Trust, cultural understanding and investment in local communities are the strategic factorsAsian businesses to succeed in Latin America
Olam International is a global commodity trader, which operates as an integrated supply chain manager and processor of agricultural products and food ingredients. They supply cocoa, coffee, cashew, sesame, rice, cotton, and wood products across 16 platforms in 65 countries. For over a decade, Olam has been established in Latin America and it has direct presence and operations in 11 countries that range from Mexico to Brazil. “Most of our businesses are export-based, but include local procurement of raw materials, processing, logistics management, and exports to international customers around the world”, explains Juan Antonio Rivas, Senior Vice-President and Head of Olam International Ltd's Central America and Andean Region. In addition, they have also selectively invested in agricultural productions such as dairy farming in Uruguay, peanut production in Argentina, and a newly commissioned capsicums grinding facility in Peru. Rivas explains that they are connecting with Latin America through their investments in the region and selling their products produced there to Asian Customers.
According to IMF projections, Asia and Latin America were expected to grow over 6.9 percent and 3 percent respectively in 2013, exceeding the projected growth of under 2 percent for the United States and European Union. On the other hand, for the former giants the prospects are a bit grim, U.S. and E.U. projected growth for 2013 stand at 1.7 and negative 0.6 percent, respectively. Evidently, Latin America and Asia are regions where the most substantial opportunities for investment and market expansion exist. “As other regions face challenges, Latin America is standing out as a preferred market for Asian companies to explore”, confirms Rivas. The population and income per capita continues to rise and both regions at an exponential rate. In order to handle this massive transformation, the Inter-American Development Bank suggests that Latin America must double its spending on infrastructure to about 6 percentof GDP in order to stay competitive againstemerging markets. Rivas concurs, “most countries in Latin America are investing heavily in infrastructure such as roads, ports, and this is another sector with high potential for Asian investment – we’ve recently seen Singapore’s sovereign wealth fund GIC investing in AegeaSaneamento e Participações – the water and sewage treatment arm of Grupo Equipav in Brazil”.
There is an evident need for Latin America to solidify its infrastructure and economic policy to become more competitive for international investments. The gears are in motion as in terms of mining, oil, gas and the agricultural businesses, Latin America is becoming a global leader. BP Statistical Review of World Energy states that Latin America accounts for a fifth of the world's oil resources and 9.2 percent of the world's oil production. Specifically, in the case of Brazil, Petrobras indicates that the country is expected to propel investments for around US$237 billion in the oil and gas sector between now and 2017. Both regions appear to be adapting swiftly to the transformation of these markets. There are a lot of opportunities in Asia and Latin America where there is a tacit understanding of creating these potential ventures.
Even though challenges such as distance, language and cultural barriers can deter some investors, these impediments can be conquered. Rivas explains that given the size of the Asian market, Latin America has a vast share to explore and it’s more a matter of increasing the knowledge and understanding about these places to bridge potential differences. “These regions are very large and diverse, and this creates the challenge of not falling into generalizations or simplifications that could result in erroneous decision-making”, reassures the VP. He believes that through constant and increased communication, as well as careful market research, country visits, and real efforts to adapt one’s style and way of working to the realities of the other area as well, these predicaments can be successfully addressed. Increasing trust and support of the local people are also crucial practices for Asian companies to develop relations in the region. Olam International created Olam Livelihood Charter where the company supports coffee farmers in Garzón Dorado, Colombia, which includes training in agricultural practices, pre-finance and social investment. Rivas assures that the relations between Asia and Latin America have strengthened significantly in the recent past and this tendency will stay strong. He concludes “we are seeing increased involvement and support at government level to complement the private sector initiatives, so what lies ahead is more trade, more investment, and more cooperation between the regions”.
*This interview was conducted at the Latin-Asia Business Forum, an event presented by IE Singapore.