Dealing with Latin American import duties
There are many obstacles in exporting to Latin America. However, the one mentioned again and again by British businesses is import duties. They hurt because they are unavoidable, they are nonnegotiable and because anyone with a basic understanding of business finance can easily see how they affect the profitability – and the likeliness – of exporting to these booming economies.
Once you know the import duties your product faces in a country and in a specific region, then you work out other taxes, charges and fees. If you have done your market research properly in terms of pricing, you will know what margin is left – and therefore the profitability for you and the likeliness of getting a third party involved (whether a distributor, agent, franchisee or other).
Life is not that simple. What also puzzles British businesses is the bureaucracy surrounding imports to Latin America, and the speed at which legislation changes, particularly in Brazil. It is not uncommon for shipments to be returned without any particular reason. Dealing with Latin America takes time. And patience.
Let’s go back to our figures. If your product costs £1 to make and it retails at £3 in Brazil, if you face 40% import duty and you add the cost of shipping, VAT, other taxes, charges, fees and more, then you might work out that it is not feasible for you to export to this country. But there are 200 million Brazilians (and 40 million Argentineans, 20 million Chileans…) – surely, there MUST be a way of servicing this demand?
Maybe not. Latin America is not for everyone. It is a difficult continent to penetrate and it requires the long-term building of personal relationships. It requires resources, capital and time. It is probably not the ideal continent to find your first-time export market. Having said that, it offers a lot of potential for growth and vast opportunities for those willing to invest the resources. So do you have to have endless capital to finance your expansion into Latin America? Is it then only for the really large businesses that can finance this process?
The short answer is NO. Protectionism makes it difficult to penetrate these markets – that’s the whole point – but these countries are still importing: because they need to and because they want to. So what would they want from Britain? Here are just a two ideas:
– Very niche products and services – the creative ones that these countries haven’t thought about or haven’t developed the capacity to produce themselves – and this applies from software to organic baby food, from security consultancy to distance learning training…
– Made in Britain (or “Designed in Britain”) products – you can’t replicate this anywhere else – this goes for beer, whisky, cars, trench coats, china, pharmaceuticals, and more. It probably doesn’t matter if a 50p cheap toy comes from China, but if you live in Bogotá and will give a bottle of whisky as a present, it will have to be Scottish…
Very niche products and services will command a price premium, which means that even after high taxes (if applicable), they still have a chance of being competitive. And many niche products will actually have been identified by these governments as current needs, so they might be subject to relatively low import duties.
“Made in Britain” products will tend to also be towards the luxury end of the market, and again, they will command a price premium, that will make them more competitive to export. Again, market research is essential.
Small businesses are particularly well-placed to developing niche and “Made in Britain” products and services. As a result, they have more of a chance of penetrating Latin American markets than they might think…
Our next blog post will continue to address the question of protectionism and what to do about it. Keep coming back!