Business on Training Wheels
If you have read much here you have probably recognized one common/add/forum theme—it works different here. In the posts, it may refer to an assortment of things but the point is the same. The translation is that you must learn how things work in order to be successful.
For those of you who have lived in some diverse situations, even if all in one country, you will recognize what I am talking about. The way the system works in, for example, rural Alabama vs. New York City, offers some amazing differences. Take that level of difference and apply it to everything around you and you are on the right track.
While I could (and may) write a book on how a Gringo can start most any kind of business in the Third World, this article is about a very small subset—what can be done easily. Think of it as a business that can succeed in the interim. That is, as you are starting to learn all the differences you need to understand in order to work within your new environment.
I have said I consider Nicaragua to be the land of opportunity. Consider Nicaragua an example. There are certainly other places that will meet the general criteria. For example, Bolivia certainly qualifies as well. Let me explain what I see as those advantages and how they help you. And possibly more important, how they could get you going in the wrong direction.
- Government regulation, or more accurately, the lack of it, can certainly work to your benefit. This is not intended to suggest that you should see this as an opportunity to act immorally. It is simply that your start up costs and time can be much lower because you are unlikely to need to go through a lengthily permitting process to get a government OK to move ahead.
- Capital investment requirements tend to be much lower in the Third World and, additionally, most of the people living in the third world do not have the necessary capital to start any type of business.
- Labor costs are low.
- You are more likely to have seen what new businesses may work than people who have never lived in the First World.
While this may sound ideal, if you don't understand all the implications, you can easily head in the wrong direction. For each of the points above, here is a counter-point.
- Favoritism can cause changes in what the government will let you do. For example, you may find that the brother-in-law of the mayor has less regulation than you.
- While capital investment will be lower, the local cost of capital tends to be very high. In other words, if you need more capital than you have, borrow it in the First World.
- While labor costs are low, that doesn't mean you can find skilled labor if that is what you need.
- While starting a business in the First World which gets people to spend more money can be very successful, in a country where the majority of the people have no excess money (and no credit) significantly changes the picture of what can be a success.
Your biggest advantage is going to be your knowledge of how things work elsewhere. It gives you a more global look at the idea of how businesses can work. A logical extension of this is that if you can work here but produce something which will be bought by people in the First World, you are more likely to find a business idea that can succeed.
Filling in the Picture
You need to remember that you are the new kid on the block. That is, you don't yet understand how things really work locally and you just don't have good connections. The more self-contained you can make your business, the less problems you will have. Self-contained refers to at least:
- Little involvement with government
- No expectations from skilled employees
- Not in competition with a local
- Not in a position where your expected market is from people who can't afford your product
This doesn't mean you can't sell to the local market but it does mean you need to find the right market space. For example, if you can offer a product which reduces their living costs without impacting a local business, you are on the right track. Let me detail that a bit more.
By reducing living costs I mean immediately. Telling someone who doesn't know if they have enough money to buy rice to eat tomorrow that buying your product today will save them money over the next one or 10 years won't sell.
You have a bit more flexibility on impacting local businesses. Few will be concerned if you cut into the profits of a bank, big corporation even if it is local in the sense of in-country or a piece of some multi-national. For example, if you could reduce the cost of transferring money from the U.S. to a local person, you would not see anyone concerned that the banks or Western Union would be losing business.
This may sound like the best place to concentrate. There are, of course, some possible problems.
Before you start reviewing your options, there are some basic things you need to investigate:
- If your business idea involves exporting physical goods, find out what you will need to do to export them. Besides issues with shipping, there may be export permits required plus import restrictions for the destination country. For example, while there is free trade/i> between the U.S., Canada, Mexico and most of Central America, you shouldn't think that it really means free as in freedom.
- Find out what the tax law is regarding your potential business. Many countries (Costa Rica and Nicaragua being examples) do not tax income that is earned without affecting the local economy. This may sound a bit obtuse so here is an example. If you write a book while living in one of these countries, there is no tax on your royalties. If, however, you contracted with a local to take photos for your book then your project would at least in theory be subject to local tax.
Note that I said in theory in the last section. In practice, it is unlikely this would actually be an issue—unless someone was unhappy with your/your actions. For example, if your book was photos of women on the beach and the mayor's daughter was one of them, you might find out that you did owe a lot of tax.
Clearly, there are grey areas here. The reality is that as long as you didn't have any employees that could be linked to the work, there would be no concern. For example, if you had a maid and gardener, there should be no issue. If, on the other hand, you had a researcher, an accountant or whatever, you start getting closer to a problem.
With all those warnings, you may be wondering if there is anything left you could do besides write a book. Yes, there is. For example, working remotely offers a lot of options. While the idea of some kind of computer geek comes to mind, there are lots of other possibilities. If the Internet is available, there are many possibilities that don't require you to be a computer geek. Here are some examples:
- Medical transcriptionist
- Graphic artist
- Financial consultant
None of these may match your skill set but there are certainly many more. For example, I have friend who does something akin to Psychological counseling using Skype. She has clients all over the world. It makes no difference where she is physically as long as she has a decent Internet connection.
Labor and the Mañana Syndrome
This section is here for emphasis. The most likely things you will miss when you are first looking at business options is the reality of local labor and what I am calling the mañana syndrome.
All too often I hear statements such as local workers are thieves, they are lazy, they don't follow directions and such. While a local worker could be any or all of these things as could a worker in anywhere, these are not the real issues.
It is likely that what you think of as unskilled or just someone who needs training is going to miss the mark. While you may want to blame the education system, it is an issue a lot deeper than that. So much of one's education does not come from school but from experience. Just to offer a very basic example of what I mean, you may have played with your mother's keys or spice containers in the kitchen when you were very young. But if you grew up in a place where there were no keys and no spices, those basic items would not have been there to help you learn.
Without the same kind of basic learning where I have just offered two very simple examples, you will enter the workforce with far less skills. In fact, if you are a boy you will probably learn how to cut up wood with a machete and if you are a girl you will probably learn to make tortillas. Anything beyond that is optional.
The Mañana Syndrome is something that I was introduced to before I moved to Costa Rica. My friend summarized it like this:
Mañana doesn't mean tomorrow. It only means not today.
This has proved to be the case way beyond my expectations. Things just don't happen when you are told they will. this is unlikely to change because this is the expected action. There are no consequences for not doing things when you said you would. In some cases, it is even required by the state. Here is an example.
To renew your driver's license in Costa Rica you need to get a physical exam and then go to an office of Banco de Costa Rica (BCR) with the exam result and your old license. While I no longer lived in CR I was there and my license was to expire the next day. So, I got the physical and went to BCR. I was unable to renew the license because it had not yet expired. When I protested, pointing out that I was leaving the following day for Nicaragua and would not be back for some time the response was "renew it when you get back".
While you may be able to avoid employees with your business, the mañana syndrome is very hard to get around. This happens with things as simple as the post office being out of stamps but they will have more mañana or calling telephone repair because you phone line is dead an being told they will look into the problem mañana.
Even if you manage to find a collection of reliable sources/services, they can easily fall victim to the system and they, of course, have learned that it was not their fault because it was out of their control. For example, something that was being sent from their main office to a local store in your city may not show up because the truck didn't show up seems to qualify for the same level of excuse as what is commonly called in the first world "an act of God".
In fact, this is exactly how it is categorized. A very common expression to tack onto the end of something with a deadline is "God willing". I can't over-emphasize how important the mañana syndrome will be in your putting together a successful business.
As I said, I could write a book about starting and running a business in the Third World and I may just do that but I feel this will either help you start to get adjusted or possibly convince you that you don't want to even try to start a business. Either is better than a failure caused by missing the differences.
If you go forward with a business idea try to be as self-contained as you can. Where you must depend on outside sources or services, feel out their reliability and look for backups. For example, if you are going to open a restaurant that specializes in fish, line up at least two suppliers plus get a freezer (with your own backup power) and stock it with a week's supply of fish, just in case.