goods and services are increasingly welcomed in Latin America. Populations in both regions are also coming online at a comparable pace. One GMSA report forecasts that 73 per cent of the Asia-Pacific population will be connected via mobile devices by 2025. Similarly, the mobile adoption rate in Latin America is projected to reach 74 per cent by 2025.
Trade agreements, such as MERCOSUR and the Pacific Alliance, are helping Latin America better position itself in the global economy and enter new markets, such as Asia.Today there are 25 Free Trade Agreements (FTAs) between the APAC and LAC regions, up from just two FTAs in 2004. By 2025, that number is expected to reach 36, led by Chile, which has the most FTAs with Asia-Pacific countries.
Latin America presents many exciting opportunities for APAC businesses looking for growth. However, Latin America is a big place, and no two countries are alike. To launch and operate in the region successfully, APAC businesses need to understand the opportunities and barriers that each country presents. For instance, some Latin American countries are more business-friendly than others. Meanwhile, trade agreements, geography, infrastructure, and network connectivity differences must all be taken into consideration as well.
Here’s a look at the countries that currently serve as the best gateways into Latin America for APAC businesses.
Though not without its challenges, Chile’s geographic proximity, longstanding trade relations, and typically stable business environment make it an attractive entry point for APAC businesses. In 2019, Chile ranked 56 among 190 economies on the Ease of Doing Business Report. The South American country currently has eight FTAs with Asian economies, as well.
Chile is one of the most promising markets for Asian businesses in Latin America. The online marketplace, AliExpress, which is owned by Alibaba, found a way to fulfill a need among Chilean consumers for quality, reasonably priced products. The online retailer launched in Chile and is now a leading source of exposure for Chinese businesses looking to sell their products in Chile. With more than 70% of Chileans connected to the Internet, the success of AliExpress is proof that e-commerce in Chile is still largely untapped.
Chile’s widespread mobile and Internet connections are also playing a key role in the mobility and transportation sector. In 2018, China’s bike-sharing service Mobike launched in Santiago, Chile, and quickly dominated the market. Mobike now operates in multiple cities across the country, with more than 330,000 users.
Peru ranked 68 out of 190 countries on the 2019 Ease of Doing Business Report and presents an attractive, fast-growing market for APAC businesses. Approximately 90% of Peru’s exports are covered by FTAs, five of which are with Asian economies. Peru is a member of the Asia Pacific Economic Cooperation (APEC), and a member of a number of other organizations tied to East Asian countries.
Despite challenges with underdeveloped infrastructure and public services, the Peruvian government is promoting entrepreneurial activity and attracting foreign businesses and investment. In December 2018, Chinese fiber-optic company YOFC announced it would begin the installation of six broadband networks across Peru that would bring more than one million people and 3,300 public institutions high-speed Internet and intranet.
The government has also initiated programs such as Startup Peru, which offers funding for innovative, high-impact companies.
Mexico, Chile, Colombia, and Peru make up the Pacific Alliance, which has become a significant driver of positive LAC-Asia relations. In 2017, the Pacific Alliance announced the inclusion of three Asia-Pacific countries: Australia, New Zealand, and Singapore, further solidifying ties between the two regions.
Mexico is home to one of Latin America’s largest middle classes. Mexico’s healthy business environment and proximity to the US make it a favorite among foreign investors. According to the 2019 Ease of Doing Business Report, Mexico ranked 54 among 190 economies. Mexico’s FTAs are also important for APAC businesses. One example is the Japan-Mexico FTA, which provides access to the US via the North American Free Trade Agreement.
As the 14th largest country in the world, Mexico stands out as a leader in several industries, including energy, automotive production, and financial technology. It’s estimated that by 2050, Mexico will be the 7th largest economy in the world.
Many technology firms are entering Latin America through Mexico, including China’s leading car service company, Didi Chuxing. Didi Chuxing entered Latin America in 2017 by acquiring 99, a Brazilian taxi and ride-sharing application, and adapting it to the Mexican market. Noticias Aguila, a news aggregator developed by Shenzhen Inveno Technology, set up an office in Mexico and attracted over 20 million users in less than two years, becoming one of the biggest mobile media platforms in Latin America.
Latin America Now Open For Business
Across Latin America, middle classes are emerging, consumers are increasingly shopping online, and governments are adjusting to consumer demands for more accessible and affordable products and services. Latin America has already captured the attention of China, and it’s likely that this attention will grow from other APAC countries in the coming years. Many of the partnerships and trade agreements mentioned are still in the development stage; however, the vast gaps between the two regions are closing rapidly and exciting new opportunities for businesses to seize are emerging.