Up your stakes in Uruguay (no, that’s not a typo)

Sunset over Montevideo

 

by Oliver Dowson, CEO of International Corporate Creations Ltd

The first thought of companies looking for business opportunities in South America is unlikely to be Uruguay – yet for many, that could be the ideal location to set up.
The country is best known for agriculture, especially beef farming – in fact, cattle outnumber humans by nearly 4 to 1 (12 million cattle, just 3.5 million people) and over 80% of the land mass is dedicated to meat production. So very few businesses are likely to consider it as an export market.

So, to attract international investment, the country has re-invented itself as a hub for business across the whole of South and Latin America. Taking advantage of its central location and time zone, Uruguay has set up Free Trade Zones which provide advantageous facilities for distribution, manufacturing and services to be delivered to all those huge markets around it – Brazil, Argentina, Chile, Colombia and others.

Visiting, as I did recently, one cannot help but be impressed. Although there are of course still enclaves of “real South America” in Montevideo, generally the city is uber-modern and buzzes with life. It has benefited enormously from years of political stability, and great strides have been taken to rid business of bureaucracy. As a result, it’s now the easiest country in South America to set up in and do business from. The fact that basing in a Free Trade Zone means zero taxes just feels like icing on the cake.

Although I admit to loving all South America, I have always avoiding favouring any one country. However, I do feel very positive about Uruguay. I’ve always found it very difficult to convince the businesses I talk to in Europe and North America of the potential of South America – but perhaps this is the place that can “tick all the boxes” and convince doubters of the value.

With my own experience of running service sector businesses in the region, one thing that particularly impressed me was the language capabilities. Obviously Spanish is the national language, but being bordered by its much bigger neighbour Brazil, many people also speak Portuguese. English is taught in schools from an early age, resulting in wide fluency. When I set up businesses myself in the past, I went to Brazil, as it was impossible to find enough staff in Colombia, Argentina or Chile who could speak Portuguese – and so I’ve now been kicking myself for never thinking of checking out Uruguay.

I visited three excellent examples of FTZ-based businesses, each demonstrating a different aspect of the value of choosing to base in Uruguay.

The first manufactures generic drugs for export throughout Latin America. The Science Park FTZ offered them literally a greenfield site to build a state-of-the-art facility, staffed by highly qualified local personnel but also exploiting robotics wherever feasible. The tax-free status was clearly a key factor, but the major points were the ease of export to all regional countries (and taking advantage of Uruguay being a member of the Mercosur tariff-free group of countries) and minimal bureaucracy.

The second was a vast distribution centre, importing a wide variety of products in bulk, and repacking them to meet specific retail orders to deliver to duty-free shops in airports throughout the continent. The value of being in one of the only free trade zones in South America, with a major port and airport within a short distance, no import or export duties and minimal paperwork, really came home here.

But it was the third example that registered with me as the best opportunity of all for the companies that I regularly talk to in the services sector. The company I visited is a sort of Latin version of Amazon. It has based its entire customer service operation in Montevideo and is now expanding its management team – it’s grown in just a few years from a dozen people to several hundred. Apart from the tax-free status of the FTZ, the real business benefits are the central location, multi-lingual staff and convenient time zone – which works not just for Latin America, but for the USA and Canada as well, of course. This is a model that can be replicated on quite a small scale, and SMEs looking to expand services across the Americas – and those that may have thought this to be an “impossible continent” – should definitely consider basing their operations in Uruguay.

It’s also a very civilised place to live, so, whilst you probably don’t need expats to run your business, any that you bring over should be very happy. Montevideo is a modern city, bordered by what seems to be unending beaches. And if it’s too quiet for you, Buenos Aires (Argentina) is just an hour by hydrofoil over the River Plate.

There’s a lot of support and advice available from the investment authority, Uruguay XXI.

There’s a great opportunity to learn more about Uruguay and the opportunities it offers in a seminar, “Why Uruguay?”, at Tower Bridge London on 18 May 2018. International Corporate Creations is proud to be supporting and organising this on behalf of Uruguay XXI, and the event is also supported by the DIT Department for International Trade, the British Embassy Montevideo and the recently-formed Uruguayan-British Chamber of Commerce. For more details and an invitation, please contact silvia@internationalcorporatecreations.com 

One of the Free Trade Zones in Montevideo

Montevideo Port
On the top of the Uruguay World Trade Centre Montevideo

Global Thinking for Digital Health and MedTech

I’m getting ever more excited by the new businesses that I’m seeing in the healthcare sector. Whilst the introduction of new drugs largely remains with established companies, there’s a proliferation of new technology and software, promoted by some really smart entrepreneurs, that will bring real benefits to all of us.

The most visible are physical devices, which have acquired a class label of MedTech. There’s already a vast number of patient-centric apps, covering everything from lifestyle improvement to self-management of medical care. And behind the scenes, there are new apps and software tools for professional use in hospitals and care homes – classed as “Digital Health” – destined to really improve patient outcomes and healthcare sector efficiency. Efficiency is really important, as ever-increasing demands on healthcare both push up costs and create issues of logistical availability.

We’re working on some great healthcare-related projects at ICC, one helping to expand international markets for a very smart UK business and another searching for the best global sector investment opportunities for a wealth fund, so I’m seeing a lot of these developments at first hand.

One thing that’s clear is how critical it is for MedTech and Digital Health app companies to plan for global dominance in their fields as early as possible. Healthcare and wellbeing are universal concerns, and these new products and service are needed in every country of the world.

Postponing or neglecting that is very risky. There’s the usual chance of finding that entrepreneurs in other markets have developed near-identical products – quite possibly having spotted the opportunity here first. Patents and copyrights aren’t enough, especially with software – the route to conquering international markets is getting there first and establishing one’s brand.

Additionally, there are often several different ways of achieving the same improvement in health outcome, and delay risks overseas markets adopting an alternative. And, if those foreign alternatives are more internationally agile, they may enter and start to dominate the domestic market. Even if the competition is not as good, that could easily destroy the local business. It’s therefore essential that entrepreneurs and investors ensure that their business plans aim for the earliest possible international expansion.

It’s sad for me to find young, gifted and enthusiastic entrepreneurs with great health care startups who aren’t thinking that way. The usual reasons are cited – it’s distracting and diversionary, we need to get established first, we don’t have the funding – but those can all be overcome.

Admittedly, initial trials and test marketing can take much longer than with other business propositions, perhaps especially where those require getting buy-in from the UK NHS. But maybe it’s quicker elsewhere.

Products and software might need adapting to other markets – but, until you study them, you won’t know, and there’s therefore the risk that, whilst what’s needed could have been achieved easily at an early stage in development, doing it later becomes difficult and costly.

So, whilst it’s easy to say that it can’t be afforded, the question is whether startups – especially those in the healthcare sectors – can afford not to start planning their international expansion from Day One. And it needn’t be either costly or disruptive. International Corporate Creations can help!

Whilst in some areas of politics, globalisation may be becoming a dirty word, in the world of MedTech and Digital Health it’s essential thinking.

Don’t freeze! Expand!

Watch For Wildlife. Large SUV in Front of a Deer in Deep Forest at Night. Road Danger at Night. Deer Crossing. Wildlife Photo Collection.
Deer in the headlights!

Business hates uncertainty. We’ve been seeing real and scary indications all year through that global trade from the UK has been getting paralysed, and now it seems likely that the USA could be slowing down as well. All of this is driven by uncertainty over the future – in the case of the UK, caused by Brexit, in the USA by the election of Trump.

The brave words of UK politicians do not seem to be feeding into business activity. A survey by a manufacturers’ organisation, EEF, shows most businesses freezing or reducing investment, saying future uncertainty is the reason. A report by the Institute of Chartered Accountants points to an expected slowdown in domestic sales, so even if exports increase because of a weaker pound, the overall business outlook is fragile at best. The rising costs of imports are making employers cautious about spending more on new hires and increasing salaries, and most expect that salaries will rise slower than prices, which would mean living standards drop in 2017. Yet another report from Hitachi Capital says that 42% of large and medium-sized UK firms cancelled or put off investing following the Brexit vote

It’s not unusual, of course, to read about British businesses being reluctant to invest in plant, machinery and training – that’s been a recurrent theme for many years. Sadly, however, we’re now seeing businesses not investing in international expansion (or any expansion). Last month I attended  the Global Expansion Summit in London – one of the best-organised events of its type in years – but only a tiny minority of the audience represented businesses ripe for such expansion; the bulk were service organisations looking for business.  Anecdotal evidence points to low audiences in other events targeted at established businesses.

I see this “wait and see” attitude as a terrible mistake.  I’m not into nostalgia, but I think my own experience is relevant here.

Back in 2006-07, when no-one saw the 2008 crash coming, I worked on setting up subsidiary businesses in Australia, Japan and Brazil. All of them were initially very small, and intended just as customer support centres to solve time zone issues and provide a foothold for potential future expansion. The total setup costs were small, and operationally they were cost-neutral as we saved on labour in the UK and USA.

It turned out to be remarkably fortuitous. When, a couple of years later, business dried up in the UK and the USA, we switched sales effort to Australia and Japan, where economies were expanding. We moved backroom operations to Brazil, where costs were a quarter of those in the UK. Result? Global turnover and profits both increased by 50%.  We now had a small multinational valued at more than double the original UK-only business.

I’m not saying that there’ll be another crash – but I do advise all business owners to plan international expansion now. Not only is there no need to wait to see what happens – it would be foolish to do so.

There are great opportunities for so many businesses – and exporting is only one of them. Manufacturers setting up assembly operations in other countries can benefit from free trade agreements already negotiated to sell to a wider region. Most medium and larger companies can benefit from setting up service centres, not only from much lower costs but also a greater availability of the skilled labour that seems likely to become much scarcer here. Those lower costs and high skills can enable some companies to perform R&D that they simply couldn’t otherwise afford.

Whatever the reason, companies benefit from cushioning against risks of recession and exchange rate volatility – and, most importantly of all, massively increase their valuation for that inevitable eventual IPO or trade sale. The answer to all this uncertainty isn’t to wait and see – it’s to expand overseas right now.

by Oliver Dowson, CEO, International Corporate Creations Ltd.

Georgia on my mind

International business expansion can bring even more successful and rapid results where there are unique opportunities.   So I’m always on the lookout for them, especially in countries that aren’t top of most people’s lists.  Last week I visited Georgia, and discovered an incredibly exciting pace of growth in a beautiful and welcoming country that exceeded all my expectations.  As soon as you step off the plane you start to see the potential.

It’s a small country with a population of just 3.5 million, and from 1921 to 1989 was part of the USSR.  Now it has reverted to proud independence, and is capitalising on its geographic position at the “crossroads of Europe”, a logical transport link between Asia and Europe.   As a result, most Foreign Direct Investment has been in infrastructure – new rail lines and motorways, and a deep water port in Anaklia on the Black Sea coast.   Now the country is starting to focus on other opportunities, and I see excellent potential for mid-range businesses – but it will be necessary to grasp them quickly.

At present, getting there can be a challenge – there are relatively few direct flights from Western Europe to the capital, Tbilisi (and none from the UK), and almost all of those arrive and depart at an unconscionable hour of the early morning.   That’s set to change over the next year, with budget airlines now negotiating access to other airports that are convenient both for the capital and the coast.  Once landed, immigration is a breeze, and it’s just the first warm welcome one receives.

In recent years Georgia has modernised rapidly, with glitzy new buildings and malls, but all the history has been retained.   The old town of Tbilisi is charming, and the remote cave monasteries fascinating – and between the two is some of the most beautiful countryside in the world.  The coastal resorts are similarly stunning.  Costs are low, the people are welcoming, summers are hot and sunny, the food is delicious – and it’s the country where wine was invented.  The potential for developing tourism, therefore, is huge, and arguably the top motive for FDI.

The country is also justifiably proud of being rated the 3rd safest in the world, and ranks highly for ease of doing business, economic freedom, lack of corruption and economic stability.   Taxation, an important consideration for most businesses, is simple and low – it claims to be the 9th lowest tax burden country in the world – and new policies from 2017 will make the system more attractive still.

I met with the Ministry of Economy, and learnt that their other priorities are energy, transport and manufacturing.  Even without the attractive government incentives, the free trade agreements with the EU, EFTA, CIS, GSP and Turkey, availability of a young educated workforce with low labour costs (average US$ 355/month) and inflation at a low 4.2% make a compelling case for considering manufacturing.

One thing there is no shortage of is water, and only 20% of the potential for hydro-electric generation has been exploited.  The value here is not just domestic, but in exports to Turkey and Russia, neighbouring countries with power deficits.

I was quickly convinced that almost every type of business should think seriously about expanding to Georgia – the time is right.

 

by Oliver Dowson, CEO at ICC – International Corporate Creations

Australia

After 25 years growth, what next?

Although it’s one of the most attractive international investment destinations for UK companies and investors, Australia is always a difficult market to read.  It’s not just the distance and time zone.  Perhaps the conflict comes from the fact that it feels so “British” in so many ways, but is economically so different.  The heavy dependence on mining and a services sector focused on Asia-Pacific tends to mean that economic cycles are almost the inverse of those in the UK and USA.

So back in 2008-2011, when doom and gloom hit the West, Australia powered ahead, with rapidly improving GDP and strengthening exchange rates – almost solely built on Chinese demand for raw materials.  Over the past two years, however, the economy has retracted as mining has suffered.

That’s not to say that the economy has not been resilient.  Despite negative factors, the end of the financial year last Thursday (June 30) brought with it official confirmation of 25 years of uninterrupted growth.   In the last year, though, whilst GDP grew by 3.1%, net disposable incomes actually fell by 1.3%.  So the country is producing more but earning less.  Average salaries have fallen as high-paying manufacturing and mining jobs have been replaced by low-paying service sector jobs, many of which are part time.

Now economists are worrying about what will happen in this new financial year, with uncertainties around Brexit (despite the distance!), the Chinese economy and many other international factors which have significant effects on Australia.  A new government and new budget may mean increased taxes.

As a result, Australians are spending less, and companies have drastically cut back on investment.

So is this a crazy time to consider trading with Australia?  Not at all, if the focus is right.

The Australian dollar continues to trade at around 20% less than in 2013-14 and is around 30% less than its peak in 2012, when its value made it basically impossible for any business to sell anything in to or out of the country.  The costs for visitors, whether on business or tourists, were painful.   Now costs seem more reasonable and the country is once again viable for visitors and investors.

Key reasons for foreign direct investment into Australia are the high skill levels, geographical positioning to act as a base for the whole APAC region and, of course, the ease of doing business and easy cultural fit.  Although salaries are still relatively high compared to most other developed countries, Australia is definitely viable as a base for R&D and other skilled activity in sectors such as Healthcare and IT.  Tourism also presents good guarantees of investment return.

Since the exchange rate is only likely to reverse in the future – albeit it’s unlikely that will happen very soon – it could be a wise moment to make long term investments in Australian companies.  The ones that dominate their part of the world stage, and demonstrate great long term potential, are property investment companies such as Macquarie, AMP, LendLease and Westfield.  Their well-diversified portfolios mean that A$ growth should be reliable, and future exchange rate changes are likely only to improve the valuation.

From the exporter’s perspective, the opportunities for selling goods seem poor.  On the other hand, it could be a better time to be selling services, especially those that can be delivered into Australia from lower cost economies.   For example, “in time zone” outsourcing to Philippines has been undersold in the past, but must now be increasingly attractive as businesses seek to control costs.  More cost-effectively, Australian companies could be encouraged to invest in setting up their own offshore Shared Service Centres for even greater economic benefit.

 

by Oliver Dowson, CEO at ICC – International Corporate Creations

Iceland beats England

A lesson for British Business

To add to all the disruption and apparent chaos that the country has descended into over the last few days, soccer fans are shocked – or at least disgruntled – by tiny Iceland’s defeat of mighty England in the European football cup yesterday.

What happened there?  Pundits were united in saying that the key factors were the commitment and enthusiasm of the Icelandic team. It proves that with determination and a good plan, even the unlikeliest of the teams can succeed.

There’s a lesson for British Business here. A disappointingly large number of companies in the UK do not expand abroad, limiting their international activities to exporting via third party distributors or perhaps outsourcing some labour-intensive activities such as accounting or call centres. Quite apart from reluctance to invest and fear of the unknown, I still meet many business people who believe that “we do it better here at home”.

Just as with football, overseas business subsidiary teams, especially those based in developing countries, often overtake their British HQ staff in terms of enthusiasm and commitment. This is particularly true where the company has had the foresight (and some would say bravery) to hire highly skilled individuals to perform strategic roles in the globalised company.

All over the world you can find skilled, qualified professionals determined to prove their worth. Put them into a new international subsidiary operation, and your demonstration of commitment to their country will be repaid many times over with their contributions to your business. Expansion is Great!

by Oliver Dowson, CEO at ICC – International Corporate Creations