Building your commercial market entry strategy in Chile can be challenging, but rewarding for businesses when carried out correctly. Many businesses may struggle with the sudden decrease of revenue as current economic uncertainty, also in Chile. Travel restrictions imposed as a measure to counter the spread of COVID-19 make it difficult to manage businesses right now. In such times, it is important to ensure that the business continues, and that business owners have clear goals for their market entry.
Now it is more important than ever to seek support from a local expert to build your commercial market entry. By seeking third-party support, you get access to expert guidance without having to leave your own country. A local market entry strategist in Chile will help you build and execute a successful market entry strategy, including providing commercial representation support if needed.
How to create a market entry strategy
Once a foreign entity has chosen to enter Chile in any specific market, the next step consists in having a strong and clear market entry strategy. Simply put, a market entry strategy is the plan outlining how you are going to enter the Chilean market and successfully develop a commercial presence there.
In other words, it is a pre-planned course of action stating how your goods and/or services will be delivered in a new foreign country. In order to form a successful market entry strategy in Chile, you need understand the country’s culture and specific markets. Different countries apply different levels and types of legal/compliance frameworks, which you need to take into account prior to your business execution.
Next, we will take a look at the key aspects you need to keep in mind whilst building a commercial strategy in Chile.
What are the cost factors of entering a new market?
You need to consider and balance the costs involved with expanding your business and entering a new market. When designing your market entry strategy for Chile, consider your options for establishing your presence there: through company incorporation, or through a Professional Employer Organization (PEO). A PEO is a partner company which helps you with all HR and compliance related matters. This minimizes your liability and capital expenditure in your new market. A PEO will act as your employee´s employer for legal and compliance purposes, ensuring that you align with local authorities, public, and private pertinent entities. Additionally, a PEO helps you with cultural and legal matters which are unique to Chile. For instance, many services which are rendered in Chile are VAT exempt, salaries are always negotiated in net terms, tax compliance scrutiny is extremely high, and all employees tend to use their vacation during the same 2 months in Summer (January/February) so not much gets done.
Establishing a local subsidiary company will involve higher initial capital expenditure than choosing to hire your staff through a PEO approach. If the intent is to “test” the market, we recommend a PEO approach. It involves a much lighter footprint in Chile allowing for an easier exit if needed; all this with the aforementioned low costs.
How long does it take to set up a business in Chile?
Different approaches to enter the market in Chile entail different time frames. The quickest way to expand into the market would be to utilize PEO services as they will allow for almost immediate activation and work execution in your favor. Businesses hiring staff through a PEO can later decide to formally incorporate a local subsidiary or branch office.
Incorporating a local subsidiary or branch in Chile involves a heavier presence and footprint, and takes considerably more time to set up. More complex strategies such as entering a joint venture will also take longer as they involve third parties and more expansive commercial footprints. Nevertheless, medium size and large multinational companies that are looking to enter the market permanently with a considerable head count, will enjoy some advantages if they establish a subsidiary. Advantages of having a local subsidiary or branch include, but are not limited to the following:
- Shareholders can use local corporate tax as a credit to decrease their final/withdrawing taxes
- A local subsidiary or branch is required to participate in all government programs and licitations
- Trademark procedures are faster in the case of local entities
This way, operations proceed more smoothly.
As a reference, company formation in Chile can take somewhere between 6 to 8 weeks, concluding with the activation of your bank account. PEO services can allow your local team to be up and running in 1 or 2 weeks.
Risks for business owners in Chile
The liability and risk for business executives entering the market in Chile can be civil, commercial, and administrative in nature.
Subsidiary incorporations are an excellent way forward, in this scenario shareholders are only liable for the amount of capital/equity they put into the newly established Chile based company (equivalent to an LLC Company in the US).
PEO in fact is an even better choice, as your foreign entity won’t have any legal presence in the country, thus all potential penalties and executive procedures will be filed against your local partner, that is, the company offering the PEO services.
The incorporation of a local branch is in many cases not recommended for this exact reason (alongside tax considerations in most cases). A local Chilean branch is legally the same entity as the foreign parent company which then can be contaminated and reached in terms of liability by actions or debts originating in the branch. On the other hand, a branch scenario is recommended for big multinational companies that may have no issues managing this liability “risk” and legal exposure. In addition, this scenario entails other benefits; such as setting up your bank account quicker and registering your trademark faster, since the protection of the same brand has been granted in the country of origin already.
If you are looking to export goods into Chile, the simplest and most direct market entry strategy would be using a customs agent. This option is recommended as it is low in costs and risks and it ensures a fully compliant operation from a commercial, corporate, and tax standpoint. However, there are some important tax considerations one has to note. It is recommended to consult a tax specialist agency to help you stay on top of all requirements.
Stay in control while hiring staff through a PEO
Before you start operations in Chile, you need to decide what degree of control you wish to exert as different strategies involve different levels of business involvement. Entering the Chilean market through a PEO approach still allows you to control the operational and commercial side of your business, as you manage day to day operations, internal policies and strategies directly with your team in Chile. Compliance, HR and payroll related matters are managed by the PEO partner parallely. The PEO assures that you meet local legal and administrative compliance. Once set up, you just need to make sure that your team’s salaries are wired on time each month.
Incorporating a company in Chile also allows executives to maintain a high level of control and supervision. They can do so by appointing trusted people in key positions of the new company, such as legal representatives, directors etc.
Of course, a joint venture and a local export agent will require more consultation, as third parties are directly involved and will likely be operating in a foreign language.
We can help to build your commercial market entry strategy in Chile
Chile is a very favorable destination to expand your business. However, while building your commercial market entry strategy in Chile you might come across complexities, due to legal and cultural obligations and compliance requirements.
At Biz Latin Hub, our team of bilingual professionals offer a full suite of market entry and back-office services. We can help you build your “route to market” by researching the market and giving advice for your specific needs. We can support you with commercial representation to legal services and hiring. We can help you meet tax compliance requirements and solve many other complexities that may arise when doing business in Chile.
We provide solutions tailored to your specific needs. Please contact our friendly team here to find out how we can help you with your business in Chile.
Learn more about our team and expert authors.