“When the U.S. Coughs, We in Latin America Get Pneumonia”: Not necessarily the case anymore with the weakened dollar; and opportunities for U.S. companies beyond Brazil and Mexico
01 Apr 2008|Miguel Winebrenner
Historically, every time the U.S. economy has taken a downturn the result has been more detrimental for Latin American economies. In 1987 and other tough years for the U.S. economy, Latin America has experienced even rougher times- struggling exports and stock market disappointments to name a few. However, the slowing period in Q1’s U.S. economy has been unusual in that the dollar’s value has also decreased. For many economic sectors in Latin America this has been very bad- like flower exports in Colombia (their income is in the form of a devalued currency, but they have fixed costs in an increasingly valued currency). But for many sectors in LatAm, the weakened U.S. dollar has brought about opportunities. Similarly, some companies in the U.S. are struggling but others (like Wrigley and IBM) are benefiting.
As described in this article from Northwestern University, Wrigley has experienced significant growth mainly via sales in emerging markets like Brazil who are being able to import U.S. products for less than they have been able to do historically. Of course, the opposite is true as well- many U.S. companies who import foreign goods aren’t able to buy as much as they used to for $1. All in all, most economists agree that this is just part of the cyclical economic nature of global interdependence and trade.
Importantly, the fact that Latin American countries can now buy more U.S. goods (and that there are trade treaties in the making, like the one with Colombia), represents an incredible market opportunity for many U.S. businesses.
But historically, U.S. companies have looked at Latin America with a very narrow lens when it comes to market opportunities; most companies think that targeting Brazil in Mexico is targeting Latin America. That would be like saying that India and China represent the Asian marketplace.
True, Brazil and Mexico are the largest economies, but it is important for U.S. companies to not forget about “Cono Sur” (Southern Cone of Latin America) which is made up of Argentina, Uruguay, Chile and others. These countries have interrelated economies (via the “Mercosur” trading pact) and could represent a viable opportunity. Also, the Andean region (made up of Colombia, Ecuador, Peru, Bolivia and Venezuela). These cultures and economies are also similar, to the point at which- if you collapse them- they represent just as big an opportunity as a Mexico in terms of population, GDP and other metrics.
In sum, your company may be seeking to maximize the currency situation by exploring new markets in Latin America. Keep in mind that in doing so you would benefit from a market assessment that goes beyond Brazil and Mexico in order to truly capitalize on the opportunity of a low dollar.prev next