El Salvador: Great Like Our People Part 2
After lunch on the first day of the conference in El Salvador, the sessions changed into panel discussions featuring executives of companies and high level government functionaries. These panels explored some of the specific sectors in greater depth. Even if El Salvador is not a specific country of interest, if you are considering opening a business, or expanding a business into the region of Central America, some of the data points and concepts further on will be relevant to your experience and could provide important insights.
Business Process Outsourcing (BPO) is taking the routine operations of a company, like programing, coding, appointment scheduling, and accounting, and moving that work overseas. Call centers are especially attractive businesses to relocate, since the main hardware needed for operations is excellent telecommunications infrastructure and a bi-lingual working population.
The tech sector finds niche markets in El Salvador, specifically with companies like Fitbit, AVX Ceramics, Tigo, and Gpremper – because, as mentioned in last week’s article, 21% of the work force is engineering and technology focused. The supply of a trained and experienced workforce is ample and vibrant. Pacheco Coto, a regional law firm, was represented by Monica Machuca. If you are considering business expansion there, she and her firm will certainly deliver top notch work to establish your business.
The Asian Panel focused on China and India as two large economies looking for both outbound Foreign Direct Investment (FDI) opportunities, as well as a source of raw materials. Zhao Ping, a dignitary from the PRC, shared that the Chinese have over 1700 enterprises set up in Latin America right now. The volume of outbound FDI for the Chinese in the region grew at over 35% in 2016. The representative from China stressed close relationships as the key factor in establishing business with China. As stereotypical as this sounds, she said it three times in the space of five minutes. If business with China is desired, pay attention, because the increase in Asian travel to El Salvador grew by 251% in the past 5 years.
The Indian representative, Hari Seshasayee, a Stanford MBA and contributor to numerous journals including the Brookings Institute, discussed a much smaller involvement by Indian firms in the region to date, but expects ties and business in the region to grow significantly. Today, only 134 Indian companies are established directly in Latin America. The total investment is $2B, they employ 30,000 workers, and almost 50% of the businesses are in the IT and Pharma sector. India receives 20% of its oil from Latin America, as well as 10% of its gold. India exports cars to Mexico and Colombia and has automobile production plants in Brazil, Mexico, and Argentina. There are two major barriers identified by Hari to more trade and FDI by Indian firms. These are the fact that there are no direct shipping routes from Latin America to India and, as of now, there are no free trade agreements in place to regulate tariffs, duties, and taxes. You can see Hari’s analysis and writings on opportunities to serve the Indian marketplace in the region here.
The Industry Panel focused on long-term economic and legal stability in the country. One of the earliest businesses to look at long term investment prospects in El Salvador is Aeroman, an aircraft maintenance firm located at the international airport. Over the past 24 years, and 250+ flights through that airport, I’ve personally watched them expand hangers and add more capacity to service major airlines like Southwest, Delta, Jetblue, United, and many other carriers worldwide. They now work on Boeing 737s and 757s, the Airbus 320 and 330, as well as Embraer aircraft.
Aeroman Plane Maintenance Facilities
Their general manager, Rodrigo Novoa, and I shared a table at the reception the first evening and, after hearing that I love Petacone cheese (only available in El Salvador), he offered, and then delivered, a pound of cheese and a hat to my hotel so I could bring it home. A HUGE shout out to Rodrigo. You are a Rock Star. Thank you!
Mike and his Petacone Cheese Back Home
Neoen, a French company that builds renewable energy solutions, began work in El Salvador in 2016. They entered the market based specifically on the deregulation of the electric utility. The main reason they selected El Salvador was that the deregulation of the electric region was 100% industry driven. They have invested $150M to date into a 100 megawatt plant. Work continues with the facility coming on line mid-2017.
100 Megawatts of Solar Coming on Line
Other players are now entering the market. Federico Fische, a D.C.-based consultant for renewable energy projects was on the trip to evaluate new opportunities. Peter Schrum of Sun Farming, a German company, is looking to provide solar solutions in El Salvador. The opportunities to provide renewable energy solution in this industry-driven marketplace is significant and one to be considered.
The last panel of the day was focused on large businesses and Private Public Partnerships (PPPs). PPPs are opportunities for companies to participate and serve a public need in a country, such as toll roads, port concessions, and electric utilities to mention a few. AES, a large Arlington, VA, based multi-national has invested over $800M into the electric utility and grid of El Salvador in the past 2 decades. Electrical service to consumers went from under 20% of the population to over 90% coverage in that same time period.
For these large-scale PPP projects, return on investment is measured in decades. Because of the extended timelines and huge investments, all panelists stressed the same concerns on the part of directors, shareholders and company management in their home countries. Stefan Haecker of Nippon Koei LAC, a Japanese engineering company, wants to know, “How safe is the country? How stable is the government? And more specifically, how stable is the rule of law?” Vitally important questions for any investor, long or short term. El Salvador seemed to answer these questions very well for the 600 people in attendance.
After a day of facts and figures, the PROESA folks delivered an exceptional evening of entertainment to the delegates. A formal dinner was hosted at the Museum of Modern Art where I was able to spend some more time with the organizers of the event.
Mike and PROESA President Sigfrido Reyes
The evening highlighted with traditional dancing, modern dancing, and a fashion show highlighting designs and materials native to El Salvador. Opulencia Pipil was on hand and showed off fabulous clothing styles on the runway. Phenomenal artistry and application. For a peek at their clothing lines, click here.
Modern Dance – Two Jaguars
Runway Show with Opulencia Pipil