Challenges

As in most developing countries there are numerous challenges to doing business in Latin America and the Caribbean. Barriers to enhanced economic and commercial relations with the region have been overcome and resulted in an increase in imports and exports, inward and outward investment, technical cooperation, joint ventures, and other economic linkages. Although many challenges are still present today, there is evidence of increased ease of business in many Latin American countries. Firms contemplating entering the market should be not only export ready, but export experienced with a carefully thought out plan for market entry. The range of longstanding challenges to doing business in the region includes, but is not limited to, the following:

Logistics-Shipping, Handling, Port Clearance: Air links between Canada and the region have greatly improved over the years. Even so, while both West Jet and Air Canada have several direct flights from Western Canada to the Caribbean, neither carrier has non-stop flights from Western Canada to Central or South America. There is a continuing paucity of regular direct ocean shipping routes from Canada to a number of key markets in LAC, including to Brazil. Much of Canada's trade with LAC must go via the USA, a new challenge given security issues and the "thickening" of the USA/Canada border. Customs clearance is often bureaucratically complex and pilferage can be an issue. Appointing competent, connected, and effective freight-forwarders, customs brokers, and agents can mitigate these challenges.

Culture and Language: There are often different approaches to business, business meetings, and communications. Relationship building and face-to-face meetings are particularly important, necessitating senior and often numerous (hence, expensive) visits to the market.

Import Tariffs and Non-Tariff Barriers: Import duties and often complicated non-tariff barriers and import procedures abound in the area for reasons of import control, revenue earning, excessive bureaucracy, and in some cases, corruption. The good news is that barriers have been coming down, corruption is being reduced, and Canadian suppliers are not singled out for maltreatment. Canada's Free Trade Agreement efforts in the region together with the Doha agreement should ease access for Canadian firms.

Business Regulation/ Policy and Regulation Instability: One of the challenges that many business people meet in the region is that of shifting policies and regulations with continuously changing rules and conditions. At its worst this can lead to outright contract abrogation. As a result of public policy circumstances (or even due to effective lobbying by competitors), governments may change import rulings, product certification terms, investment rules, taxes, tariffs, duties, or other regulations that may completely change the terms under which a firm entered the market as a supplier or investor. Careful due diligence prior to committing to a business partnership or to an investment is essential.

Financing Availability: Financing is often a challenge; for customers to pay for goods and services, to finance government or private sector projects, to repatriate revenues, for investments or joint ventures, and other situations. Sometimes, when money is available it may be at unreasonably high rates. Close consultation with DFAIT offices, Embassies/Consulates, EDC, and banks active in the area should be a pre-requisite to business overtures in the region. Contact with Northstar Finance (see Appendix B) and the Canadian Commercial Corporation may also be useful. As of May, 2008 the Inter-American Development Bank Research Department expected the inflation rate for Latin America for 2008 to be about 8%. Inflation expectations for 2009 were about 7.5%.³⁵

Bureaucracy/Documentation: The governments in the area are large and interventionist and bureaucracy is normal. Delays in visa issuance, import permits, customs clearance, regulatory decisions, etc. are commonplace. Issues regarding taxation, labour, patents, and others may also be complicated and solutions long in coming.

Security and Stability: The principal challenges to security and stability in the Americas stem primarily from weak democratic institutions and profound socio-economic inequities. Though ongoing violence is present in some American states such as Haiti and Colombia, the principal threats to human security in the region stem more from crime and corruption than war or terrorism. Corruption, disparity and fragile democracies exacerbate the instability of the region and threaten the social, political, and economic cohesion of societies. Corruption, rampant or petty, may occur in many of the region's countries, though most are attempting to reduce the extent of such practices, especially at the government level. There is little control that a Canadian company can exert over this, though a connected and trustworthy partner can advise/assist.

Intellectual Property: Companies exporting high technology products or services will need to be aware of the challenge of protecting their intellectual property (IP). There are cases where local partners or agents have found means of appropriating such IP and offering it as their own, or of developing competing products based on the original.

Finding Competent and Trustworthy Agents/Representatives: This is always a challenge in new unfamiliar markets and cultures, but it is a necessary one. Stories of unreliable, dishonest or otherwise incompetent and potential damaging partnerships in the region abound. That said, every country has its share of able and reliable firms perfectly capable of representing Canadian interests, but thorough front-end research is required.

Corporate Social Responsibility: While relevant for some time, some view this as less of a traditional challenge than an emerging one. Nevertheless there is a real challenge to companies investing in the region, especially in the extractive sectors, to be sensitive to environmental, human rights, land use, and other controversial issues.

Lack of Information: Regrettably there is a continuing lack of informed and adequate knowledge by Canadian businesses about LAC and the complexities of doing business abroad, and by LAC countries of Canada and Canadian products, services, and capabilities. This is a significant factor in limiting commercial exchanges between the two business communities, but can be remedied over time. Associations such as the Canadian Council for the Americas (CCA) with chapters in Vancouver, Calgary and Toronto, and the Canada Brazil Chamber of Commerce can assist in improving Canadian knowledge about the region. DFAIT, Industry Canada, together with their offices across Canada and various programs, seminars, and other focused events can also be of great assistance.

Variances Country to Country: A recurrent theme of the consultations is that Latin American countries are by no means peas in a pod. South America is not a homogeneous mass, nor is Central America, nor the Caribbean. Even in a block such as the Andean countries there are great variances among the component members. The consultations revealed the differences country-to-country in LAC and the important rivalries at play.

Competition: Historical, cultural, and language links with Europe and increasing American contact through immigration and business, together with the expanding presence of Japanese and Chinese, all drive the competition. Companies from the U.S. are strong competitors. Competition not only derives from other foreign suppliers, but increasingly, as the region becomes ever more educated and industrialized, competition is coming from local sources. Such competitors usually have the ear of the local government and this may result in tighter import or product certification regulations to the detriment of foreign suppliers. It can be suggested that the Americans are more readily recognized as a source of high technology, for example, than Canadians.

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