APPENDIX 7
Memorandum submitted by British Expertise
You asked at the end of our evidence session
with you on 30 January if we could let you have a note on the
reasons why there is so little interest from British professional
services companies in the Mercosur countries.
In our view, the reasons are as follows:
LOCAL CAPACITY
It is a paradox to us that UK Trade & Investment
have identified Brazil and Mexico as priority markets, yet they
are the most advanced countries in the region in terms of supplying
professional services. There will in general be more opportunities
in the smaller countries, also in the West Indies, from which
much of the UKTI resource has been withdrawn.
LANGUAGE
Language is a barrier to the supply of services
(but not of goods) in Latin America. This is the only continent
where there are only two languages. That seems to have created
an expectation that businessmen will speak one of them, and they
discriminate against those who cannot, in a way that Chinese,
Russians and others would not. In Brazil, you are of course expected
to speak Portuguese. It is also the case that Spanish and Portuguese
are much less taught in British schools than other Western European
languages, so we start with a disadvantage. No private sector
company can afford to give comprehensive language training, so
executives end up taking part-time lessons on top of their day
jobs, and this does not normally produce effective command of
the languages. Companies that are successful in Latin America
have managed to recruit native speakers of one or other language.
BARRIERS TO
TRADE
British Expertise companies are discouraged
by Government over-regulation, bureaucracy, difficulties in setting
up companies, protectionist employment laws, withholding taxes
and ineffectiveness of double taxation agreements (it is apparently
impossible to obtain tax certification in Brazil). The Government's
JETCO initiative with Brazil is of course designed to put these
issues right; but this will take a long time, and it will take
even longer to change perceptions.
CORRUPTION
Most businesses see Latin America as corrupt,
though in reality Latin American countries are no worse than many
others. Senior officials in Ministries tend to favour those with
whom they went to University so there is often a closed network
to penetrate even before you come into competition on price against
local companies. The very rich still have a huge controlling influence,
which once again tends to create unfair competition.
PAYMENT PROBLEMS
Latin American countries are typically poor
at paying for work done, even under World Bank funded contracts.
Part of the reason is corruption, but it is also relevant that
many have unstable currencies and can be politically unstable,
though that is improving. Latin American countries are poor at
collecting tax revenues, so that resources are scarce.
COST OF
ENTRY
Lack of real knowledge of the region means that
businesses wanting to invest or sell there make a substantial
and costly effort to penetrate the region. There is often insufficient
incentive to do that, as against using resources in other parts
of the world that are better known. An acquisition is one way
to tackle this, but you are still left with all the other problems.
CONCLUSION
It seems generally agreed that Latin Americans
actually like doing business with Europeans, particularly the
British, though of course the Spanish have a strong position despite
of their colonial history. The experiences of our member companies
suggest that there is good business to be done in Latin America
in professional services, but that a company entering the market
needs to be well prepared and have representatives with a good
command of the appropriate language. Some companies are doing
well in niche activities, for example Currie & Brown in PPP
expertise, HTSPE in aid-funded business. Others are using US subsidiaries,
eg Mott MacDonald operating through their US Company, Hatch. A
clear strategy involving some or all of these elements seems to
be necessary for success.
9 February 2007
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