Site Selection in Latin America: Leveraging Geography for Competitive Advantage

A range of economic, demographic, and natural resource factors are raising Latin America’s profile among multinationals as they formulate their real estate portfolio strategies. Among the factors contributing to its potential are numerous emerging economies, a growing middle class, a vibrant labor market and a pent-up demand for commercial real estate and premium industrial space.

Newmark Knight Frank’s Global Corporate Services Division in Latin America is dedicated to helping multinational organizations identify and evaluate corporate real estate opportunities in the region and navigate local markets and cultures.

As part of this effort, we’ll be offering a series of blogs highlighting important features of Corporate Real Estate (CRE) in Latin America (LATAM). This second installment discusses important site selection considerations for organizations planning to locate in the region.

The LATAM geography is much more complicated than many people assume. International firms considering locating in Latin America sometimes presume a high degree of economic, demographic, political and attitudinal homogeneity throughout the region. In truth, Latin America encompasses more than 20 countries and two languages, and each of those countries offers its own set of opportunities and challenges. Critical factors unique to each country, including its regulatory and tax environment, economic and demographic realities, labor force education levels and availability, geographic considerations, the state of the physical and technology infrastructures and the availability of natural resources, will ultimately drive the final decision.

Given the intricacies and risks inherent with such a decision, one cannot overstate the value of due diligence and accessing local knowledge. For instance, not only do dynamics impacting site selection decisions vary from country to country; they vary within the borders of larger countries, like Mexico and Brazil. Corporate real estate professionals who live and work in LATAM understand these dynamics and provide the objective metrics and subjective judgments and insights needed to yield informed site selection decisions that match the organization’s location requirements.

The impact of regional cooperation and trade agreements
Countries in LATAM are seeking to create economies-of-scale and improve their business environments through the free movement of people, capital, services and goods by participating in joint trade agreements, with varying degrees of success. According to The United Nations Economic Commission for Latin America and the Caribbean (CEPAL), it’s working in Brazil, Paraguay, Colombia, Panama and Costa Rica. All have experienced growth in foreign direct investment (FDI), while Mexico’s FDI remains at record highs, primarily due to manufacturing. In the Caribbean subregion, the Dominican Republic has received 55% of FDI.

Trade agreements, such as The Pacific Alliance is a regional trade bloc, which includes Chile, Colombia, Mexico, and Peru, has a combined population of 225 million, a per capita GDP approaching 20,000 USD and accounts for 38 percent of the region's foreign direct investment. A key goal for Pacific Alliance leaders is to encourage closer links with Mercosur - another regional trade bloc that includes Argentina, Brazil, Ecuador, Paraguay and Uruguay. Mexico, Costa Rica and Panama have also embraced free trade agreements as a means of creating welcoming new foreign direct investment. Also, the United States, Mexico and Canada Agreement (USMCA) is stimulating the automotive, truck and spare parts industry in Mexico.

Navigating LATAM’s business landscape
Localized CRE expertise is key to helping multinationals identify the location that makes the most compelling case for delivering present and future value to their organization. It’s certainly not advisable to navigate blind in such a diverse business landscape with so many moving pieces. Newmark Knight Frank’s Latin America Center of Excellence provides multinationals with the same level of site selection expertise and service they’ve come to expect in the US and Europe. That expertise is combined with an in-depth knowledge of the region and each country’s competitive advantages for different industries.

Site selection is a process of elimination, not inclusion, with an array of factors determining which candidate locations make it to your shortlist and which ends up being your location-of-choice. Main selection drivers include:

  • Business Climate
  • Proximity to customers and client base, suppliers, competitors, industry clusters
  • Economic development incentives (federal, state and local entities)
  • Population demographics
  • Relocation costs
  • Supply Chain (transportation cost, network footprint, forecasted service levels)
  • Labor and talent access
  • Utilities & Infrastructure (cost and capacity)
  • Real Estate (cost, availability, quality)
  • Business Continuity
  • Accessibility
  • Global trade agreements
Often, it can be a challenge to know how to begin addressing these drivers, especially when considering an emerging region, like LATAM. Generally, we recommend a multi-stage process that includes the following:
  • Project strategy development – defining such factors as geographies, facility specs, labor and talent requirements, as well as developing a targeted geography for consideration
  • Criteria development – preparing a location study questionnaire, defining search-areas and weighting criteria
  • Data collection and evaluation
  • Analysis and screening – developing a decision model and an RFI, analyzing incentives
  • Shortlist development – developing and distributing a detailed RFP to shortlist communities, engaging in site visits
  • Transaction strategy – modeling long-term site costs
Whether an organization is looking at the region for a new distribution center, manufacturing plant, customer service center, engineering and technical center, or a new corporate headquarters, LATAM is fertile ground for investment, provided you make an informed decision.

Sergio-Perez-(2).jpgSergio Perez
Executive Managing Director, Global Portfolio Strategy
GCS América Latina

Eric-Brunet-(1).jpgErick Brunet
Managing Director, Transaction Management
GCS América Latina

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