This remote sliver of South America may not be the first destination that springs to mind for most UK firms seeking global expansion, but Chile’s favourable trading environment and affluent middle class make it a land of increasing opportunity. Local commercial experts and British business leaders who have set up shop in the capital, Santiago, explain what incoming enterprises can expect in this burgeoning marketplace
Viewed from a purely geographical perspective, Chile isn’t an obvious candidate to top the wish-lists of British firms seeking post-Brexit trading partners. Hemmed in by the mighty peaks of the Andes, the hardscrabble wilderness of Patagonia and the bone-dry Atacama Desert, this spine of South America is hardly the most accessible of markets. Then there are the natural hazards: 15 per cent of the world’s volcanoes are here, while the country is notoriously prone to earthquakes. The devastating quake of February 2010, for instance, shifted the Earth’s axis by 8cm, according to Nasa.
Yet something else of a seismic nature is occurring here. Chile’s output has doubled since 2004. It is South America’s most competitive country, with myriad free-trade deals, and its wealthiest in terms of GDP per capita. Such is the quality of its infrastructure and the enterprising spirit of its people that, when the “mega-thrust” struck seven years ago, most utility networks were back up and running within days – as was the Santiago Stock Exchange.
Chile’s economic success can be attributed largely to strong demand for its key export, copper, along with clever free- market reforms by a state that has adopted laissez-faire policies in recent years. Indeed, the nation is 10th on the 2017 global index of economic freedom, an annual ranking published by conservative US think-tank the Heritage Foundation.
Despite its reputation as the most open South American nation, Chile rarely crops up in British firms’ post-Brexit growth discussions. The country is nowhere to be seen among the UK’s top 50 trading partners. There are clear reasons for this, according to Gabriela Castro-Fontoura, director of Sunny Sky Solutions, a consultancy facilitating foreign direct investment in Latin America.
“Naturally, British companies think first of trading with India or Australia because of their linguistic and cultural ties,” she says. “Latin America has a reputation for being remote and corrupt, which puts them off.”
Such fears should be assuaged by the knowledge that BA now flies directly from London to Santiago and that Chile scored 66 on a scale from zero (“highly corrupt”) to 100 (“very clean”) in Transparency International’s 2016 index of perceived public-sector corruption, ranking it 24th – above Portugal and just below France. Yet misconceptions about the region remain.
When Castro-Fontoura talks to UK firms about Chile, they often tell her about their bad experiences in Brazil. “This is like saying: ‘I don’t want to do business in the UK because the Czech Republic didn’t work out for me,’” she argues. “Whenever I attend trade shows in Santiago, I see Danes and Norwegians, but where is the British stand?”
This situation has improved in recent years. British exports to Chile are worth about £1.5bn a year, led by crude oil, industrial machinery and increasingly, consumer goods. Waitrose gained a foothold in Santiago in 2013, with its own-brand foods appearing in Unimarc supermarkets. The Chilean taste for tea has prompted Twinings and Whittard of Chelsea to start exporting here too. On the main streets of the capital, meanwhile, Mothercare, Lush and Topman all have a presence.
“The market here is open to British firms because Chileans feel that the UK delivers quality and reliability,” says IoD member Cristian Lopez, managing partner at High Relevance, a London-based search-engine optimisation consultancy that has an office in Santiago.
The advance of British retailers has been aided by the nation’s burgeoning middle class and the fact that Chile has free-trade deals with 64 countries. “In Santiago they joke that whoever has a flag has a free-trade agreement with us,” says Castro-Fontoura, who notes that the UK and Chile are already drafting a replacement for the 15-year-old EU deal under which the pair currently trade.
In their element
Copper accounts for 55 per cent of Chilean exports, with China being the biggest customer. The metal plays an important cultural role, as Castro-Fontoura explains: “The rest of the world will check the sports news first thing in the morning, but Chileans will look at the price of copper. Ordinary people have chats along the lines of: ‘Did you see copper was up three per cent today?’ When there’s a lot of mining activity, the whole economy grows – there’s more money to spend on luxury cars or nice dresses. When it goes down, the economy freezes.”
Chile has wisely been trying to reduce its dependence on copper. Fortunately, the world’s insatiable demand for rechargeable batteries has spawned the so-called lithium triangle on its borders with Argentina and Bolivia. Over half of the Earth’s known deposits are to be found in this inhospitable region of high-altitude salt lakes. Solar power is also a booming industry in the Atacama, where a number of photovoltaic plants are being built.
Rory Wallace, director of Chilean operations at Leeds-based construction consultancy Turner & Townsend, has noticed a shift towards property development too. “You can see that transformation in Santiago’s skyscrapers,” he says.
Then there’s “Chilecon Valley”, as the capital has become known among many of the new enterprises that have made it their base. As part of its effort to develop a knowledge economy, the government has established Start-Up Chile, an accelerator scheme offering foreign entrepreneurs 20m pesos (£23,500) and a year-long visa to run their businesses temporarily from Santiago. Chile is in fact the world’s second-biggest investor in start-ups. The state puts in £12m a year, compared with £8m from the UK government.
Milo Spencer-Harper had recently created a company called Magi Metrics when he boarded a flight to Santiago in October 2015. Spending the next six months working in a shared space with scores of other entrepreneurs from across the globe, he developed his fledging business, which helps firms to advertise on Instagram.
“The grant enabled me to do things I wouldn’t have done in the UK,” Spencer-Harper says. “I gained a lot of technical skills from others on the programme, while my meetings with investors definitely improved my public speaking.”
National work ethic
Foreign business leaders arriving in Santiago could be in for a shock when turning up at the office for the first time: it’s not unusual for Chileans to work 12-hour days and six-day weeks. “Chileans do put in long hours, although that’s not particularly productive,” Castro-Fontoura says of the national work ethic. “Any multinational coming to Chile would have to adapt to this way of working.”
You’d also be well advised to learn at least some Spanish. “If you speak to a mining company director or head of retail, they’ll probably speak English,” she says. “But, if you need technicians or people on the ground, you’re going to have to communicate with them in Spanish.”
Overseas companies could find acclimatising to Chilean bureaucracy difficult. “This is a nightmare,” Spencer-Harper says. “There is only one company [Transbank] processing card payments and international money transfers in Chile. And contracts are not valid unless they’re witnessed by a public notary, which takes time and can prove a big barrier.”
Lopez observes that there can also be “complications when it comes to opening a bank account for a new company”.
But Castro-Fontoura notes: “If you’re struggling here, you need to adjust something, because it’s the easiest place in Latin America to do business. Chile is a good test market for foreign firms looking to expand in the region. It’s the right country in which to experiment with different currencies, payments, customs – and make mistakes. Once you feel comfortable here, you can move to Peru, then Colombia.”
Chile, she adds, is home to little of the deep-rooted macho culture that permeates much of Latin America. Only 8.5 per cent of the nation’s board directors are women, but this figure still outstrips the rest of the region.
“As a female director, you can come here without a problem,” Castro-Fontoura says.
Despite all its free-trade deals, Chile still doesn’t have a pact in place with Argentina or Brazil, having refused to participate in the Mercosur trading bloc (which also covers Paraguay and Uruguay). This makes life harder for any British manufacturer hoping to establish a base in Chile from which to trade with the rest of South America.
“If you want to export to Brazil or Argentina, it’s best being based elsewhere,” warns Castro-Fontoura. “The logistics of getting anything out of Chile are difficult – except for wine, which always gets through.”
Despite this, her advice for British firms thinking about breaking Latin America is still to start with Chile before working clockwise around the continent via Peru and Colombia. “Visit these three countries on a recce. Go there and shake hands – Chileans like to meet you – and see what happens. Investing £5,000 in doing that is better than having three years of the whole thing not working.”
Wallace observes that Santiago was Turner & Townsend’s best possible “stepping stone” to the region. Since establishing its first Latin American office in Chile’s capital in 2009, the firm has since added Bogotá, Lima, Mexico City, Rio and São Paulo to its portfolio.
“The level of transparency is good in Santiago, as is the talent pool,” he says. “The people here take a lot of pride in what they can do.”
Castro-Fontoura agrees, noting the strength of Chile’s entrepreneurial spirit. “They’re making money from solar panels in the desert and they’re getting hydropower from its dams in the south. The whole country is attracting talent and start-ups. Chile is opening to the world because, as a nation, that’s how it sees its future,” she says. “For Chileans, trading is second nature. That is what they do.”
Doing business in Chile case study: Spafax
Founded in London in 1985, Spafax built its business as a marketing agency by producing in-flight magazines for airlines such as BA and Virgin. It started its international expansion in the mid-1990s, opening a Santiago office in 2004 after winning a pitch to publish the magazine for Chile’s flag carrier, Lan (now Latam).
Spafax found an experienced local editor for the publication by word of mouth, as its CFO, Simon Ogden (pictured), explains: “Everybody seems to know everybody in Santiago. It might be home to six million people, but they probably know 5.9 million of the rest. It takes 20 minutes just to get out of a restaurant there.”
As a result of the red tape that existed at the time, it took four months to set up the office. There was a constant need, he recalls, to “prove your identity and that you were a bona fide business”. With a bank account application yet to be approved as the first issue went to press, Ogden’s fellow director, Raymond Girard, had to pay staff in cash from his own account.
The operation became profitable in its second year and grew quickly, even having to set up its direct TV business in the editor’s garden hut because it was running so short of office space. Today it employs 25 people, having attracted foreign clients such as PeruRail.
“It’s relatively easy to find good workers in Chile. People here are really committed, sometimes in the office until 11pm trying to get presentations out,” says Ogden, who now visits the office twice a year. “Chileans really appreciate it when you meet them face to face. There’s nothing to prevent you from doing successful business down here. It’s a great country to work in – and the wine is great too.”
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