Selecting a Location

Due to great variation between countries and cities in South America, selecting a location in the region is as important as it is complex. Most organizations find it easier to establish themselves in one South American location successfully before moving to multiple locations.

Choosing a starting place

Identify a location with few regulations and a simple tax code for your industry. Competition in your industry may tell you that conditions are favorable. Among the competitors you may also find business partners and managers with invaluable local experience. Of course early success in a competitive cluster also means finding your unique niche without provoking established players who may react defensively. Check local antitrust and competition laws to see how much protection you can expect as a new entrant.

Managing location costs

Identify the main cost drivers for your company and industry. Supplies and costs of raw materials, facilities, space, and labor vary greatly throughout South America, as do taxes and tariffs. Because of uneven infrastructure, transportation can be a major cost differential between locations. Some of the less expensive locations in South America may have deficiencies that can be resolved through private investment—from building your own roads to providing housing for workers—with the added benefit that governments will welcome businesses aligned with their economic development programs.

Reaching your target market

Proximity to a significant concentration of customers can speed early sales success. You can find lots of eager consumers in cosmopolitan cities like São Paulo, Rio de Janeiro, Buenos Aires, and Santiago. Shopping malls in these cities are entertainment hubs for upper- and middle-class shoppers. But competition is intense here, and space is very expensive. New entrants may find better results in second-tier cities where the market is not yet saturated. Consider Lima, Bogotá, Quito, Montevideo, Belo Horizonte, Curitiba, and Salvador, although fast growth is already narrowing opportunities in these cities.

Targeting the middle class

If your target is middle-class consumers, you can find them in peripheral neighborhoods that ring the big cities, in smaller cities, and in rural areas. There is huge sales growth in this market, but also challenges in accessibility—both for distribution and for consumers. Middle-class retail is fragmented, with shops clustered on the streets around public transportation hubs such as subway stations. Security and supply chain logistics on the street are more challenging than in a mall.

Selecting a location

• Am I aware of local laws and regulations?

• Am I aware of local businesses that will form my competition?

• Will transportation to and from the region add greatly to my costs??

• Does the location have the infrastructure I need?

• Does the local population fit my target market?

• Do I have a back-up plan in case circumstances change?