The world is quickly becoming economically integrated, forcing unprecedented changes at every level of industry. Foreign companies are becoming more competitive and gaining greater U.S. and global market share.

Whether you’re small or large, manufacture products or provide services, or even have interests limited to the domestic market, fast moving global developments will impact your business.

Many Companies Are Expanding Internationally at Rapid Rates—Others Don’t Know Where to Start

More and more companies have come to realize that they can no longer rely on the domestic market to generate growth into the twenty-first century. To strengthen their industry positions, companies in virtually every sector are taking steps to expand internationally through trade and investment. And those that are familiar with the global environment are expanding further.

Many companies, however, are unfamiliar with trade, the benefits and risks associated with the North American Free Trade Agreement (NAFTA), or the Uruguay Round of the GATT. Thousands of companies have devoted valuable staff hours trying to unravel the complexities, but do not have the resources to sustain this effort. They need accurate information and sound analysis.

Consider Your Expansion Strategies Carefully

Depending on your company’s commitment, level of resources, objectives and competitiveness, a number of strategies may be right for you. In order to maximize profits and minimize risks, you must fully understand their short and long-term implications.

Should you choose to export, the number of markets to target simultaneously will depend on several factors. Generally, however, if your level of resources allocated to pursuing international trade is small, you may wish to focus on fewer—one to three—rather than many. This will help prevent spreading your resources too thin.

Expanding through a joint venture or strategic alliance, or by licensing your technology to a foreign partner can limit your risks and be very profitable. If your company is larger—and very internationally experienced—you may prefer to expand into foreign markets through an acquisition. This method generally requires a great deal of resources, incurs a high level of risk, and consequently is the expansion method chosen only after a foreign market has been tested and is found to be reliable.

Latin America Has Been Transformed

Less than two decades ago most Latin American countries were run by military generals or dictators closely aligned to the military. For the first time, freely elected governments rule in just about every Latin American and Caribbean country.

The so-called “lost decade” in Latin America is a fading memory. These once closed markets have become bustling, dynamic economies that resemble the development process encountered by the Asian tigers of the 1970s. Like the East Europeans, Latin Americans have learned that protectionist policies only result in an inevitable loss in standard of living.

Latin America’s political and economic reforms are working well. Investment is growing and the middle class is on the rise. The transition to open markets has not only benefited Latin companies and workers, but also U.S. companies and workers who owe much of their success to exports and investments in the region.

Exports to Latin America Are Growing

In the last decade, the number of U.S. companies exporting has increased significantly, especially by small and medium-size firms. In fact, President Clinton said, “Exports now account for almost one-third of real U.S. economic growth and are expected to grow faster than overall economic activity for the remainder of this decade.”

Latin America is the fastest-growing region in the world for U.S. exports. Last year, U.S. exports there reached $95 billion. And from 1993 to 1995, exports to Argentina more than doubled; climbed 86% to Brazil; were up 96% to Chile; rose by 137% to Colombia; and increased by 39% to Mexico, despite the economic crisis.

The Free Trade Agreement of the Americas (FTAA) Will Become a Reality

With the advent of NAFTA, your international trade and investment opportunities have increased. Since 1990, some 27 bilateral, trilateral and multilateral agreements have been signed in Latin America, according to the Inter-American Development Bank. These agreements are playing a more important role in providing vital foundation blocks for the building of the FTAA.

An FTAA will make the Western Hemisphere the largest trading area in the world, with a combined gross domestic product of more than $7.7 trillion and a market of more than 745 million consumers. Importantly, with an FTAA, analysts predict a significant shift to occur in U.S. controlled production from East Asia to Latin America. This will especially benefit U.S. producers of intermediate goods.

If You’re Not Already There, Consider Expanding into Latin America

No longer do you have the luxury of deciding whether or not to expand internationally. In today’s dynamic environment, trading or investing is becoming a necessity—and a sound means to becoming more competitive.

This article appeared in October 1996. (BB)