LATAM startups grow in Europe, Spain its best entry point

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Latin startups have real possibilities for internationalisation in Europe through Spain, given that there are strong historical and cultural ties between Latin America and Spain, which have resulted in a solid economic and business relationship, and Spain is a preferred destination in Europe for Latin American companies.

To undertake an internationalisation strategy, a startup should have a scalable and profitable business model, a skilled and experienced team, a differentiated value proposition and a clear and well-defined target market, as well as access to funding and an effective marketing and sales strategy.

In addition, should research and adapt to the regulations and business practices of international markets and be willing to take risks and face cultural and linguistic challenges and barriers. Participation in acceleration and incubation programmes such as mentorDay can be of great help in the internationalisation process.

Tips for LATAM startups to conquer Europe through Spain

1. Knowing the target market: Before starting to expand into Europe, it is important for startups to do a thorough analysis of the target market, identifying niche markets and market needs. This will allow them to tailor their products or services to the needs of European consumers.
2. Establish a presence in Spain: Spain is a natural entry point to Europe for Latin American companies, so it is important for them to establish a presence in the country, either through a subsidiary or a local partner. This will allow them to gain first-hand knowledge of the European market and to adapt to it.
3. Knowledge of European regulations: It is important for LATAM startups to be aware of European regulations, as they are different from those in Latin America. To this end, they can rely on the advice of lawyers specialised in European law.
4. Adapting to the European market: LATAM startups need to adapt to the European market, not only in terms of products or services, but also in terms of business culture and ways of doing business. They must take cultural differences into account and adapt to them in order to succeed in the European market.
5. Participate in events and fairs: LATAM startups can take advantage of the large number of events and fairs held in Spain and Europe to publicise their products or services and establish contacts with potential customers and partners.
6. Have a digital marketing strategy: Digital marketing is essential today to reach European consumers. LATAM startups must have a well-defined digital marketing strategy that allows them to reach their target audience effectively.
7. Establish strategic alliances: LATAM startups can establish strategic alliances with European companies related to their sector to take advantage of their knowledge and experience in the European market and, in this way, achieve more effective expansion.
8. Take advantage of the acceleration programmes (ver+): There are a large number of accelerator and accelerator programmes in Spain and Europe that can help LATAM startups grow and expand in the European market. These programmes often offer mentoring, funding and access to a wide network of business contacts.

How can the artificial intelligence (see+ TIP) help a LATAm startup to grow in Europe?

As a language model, I can help LATAM startups to grow in Europe by providing relevant information and knowledge about the European market and current trends in the industry. I can provide information on the specific regulations and laws of each European country, as well as on the different support and funding programmes available for startups.

In addition, as a chatbot, I can interact with users and answer specific questions about entering the European market, identifying potential partners and customers, and any other information relevant to the growth of a startup in Europe. I can also provide useful resources and tools to help startups develop marketing strategies, market research and product development.

In short, how artificial intelligence can provide information, resources and expertise to help LATAM startups grow and expand in Europe.

CHANGES IN THE GLOBAL ECONOMY

One of the great changes in the global economy has been the increase in Foreign Direct Investment (FDI) from emerging regions, which has gone from representing 9.3% in 2000 to 22.8% in 2019. Although this growth is led by China, which has become the world's second largest investor, Latin American companies are no strangers to this expansive global phenomenon and are therefore known as "Translatinas" or "Multilatinas".

Let's take a look at some of the features of Latin investment in the world. According to a study by the Elcano Institute, "it is an investment led by Mexican, Brazilian and Chilean companies, with a marked sectoral diversification and a growing sophistication in terms of the type of investor".  According to the same study, "Latin American FDI reached a record $762.929 billion last year in cumulative terms (2.21 trillion USD of the world total), 841 trillion USD more than at the beginning of the decade, and 13 times more than in 2000.

This is evidence of a take-off in the internationalisation of Latin American companies around the world and their consolidation as an economic phenomenon since the beginning of the century. Despite the recent rapid progress, the volume of investment is still far below the $2.26 trillion of FDI received by Latin America.

Historically, the first international operations of large trans-Latins or multi-Latins took place in the 1980s, a period in which Latin American FDI was consolidated at around 40 billion dollars. Since then, Latin American expansion has become more complex: More countries are joining the club of investment-issuing trans-Latins, sectors are diversifying as is the size of companies.

The factors that trigger this outward migration are also diverse: expansion of markets and customers, capturing technology or established brands in their markets, control of raw materials, or the lowering of labour costs.

THE ELCANO INSTITUTE REPORT POINTS TO OTHER SPECIFIC FACTORS CONTRIBUTING TO THE EXPANSION:

• Strong growth of large national family-owned groups and commodity companies in need of growth and access to economies of scale. 
• Greater economic openness at the political level, such as the North American Free Trade Agreement, which opened the North American market to Mexican companies. 
• Increased financial support for expansionary activities. 
• Opening of international markets to Latin American corporate debt, Need to diversify markets to compensate for the movements and exchange rate volatility of the local economic cycle. 
• Globalisation trend, which has increased the volume of transnational investment operations worldwide by a factor of five since 2000.

Internationalisation is one of the clearest assets for the growth of start-ups and also that of large and medium-sized organisations that have consolidated their businesses in their countries of origin and decided to expand into other markets. This seems to be the path that Latin American companies have opted for, as evidenced by the investment data recorded, especially over the last decade.

Spain is the preferred destination in Europe for Latin American companies.

As is well known, Latin America and Spain have a privileged relationship, based on historical and cultural reasons that have contributed to the establishment of very solid economic and business relations. Spain is currently the second largest direct investor in Latin America, after the US, with an accumulated position of 131,586 million euros. The expansion of Spanish companies in the region started in the 1990s with the arrival of large energy, banking and telecommunications companies, followed by a large group of SMEs.

Spanish companies established themselves in Mexico, Brazil, Chile, Argentina, Colombia and Peru, and gradually gained presence. Over time, for many of these companies, Latin American business became their main source of income. However, In recent years, the balance has been shifting towards a more balanced two-way situation.

According to the ICEX Global Latam report, Spain is the second most important destination for Latin American investors. Latin American companies have become the fourth largest foreign investor in Spain after the United States, the United Kingdom and France, and ahead of Germany and China. 

The trend continues and several Latin American technology companies have announced last year investments in the Spanish aerospace sector as well as in the chemical industry, renewable energies, automotive, mobility, agri-food industry, tourism, transport and logistics, audiovisual industry, etc.

The accumulated investment of Latin American companies in Spain amounts to 42,663 million euros, 9.1% of all foreign investment in Spain. The figure rises to 61 billion if investments in holding companies are included. From 2010 until the arrival of the pandemic, the average annual investment in Spain was 3.8 billion euros. These figures show that we are talking about a consolidated trend that is set to return to the path of growth once the long-awaited economic recovery begins.

Latin American companies currently form a significant part of the Spanish business fabric and their investment motivations, internationalisation strategies and vehicles used are increasingly complex.

But recent data are certainly not the best. During the past year 2020 Spain received 968 million euros from Latin America, a much lower amount than the average since 2010. But in spite of everything, this fall is lower than that recorded in Foreign Direct Investment worldwide, which according to UNCTAD has been 42%.

The fall in investment has been uneven. Brazilian investments fell by 174% but Mexican investments increased by 55%. Overall the decline is 90% in the region as a whole, no doubt due to the postponement of many expansionary decisions until the global health situation improves.

In contrast, holding operations grew by 152% in 2020 compared to the previous year, highlighting the importance of Spain as a gateway for Latin American investment into the European market.

A bit of history

The first Latin American investment operations in Spain date back to the 1980s and early 1990s, when PEMEX (Mexican state oil company) became a shareholder in Repsol (with the entry of the Mexican state oil company Pemex in Repsol and the acquisition of two Valencian cement companies by the Mexican company Cemex), but it was in the 20th century that CEMEX took control of two important Spanish cement companies. 

In the period 2003-2007, when Latin America was growing at 5% per year, investment in Spain stood at 1.5 billion euros. But the bulk of investment came during the Eurozone crisis between 2008 and 2012, coinciding with a collapse of the Spanish economy. Latin investments reached 4.4 billion euros. 

THESE INVESTMENTS COME IN THROUGH VARIOUS CHANNELS AND MANIFEST THEMSELVES IN DIFFERENT WAYS: ORGANIC GROWTH OPERATIONS, SUCH AS THE ACQUISITION OF COMPANIES

• Taking minority shareholdings.
• Private equity buyouts 
• Opening of factories and plants. 
• Investment in Foreign Securities Holding Entities or ETVEs). 

The causes of this interest in Spain are the same as those that explain the growth of Latin American investment worldwide and which we have already mentioned. There is talk of push and pull factors. The push factors are the search for markets, the search for strategic assets associated with brands and R+D. Other motivations of lesser importance in the case of Spain are access to natural resources or taking advantage of the holding company Spanish.

The factors pull would be twofold. The aforementioned historical and cultural links, including language and the advantages of an advanced country with low regulatory risk and high macroeconomic stability. 

LATIN AMERICAN STARTUPS LOOK TO SPAIN:

In recent years, a new type of investor has been arriving and showing greater interest in investing in Spain, which can be classified into three groups. 

Family groups seeking to defend their wealth from instability in their countries of origin. Their mainly Venezuelan and Mexican investments are directed towards luxury housing in large cities or minority stakes in large business groups. 

Secondly, within this category of new investors, there have been the first transactions by private equity funds of Mexican origin. These operations are part of the strong expansion of the Mexican private equity market. private equity y venture capital in Spain in recent years, reaching 8.5 billion euros in 2019.

Thirdly and finally, the maturity of Latin American entrepreneurship ecosystems, and the increased access to capital for companies, has generated a growing number of startups Latin American companies with the capacity to make the international leap. Spain, whose entrepreneurial ecosystem has taken off in recent years, surpassing the €1 billion investment barrier for the first time in 2018, has been the destination for a growing number of these companies.

These include Auravant (agrotech), Platzi (edtech), VUSecurity (cybersecurity) and Iturismo (tourism). In this regard, it is worth highlighting the knock-on effect of the significant presence of Wayra, the Telefónica Group's accelerator, in Latin America, such as Latin American postgraduate students at various Spanish business schools, who decide to undertake a business project in Spain at the end of their studies.

THE ROLE OF MENTORDAY IN INTERNATIONALISATION OF LATIN STARTUPS 

One of mentorDay's objectives is precisely to promote the spirit of internationalisation of startups, especially Latin American startups. MentorDay's internationalisation programme is complemented by its service of softlanding (see+) aimed at facilitating as much as possible the process of landing in Spain of all those foreign start-ups that have reached the necessary level of maturity in their countries of origin.

THE EUROPEAN AND ESPECIALLY THE SPANISH MARKET ARE NOW MORE THAN EVER WITHIN THE REACH OF ORGANISATIONS THAT HAVE AN IMPORTANT OPPORTUNITY TO GROW AND OBTAIN A SERIES OF IMPORTANT BENEFITS:

• Cultural proximity to Latin American countries.
• Ideal platform to Europe and Africa.
• A diversified and open economy.
• Solid market with high purchasing power.
• Important official support for entrepreneurship and foreign investment: Marca España Emprendedora (Entrepreneurial Spain Brand).
• Legal certainty.
• Developed infrastructure.
• Good public services.
• An important tourism sector.
• Well-trained human resources.
• Quality of life.

SOURCES FOR THE DRAFTING OF THIS TIP:

• Article published in  Elcano Royal Institute Royal Institute: Blog Global Presence.
• "The presence of companies Latin American women in Spain: evolution and main characteristics".
• Author: Adrián Blanco EstévezD. in Economics from the University of Santiago and Master in Public Policy from Georgetown University| @adrianblanco78
• IGlobal Latam 2020 Reportpromoted by ICEX-Invest in Spain with the collaboration of the SEGIB:
• "Spain is the second largest destination for Latin American investment, according to the Global Latam 2020 report".

NOW THAT YOU HAVE LEARNED ALL ABOUT THIS TIP, YOU SHOULD BE ABLE TO ANSWER THESE QUESTIONS:

1. You have changed your point of view on the real possibilities of internationalisation for Latin startups in Europe.
2. What requirements do you think a startup must meet in order to undertake an internationalisation strategy?

CASE STUDY OF A LATAM STARTUP THAT SELECTS THE SOFTLANDING ACCELERATION PROGRAMME TO GROW IN EUROPE

Suppose there is a startup called "GreenTech" based in Colombia, which develops technology solutions for the energy sector and is interested in expanding into Europe. The company has managed to consolidate its position in its local market, but wants to take advantage of the opportunities offered by the European market to continue to grow and increase its customer base.

GreenTech decides to seek support for its expansion in Europe and discovers mentorDay's "Softlanding" acceleration programme, which offers a landing process in Spain for foreign startups that have reached the necessary level of maturity in their countries of origin.

After reviewing the details of the programme, GreenTech decides to apply and is accepted into the acceleration programme. As part of the softlanding process, she is assigned a mentor who will guide her through the landing and acceleration process in Spain. The mentor works with GreenTech to help her adapt to European regulations and laws, and provides her with contacts in the energy sector and the local entrepreneurial ecosystem. In addition, the programme offers you a shared workspace where you can set up your office and connect with other Spanish startups and companies.

During the first months in Spain, GreenTech focuses on getting to know the European energy market and adapting its technology to the needs and requirements of European customers. As it gains experience and confidence, the company begins to present at industry events and trade fairs, and to seek opportunities for collaboration with local companies and research organisations.

Thanks to the support of mentorDay and the acceleration process in Spain, GreenTech has successfully established itself in the European market, expanded its customer base and consolidated its presence in the energy sector. The company continues to collaborate with its contacts in Spain and the rest of Europe to continue innovating and growing, while sharing its experience and knowledge with other startups and entrepreneurs in Latin America who want to follow in its footsteps.