Colombia has emerged as one of the hottest emerging markets in the past few years through a combination of sound economic policies, strategic Free Trade Agreements, government stability and reduced civil strife.
In 2012 alone, Colombia managed 4% real GDP growth driven by increased foreign direct investment in the mining and oil sectors. This amazing growth has led an ever expanding group of expatriate entrepreneurs to open businesses in Colombia. Here are some key tips to keep in mind if you were thinking about joining them:
1) There is a huge asymmetry of information across industries in Colombia.
Expect the market research and due diligence processes for investment opportunities to be extremely time consuming and the results to be very ambiguous.
2) Every important contract needs to be notarized.
Sometimes people that you do business with will try to pull a fast one and get you to transfer cash or assets without have a contract notarized, even though the contract has been signed by both parties. Know that the contract is very tough, if not impossible, to enforce in a court of law without a notary stamp.
3) You need to build a time cushion into every step of every process.
Deadlines are extremely flexible here. Don’t plan on every task being completed on time or you will drive yourself crazy. If you need something done in 3 weeks, it’s better to tell the contractor that the deadline is 1 week.
Often contractors will say a task will be completed or a good delivered ahorita. This word can be used in the past, present and future tenses. When you hear it, demand a fixed time and date for task completion, since the word can be extremely vague.
4) Employment law is very heavily skewed towards workers.
Be very careful when screening employees and structuring contracts. There is no unemployment insurance. When you fire a worker (and you will), you are on the hook for a month’s salary if they file a grievance saying they were unjustly terminated. If you can, hire from a temp agency, that way they can’t come after you if you fire them.
5) Employees truly try to strike a work-life balance, with the scale being much more heavily tilted towards the latter.
The “my career defines who I am mentality” in the US doesn’t exist down here. Interactions with family and friends define who they are. Thus, expect a decently high turnover rate in comparison to the US and a need for constant motivation and direction. Be very explicit with the details of the task, as it’s better not to leave too much up to the imagination.
6) Credit is extremely tight in Colombia.
The average person does not have a credit card and the ones that do have very low limits. Furthermore, bank loans come with extremely high interest rates.
7) Colombia Expat Entrepreneurs need to be willing to spend the money to hire a good lawyer.
Many people take the “do it yourself” approach to paperwork to save a bit of cash. Unfortunately, there is always a hidden regulation or new law that you will not be aware of. Spend the smaller amount of cash upfront to do it right or you will pay a larger amount later correcting the mistake.
8.) Spend more time building local alliances than building an expat network.
Many entrepreneurs go to their comfort zone of a friendly face that speaks their language immediately. But when something goes wrong in your business in Colombia, and something will, your local Colombian network will be there to aid you in ways your expat network can’t.
9) You need to speak Spanish. Plain and simple.
In other Latin American countries you can get away with English and basic Spanish. Not in Colombia. You will not only be able to complete tasks easier and interact with clients, you will also be treated fairer in negotiations, as understanding the local dialect shows respect.
10) Everything is negotiable.
Always ask for a discount or some sort of exchange of goods and services. A common negotiating tactic here is to double the actual fair market price, knowing that you will negotiate it downwards. Never accept the first price you are given.
11) Foreign is always better in the mind of the Colombian consumer.
Products from the United States seem to rank first in most industries, followed closely by European products. Businesses that have no international ties will even add a flag from a foreign country to their brand for the “caché” and perceived superiority in quality.
12) In terms of receiving payments, cash is king.
COD and bank transfers are the most common way to give and receive payments, with credit being viewed as an unnecessary risk. In many cases, Colombian consumers will ask for “cuotas” (payments) as they only have part of the money upfront. This is extremely risky and should be avoided at all costs.
13) If a legal dispute is launched, expect a surprisingly quick judicial process.
For example, a fellow entrepreneur received notice on a Wednesday that the following Monday he was to appear in court for a summons. As stated earlier, get a good lawyer when you arrive. Although Colombians are not very litigious, you should have a lawyer to pull off the bench in a crunch.
14) In December you’ll roar, in February you’ll fall on the floor.
Colombians receive big bonuses twice a year on June 15th and December 15th (“la prima”). Most people blow the December bonus within a few weeks on Christmas gifts and/or vacations. The remainder is spent in January.
Come February, most bank accounts are running low, if not empty. To add to the pain, school tuition is due at the beginning of February (la matricula). Thus, expect sales to be soft across most industries beginning and February and lasting until April. Plan accordingly and you will survive.
15) For your first few years of operations in a simplified tax regime (sole proprietorship), you pay no taxes until a certain level of sales is reached.
After a few years, you are automatically transferred into a sociedad, which is basically an LLC. A tax hike to the corporate rate accompanies this transition.
Bob Reisenweber | Elite.
Bob Reisenweber is an expat entrepreneur and business consultant in Medellin, Colombia. He is currently a partner in the international cosmetics company, Sparkly Girls. He also owns a restaurant chain called Peru Mix and one of Medellin’s premier nightlife destinations, Discoteca Luxury. Bob graduated from the Wharton School at the University Pennsylvania and is a former Wall Street Investment Banker.
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