Why US Businesses are Shunning China for Latin America – FangWallet

We find ourselves operating in a period of heightened geopolitical uncertainty. At a time when expansion overseas and business management can be unpredictable, the lure of relative locality in Latin America is becoming more appealing than ever for US companies.

The post-pandemic landscape brought plenty of challenges for businesses with overseas operations and the emergence of war in Europe and the Middle East has seen tensions between the United States and China become more complex.

With the prospect of a Donald Trump presidency appearing more likely, the famously China-skeptical prospective head of state could stifle business activity in Asia further. 

So, where should US businesses do business in the age of geopolitical uncertainty? The answer may be much closer to home than many leaders would expect. Latin America offers plenty of opportunities for business and growing infrastructure to support business growth. 

Unpacking the Potential of Latin America

Thanks to the region’s rich array of natural resources, healthy population growth, and geographical proximity to the United States, Latin America offers a strong market that’s less saturated than other regions and plenty of potential for business growth. 

With a lower cost of living in Latin America than in the US, salary expectations are considerably more manageable for businesses in the region. This can pave the way for hefty savings on operational costs while offering advantageous salaries to skilled LatAm workers that would be far more challenging to provide for US talent. 

For United States businesses seeking to do business in LatAm, specific opportunities can be found in nearshoring, consumption through the region’s 650 million-strong population, energy transition, and even prospects for digital nomads. 

The Rise of Regional Optimism

During the pandemic, a BizLatin Hub survey of 75 business and governmental leaders operating in more than 40 countries worldwide highlighted the growing positive sentiment surrounding Latin America as a business opportunity. 

The June 2020 survey found that over 57% of respondents intended to expand into the region, and although 68% stated that they weren’t planning to hire staff at the time, some 46.6% intended to hire in 2021 as uncertainty cleared. 

Although LatAm’s post-pandemic recovery was hampered by the emergence of historically high inflation rates, which saw an average peak of 14.41% in 2023, the calming of macroeconomic conditions in 2024 has helped to highlight the potential of the region. 

Optimism for LatAm growth has been supported by forecasts of accelerating GDP growth throughout the region over the coming years. Although forecasts of a 1.6% gross domestic product expansion in 2024 seem tepid, expectations of 2.7% and 2.6% in 2025 and 2026, respectively, highlight a region moving in the right direction. 

Embracing Reformation

Regulatory reforms have been a prominent factor in Latin America’s bid to become more attractive to US businesses. According to a report conducted by the World Bank in 2019, its most recent iteration, 21 out of the 32 countries in Latin America conducted regulatory reforms throughout the year. 

Colombia placed a particular interest in approving its attraction to businesses, conducting 37 regulatory reforms since 2005 in a bid to become more business-friendly by simplifying cross-border trading and startup support. 

Brazil and Mexico, two LatAm nations that ranked highest on the 2023 Global Innovation Index from the region, have also sought to remove barriers to entry for businesses. 

While Brazil offers corporate taxpayers the opportunity to recover portions of their income tax and social contributions based on their investment in approved projects, Mexico has provided deductions for training expenses and a series of depreciation deductions for new assets for businesses. 

Both nations have undergone a series of tax system improvements and reforms designed to reduce the red tape businesses must navigate when expanding into Brazil or Mexico. 

Reformation hasn’t been limited to LatAm’s major economies, either. Many nations have recognized the value of welcoming US businesses and have made alterations to reduce the friction in setting up a business in the region. 

In the Dominican Republic, according to the annual P&H Law guide on ‘Doing Business in The Dominican Republic’, the government has undergone a consistent process of regulatory modernization that’s paved the way for the adoption of new measures aimed at opening and commercially integrating the nation’s economy into international markets. 

Despite the Dominican Republic trailing the likes of Brazil, Mexico, Argentina, Colombia, Chile, and Peru in terms of GDP, the nation’s impressive infrastructure features eight airports and 14 seaports, as well as a modernized telecommunications system. This highlights the rapid progress that the region’s leading nations are undergoing to build their suitability. 

Challenges Remain

One of the most stubborn barriers that US businesses face is the language barrier. Non-Spanish or Portuguese-speaking decision-makers may struggle to find simplicity when doing business in Latin America, but it’s worth noting that English is the third most commonly spoken language in South America and remains a popular second language for residents. 

It’s also important to bear in mind that Latin America is a gateway to low-cost emerging economies. Because they’re less developed than the United States, the cost of living is lower and employee salary expectations match this. However, it does mean that infrastructure will be weaker than in the US. 

Despite this, many LatAm nations are exhibiting a rapid rate of growth, meaning that businesses can access an excellent low-cost opportunity to build into markets that are set for significant technological enhancements in the future. 

Capitalizing on LatAm 

Doing business in Latin America can bring great value to your company and open operations in a massive market of 650 million inhabitants. 

Located far closer than China, and free from the geopolitical uncertainty that’s impacting the business prospects of Asia, there are plenty of opportunities for businesses to capitalize on. 

In embracing emerging economies today, your business can reap the rewards tomorrow. With lower operational costs and plenty of infrastructure and regulatory enhancements, building into LatAm is an excellent step toward sustainable growth.