Chile is a relatively new export destination for Australia but an important one with the Chilean market growing and the economy strong. So what does this Latin American country have to offer for Australian exporters?
Bordered by the Andes at its east and the Pacific Ocean to the west, Chile is a long, slim country stretching more than 6,400 kilometres from north to south, with an average width of just 175 kilometres. Its latitudinal reach gives it greater climate variance than Australia, although its capital and largest city, Santiago, is roughly the same latitude as Australia’s most populous city, Sydney.
Like Australia, Chile has large mining and agribusiness industries and this is where our similarities can foster trade links, says Nigel Warren, Australian trade commissioner in Chile: “Within the mining and agricultural sectors there is a need for technology, products and services due to the growth of these industries in Chile. This provides a strong opportunity for Australian suppliers in these sectors.”
Those industries also open opportunities in related sectors such as energy, adds Harris Gomez, managing partner of Harris Gomez Lawyers and past president of the Australia Chile Chamber of Commerce. “Mining needs a lot of energy to keep it going. Chile was getting its gas from Argentina and for reasons we won’t get into, they turned the gas off, so Chile is now looking for energy. They’re desperate for clean energy, geothermal—there’s a whole raft of opportunities,” he says.
Chileans will want to get to know you before entering into business deals, but other than the initial relationship-building, it’s easy to do business in Chile, says Gomez: “The rule of law is respected and there’s political stability, so you have the internal part taken care of. There’s not too much that separates us except language.”
Most people in the business world, particularly in Santiago, will speak English competently, but locals appreciate it if you learn the basics. However, for business dealings, it is still advisable to hire an interpreter, especially if you’re heading out of the city to remote areas. “It’s also good to have your material in Spanish,” advises Gomez. “Having said that, contracts can be in English with a subsidiary document in Spanish, so nine out of 10 times the documentation is in English and the Chilean counterpart is comfortable with that.”
Depending on what you’re selling, you may need to research different parts of the country, says Warren. While the consumer market is focused in Santiago and Vina del Mar, where half the population lives, business in the mining, agriculture, aquaculture, wine and horticulture industries may be in more remote regions. “It is important for an Australian company in these sectors to have a regional plan that includes local sales, service and support,” he notes. “Many customers in these regional areas cannot be supported effectively from Santiago as the distance is too great, and customers value ‘hands on’ reliable support for their business.”
Warren also acknowledges that the Chilean consumer is mature, which means Australian companies need to demonstrate that the quality of their respective product or service is high comparative to other countries’ offerings.
His advice is to stay focused on who you’re trying to sell to, as well as use Austrade to research before you travel: “And have a good budget in place—it does take time to build business in Chile, and new exporters will really have to be aware that they’ll have to travel to the market more than once.”
He also recommends spending time to find a good local partner with whom you can communicate, and who will provide after service support when you’re in Australia.
Businesses that already export to Chile should consider establishing operations there. Not only does it send a good message to your market to have a Chilean presence, there are sound legal and financial reasons to do so.
“If you’ve appointed an agent, the principal-agency laws apply. In theory, if your agent does the wrong thing, by law the principal in Australia is liable for those debts. It’s better to set up some kind of structure so you can quarantine the losses,” explains Gomez.
Conducting research into the different business structures will also reveal benefits for businesses from a tax perspective. Structures exist in Chile that don’t in Australia, such as the limited liability partnership and ‘sociedad anonima’, where the directors can all be Australian and the shareholding can be 100 percent Australian.
“When you do set up, it’s all done by power of attorney. That always makes Australians nervous, but to do any sort of transaction over there, you need a power of attorney. The power of attorney needs to be limited and has to be notarised and legalised through the consulates, so there’s a process you need to follow,” says Gomez. “And you do need to appoint a legal representative—that doesn’t mean a lawyer, just someone who is on the ground able to deal with the tax office, for example, but they don’t have control in the company.”
Warren advises that exporters engage a legal firm to assist with contracts and business partnerships but says it is generally easy to set up there: “The legal and finance sectors are quite similar so the ease and cost of establishing a business in Chile is relatively straightforward.”
While Chile is a relatively new export destination for Australia, with just two companies there in 1990, interest has grown fast and many Australian companies already have a good profile there.
“One of the key market development activities companies can do is get involved in industry programs and nativities,” says Warren. “In the mining sector there is a great deal of reform around innovation, so being involved in the sector’s innovation agenda can influence the market environment.”
He also notes that Australia should take advantage of Chile’s new scholarship program: “Australia is priority country for these scholarships. Australian company involvement in terms of work placement is something that would also be of high interest to the local market.”
Those companies who have operations in Chile will also be able to take advantage of Chile’s open business policy. Chile has numerous free trade agreements (FTAs) with more than 60 countries around the world—including China—so it’s a good opportunity to leverage those FTAs. “In the professional world we call this treaty shopping, which is food for thought when you’re trying to structure your business from a taxation point of view,” says Gomez.
Chile is also seen as a soft landing into Latin America, and can provide a good base to expand into other lucrative markets such as Peru, Argentina and Brazil.
For exporters sending products, the lack of a direct shipping route is a major problem, with shipping taking more than a month to reach Chile. Another consideration is the time zones, which vary from a 12 to 15 hour difference across Australia. Having a good partner in Chile is thus important when you can’t be reached here.
Although Australia has an FTA with Chile due to commence on January 1, 2009, there is currently no double tax agreement in place to prevent taxation in both countries. “The issue there is banking secrecy laws. Chile has quite strict secrecy laws and they don’t want to relinquish those,” remarks Gomez. Negotiations are still underway, according to Warren.
An additional legal issue is the protection of intellectual property. “No Latin country is a member of the Madrid Protocol, which means you need to register your IP in each country,” says Gomez. “It can be a bit of a hassle and costly if you’re tapping into two or three countries, because you’ll need to start the process in each.”
One thing he hopes the FTA will fix is the transfer of money, which currently goes via New York: “If you want to pay your people in Chile, it can take up to 10 days, which is a long time in business.”
The signing of the Australia-Chile FTA has put a spotlight on the trade relationship between the two countries. As it is Australia’s first agreement with a Latin American country, it also focuses attention on the region, one that few exporters consider as an export destination despite its growing influence.
Gomez believes there are plenty of areas where Australian businesses can add value, even in competitive spaces. “There are opportunities in beauty products, spa centres, all the way through to coffee, believe it or not. You get nice beans over there, but the retail environment isn’t quite there,” he says. “On paper there’s competition in areas like wine, but in that space what Chile is good at, Australia isn’t and vice versa. Using wine as an example, there are some technologies that Australian wineries have in terms of production. Australians are also very good at marketing and branding their wine and Chileans want to learn.”
There’s plenty of room for Australian trade to grow, agrees Warren. “Chile is a competitive market, but the market is growing and the economy is strong and they’re looking for a whole range of products and services to modernise the economy. There’s still room on the export side to grow more business there.”
Australia Chile Chamber of Commerce: www.chilechamber.com
Australia-Latin America Business Council: www.alabc.com.au
Chilean-Australian Chamber of Commerce: www.auscham.cl
Department of Foreign Affairs and Trade: www.dfat.gov.au/geo/chile
Prochile Australia (Chilean Export Promotion Bureau): www.chileinfo.com
Risk Profile Chart
Business cycle risk: Moderate
Currency risk: Moderate
Currency inconvertibility risk: Low
Systemic banking risk: Low
Sovereign default risk: Low
Difficulty enforcing contracts: Moderate
Government: Representative democracy
Currency: Chilean Peso (Ch$ / CLP); AUD 1 = CLP 448 at time of printing
Tips: Customary for most services
Visas: None required
Religion: Predominantly Roman Catholic
Seasons: Same as Australia
—Source: FCm Travel Solutions
Red hot opportunities
Chile is a market of growing importance to Australia. In July, Australia and Chile signed a Free Trade Agreement, the first for Australia in Latin America, which is expected to enter into force from January 1, 2009.
Chile is Latin America’s most stable and transparent commercial environment. It has a population of 16.6 million and a GDP of US$164 billion. A recent successful ‘Chile Roadshow’ around Australia, organised by Austrade, highlighted the strong commercial opportunities that exist in the mining, energy, financial services and infrastructure sectors. It emphasised that Chile is an open and growing market for Australian businesses and a solid base to grow and expand into the broader $4 trillion Latin American market.
According to the Department of Foreign Affairs and Trade, trade between Australia and Chile is growing fast. Two-way merchandise trade was $773 million in 2007-08, up from $427 million in 2006-07. Australian exports to Chile include coal, civil engineering equipment, measuring and analysing instruments and rubber tyres. Australian services exports to Chile in 2007 reached $120 million.
Australia is the fourth largest foreign investor in Chile with around US$3 billion of direct investment. It is an investment base for over 70 Australian or Australian-affiliated companies, mainly providing mining technology and services, gas distribution, power generation, engineering and consulting services and information and communications technology.
—Paul Molloy, director of Trade Advocacy & Outreach, Department of Foreign Affairs and Trade