Expanding into new geographic locations is one of the most effective ways to drive growth and increase revenue. With this approach, businesses can tap into new customer bases and increase the reach of their products and services. This is especially useful when the growth within existing markets is becoming saturated.
However, the choice of which regions or countries to expand into is a decision that requires careful planning and consideration. Leaders need to be sure that the target location has good product-market fit, with potential growth that will deliver a solid ROI and justify any associated expenses.
Yet many firms are finding significant success in Latin America, and specifically in Colombia. This South American nation has seen a sizable uptick in the number of companies deciding to expand their operations to this market, with target industries ranging from consumer goods, to technology and telecommunications.
Overall, this rise in international business expansion promises to be a major boost to Colombia’s economy. This trend is one that’s also mutually beneficial. Colombia offers international businesses a growing middle class with phenomenal growth potential. Meanwhile, the ongoing pace of digital transformation continues to open new doors across technology, logistics and consumer services, among other areas.
Still, when expanding into any new territory a nuanced understanding of local legal, cultural and economic realities is essential. To get a better handle on what decision-makers need to be aware of before embarking on an expansion into Colombia and Latin America, we spoke with Alan Gongora, Managing Partner at Langon Law.
Here, he breaks down some of the most important factors for companies looking to enter this dynamic market.
What important legal regulations do companies need to be aware of in Colombia?
The first and foremost reality that business leaders need to understand is that the legal framework in Colombia is constantly evolving. This means it’s crucial that you stay up to date on the latest regulations and understand how those apply to your specific business operations in the country.
You must establish a legal corporate structure, however there are a number of options here, each with different tax obligations and legal responsibilities. The right decision here, whether you opt for a branch of a foreign company, a Colombian subsidiary, or even partnerships with local entities, requires a close understanding of the pros and cons of each option.
Labor legislation is also an often overlooked factor that can have a significant impact on operations in Colombia.
The country has a specific framework of labor protections, including mandatory employee benefits and contributions. It’s advisable to leverage the support of a local law firm to ensure that you meet these requirements and are clear on how they will influence any expansion plans.
What about taxation and compliance? What should businesses consider?
It’s important to recognize that Colombia has a territorial tax system. This means that income generated in Colombia is subject to local taxes, and companies expanding here need to take corporate tax rates into account. Further, you may be liable for withholding tax, VAT obligations and customs duties, depending on the type of goods or services of the company.
Compliance with local regulations is non-negotiable. From financial reporting to anti-money laundering rules, the Colombian government is taking an increasingly heavy head when it comes to enforcement.
This means that international companies need to establish strong internal controls from the get-go to remain compliant and maintain the highest standards of trust and transparency.
How do local culture and business environment influence expansion plans?
Aside from legal and regulatory insights, business leaders need to be aware of the strong impact culture has on business dynamics here. For example, local culture places a high value on relationships, meaning that success with partners, suppliers and customers will hinge on networking and the ability to build trust.
Companies that take the time to understand local customs and business etiquette often fare better than those that take a one-size-fits-all approach.
In addition, the country has seen significant advances in infrastructure and technology, making operations and growth easier. However, logistics can still pose problems in more remote regions.
Companies need to factor these aspects into their operational strategies.
Finally, what opportunities do you see for international companies preparing to enter Colombia?
Colombia offers huge potential across a range of sectors. Consumer goods are particularly strong, with growing demand for international brands among a growing middle class. The technology and e-commerce sectors are also booming, driven by the country’s digital transformation and its young, tech-savvy population.
However, the key for any company is to approach Colombia with a tailored strategy. This market offers great opportunities, but comes with challenges that require careful planning and expertise.
Whether it’s navigating regulatory hurdles or adapting to the business culture, companies that do their homework will find Colombia a rewarding market to enter.
Featured photo of Langon Law Managing Partner Alan Gongora
