Thanks to GDP growth, impressive levels of foreign direct investment and a buoyant economy, El Salvador has quickly become a key player in Latin America. Not only is it home to the third largest Central American economy, but the country has low levels of inequality, and a growing middle class with disposable income to spend on luxury goods and services. There are many opportunities for people looking to expand business to El Salvador.
As the nation is often overlooked by investors, there are a number of lucrative opportunities for businesses with prior industry knowledge, who are ready and willing to enter into a new country and exploit its market for profitability and growth. El Salvador has a number of globally successful industries, including its agricultural sector and manufacturing sector, and more than 60% of its GDP comes from importing and exporting, fueled by trade agreements.
El Salvador is a member of the Central American Common Market (CACM), a bloc designed to encourage economic development through free trade between member states. In 2017 alone, more than US$2.5 billion was sent to the United States, up more than 20% on the previous decade, whilst trade with other key American nations is also on the increase.
For businesses looking to enter into Latin America, El Salvador is a safe bet, with untapped potential waiting to be unlocked. Below, we offer guidance on how to expand your business and share tips on maximizing your return on investment through entrepreneurial strategies.
1. Assess Demand
Before entering into Latin American markets, it’s important that you assess demand for your products or services. As the country has access to low-cost raw materials, goods such as coffee, sugar, baked goods, confectionary, dairy products, tobacco, soap, candles, matches, furniture, light metals, and organic fertilizers are all produced on mass, and so entering into one of these niches would require a unique selling point or a manufacture-to-export strategy.
You should weigh up the competition from key industrial regions such as San Salvador, La Libertad, Santa Ana, San Miguel, Usulutan and San Vicente, and decide whether you will be able to compete on quality or price. Rather than going head-to-head with a competitor, it may be wise to pair up and allow a local expert to manufacture your goods to sell in other markets or even buy out a competitor to become a key player and achieve overnight market share.
There are many ways that you can assess the demand for your products and services. Starting on Google may be an option, utilizing the search engine’s trends feature to see how many people are searching for products like yours in El Salvador. You could analyze your competitors, determine their market share, and conduct primary research where you speak with potential customers to determine the right marketing strategy in order to succeed.
2. Decide On Type of Company Structure
If you’re looking to expand your business into El Salvador, then there are various options available. Investors can choose from a range different types of legal entities in El Salvador which can be established to conduct business operations.
3. Find Trade Opportunities
With many startup businesses set to expand in 2019, it makes sense to network and find trade opportunities with businesses before you incorporate into the country. As we become a more globalized society, you cannot expect to secure key trade partnerships overnight – some take months or even years and require ongoing work.
Before you get started in the country, visit on a networking mission, and speak with as many business leaders as possible. Exhibiting at a trade show, pursuing an online marketing strategy and arranging face-to-face catch-ups are the best way to spread the word about your organization, and position yourself as a leader in your field ahead of local and international competition.
4. Incorporate Your Business
Once you have decided to establish yourself in the country, you should get to grips with the requirements to incorporate a company in El Salvador. There are some simple requirements that you must take into consideration: The first is to register your company before the public notary. Once all requirements have been met, you will be able to apply for a Tax Identification Number and begin operations.
5. Employ Staff
Once you have established a business in El Salvador, the next step is to recruit staff to work for your business. You can hire foreign personnel in El Salvador, but employment contracts will have limitations, so you cannot simply move your employees from one country to another for short-term growth. The government imposes a 10% maximum on foreign employees, and total salaries paid to foreign workers cannot exceed 15% of your total salary expenditure. It is worth noting that Foreign Directors, Managers, and Administrators are exempt from the 10-15% rule.
However, if you are not yet ready to commit to a company formation in El Salvador, you may choose to work with a Professional Employer Organization, who will become responsible for paying salaries and taxes and managing all human resource related matters. Not only are PEOs cost-effective and assist in every aspect from recruitment to dismissal, but they limit your liability relating to tax and labor.
Expand Your Business to El Salvador
With so much to consider when expanding a business to El Salvador, it can be difficult to navigate the many hurdles on your own. As well as finding a shareholder who can enter into business with you, it makes sense to find a local partner, such as Biz Latin Hub. We are an experienced back-office and market-entry service provider with professionals in El Salvador, who can assist with everything from recruitment, to tax, to legal, through to incorporation.
To learn more about how we can help, contact Diego here today.