Chile’s Market Analysis for a US Company

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Introduction

Entering a foreign market is always a challenge for companies due to the lack of understanding of the potential benefits and limitations that would occur as a result of the entry. This analysis aims to explore Chile from the context of its market perspectives and marketing implications for a US company. For the aim of the study, it was chosen to focus on the healthy food industry, which is gaining momentum in Chile as more and more people become interested in purchasing foods that are made from natural ingredients. The scope of the analysis includes the geopolitical analysis of the country, the socio-cultural impact of Chile, as well as the economic and market competitive analysis of the chosen industry.

Geopolitical Analysis

A geopolitical analysis of a country is intended to consider the geography of a country and the consequences associated with that geography. Important considerations included in the investigation include the exploration and analysis of constraints that are imposed on a country by its national resources, the ease of access to the outside world, as well as the internal systems of transportation. Chile is located along the western edge of South America’s tip, among the Andean Mountains in the east of the country and to the west, the Pacific Ocean. Together with Argentina, Chile shares the third-longest international border in the world, which roughly divides the Andes into two parts. As a result, the Andes created a barrier for the integration of trade between the neighboring countries. The northern reaches of Chile are marked by the Atacama Desert that borders with Peru and Bolivia while the southern reaches include territory in Antarctica. While the victory of the country in the War of the Pacific allowed Chile to extend to the north, tensions remain regarding those parts of the land that is also claimed by Bolivia.

The Climate of Chile

The climate of Chile is varied depending on the territorial location. The weather in the north is predominantly hot and dry, with some sections of the Atacama Desert never having any recorded rainfall (Encyclopedia Britannica, 2019). On the other hand, the southern region of the country is rainy and cold, specifically in the winter, when the rainfall can reach and exceed 100 inches. The Central Valley of Chile usually has dry and warm summers, with moderately rainy and cool winters. When it comes to the natural resource supply, the majority of copper reserves that belong to Chile are found in the north, which contributes to the country’s leading place as the copper producer that is vital to its economy. In addition to copper, Chile also boasts of significant deposits of nitrate in the world, which used to be the most significant source of export income prior to copper. Besides, due to the thick forests to the south of the country, Chile has a vast supply of timber, which is an important resource.

Administrative Areas

The country’s capital, Santiago, is the largest city in Chile, with around 40% of all citizens living in the metropolitan, which is located over a broad plain along the Mapocho River. The city consists of tall skyscrapers, colonial times buildings, parks, new suburbs, as well as both old and new slums, which means that there is a juxtaposition between extremely poor and rich residential areas. Some of the poorer neighborhoods have developed as a result of new arrivals from rural areas. The second-largest city, ValparaÃso is the most significant Pacific point of Chile and is reminiscent of San Francisco due to its cable cars and steep hillsides. Chile is divided into thirteen administrative regions that are headed by separate administrators who are appointed by the central government. Each region is divided into forty provinces that are being administrated by government-appointed governors.

Governmental System

The separation of powers within the governmental system has been modeled after the framework applied in the United States. There are three branches of the government, including executive, legislative, and judicial, with Chile being a multi-party republic with a presidential system that is based on the Constitution established in 1980. The legislative branch of the government is represented by the National Congress which is made up of the Senate and a Chamber of Deputies. The executive branch is composed of sixteen ministries and four cabinet-level agencies, which each minister being appointed exclusively by the discretion of the president. It is notable that during the dictatorship of General Augusto Pinochet (1973-1990), any political parties were repressed and only began re-emerging after returning to the civilian democratic government. The parties are split into the left, center, and right.

The most significant impact of the government on the economy of Chile is associated with the maintenance of neoliberal economic policies that are in favor of international trade and foreign investment. In terms of its political and financial transparency, the country has been traditionally considered as a model in the Latin American region. In the last decade, the political efforts of the government have been enabling exponential growth, which has resulted in a significant decrease in poverty rates in the country. However, the GDP of Chile increased by 1.1% between 2019 and 2018 as compared to 3.9% between 2018 and 2017 (Santander, 2020). The slowdown has been attributed to the challenges in the external environment, unfavorable climate conditions, and the delay in some of the governmental reforms.

Judicial System

As to the judicial system of the country, there is the Supreme Court, one Constitutional Court, 16 Courts of Appeal, as well as Oral Criminal Tribunals and Military Tribunals. The legal system is based on the principles of civil law, which is embedded in the Chilean Civil Code that dates back to 1855 and derived from Spanish law and other codes enforced in Continental Europe. Although, one of the key limitations of the judiciary system is the limited judicial review of the legislative acts in the Constitutional court, nor does it apply the jurisdiction under the International Court of Justice. When it comes to the legal framework applied to businesses, foreign nationals working in the country are expected to receive the same degree of treatment as the natives from the judiciary system, including commercial disputes. The legal affairs within the business sphere are guided by the laws in the Constitution derived from Spanish, French, and Austrian law alongside various legislative acts passed by the Supreme Court. It is worth mentioning that in 2005, the country implemented a complete review of its criminal justice system in order to adopt a new US-inspired system of the adversary.

Demographics

The current population of Chile is 19,132,739 people based on the latest data from Worldometer (“Chile population,” 2020), and is equivalent to 0.23% of the total world population. The country ranks sixty-third in the list of countries by population, with its population density being 26 citizens per 26 square kilometers (“Chile population,” 2020). The total land area of Chile is 743,532 square kilometers while 84.8% of people living in the country are urban citizens (“Chile population,” 2020). The population of urban citizens has continuously been on the rise, increasing from 60% in 1955 (“Chile population,” 2020). It is also important to note that the median age in the country is 35.3 years, which points to the relatively young population of citizens who can contribute to the economic prosperity of the state (“Chile population,” 2020). In terms of the relevant demographics, life expectancy at birth in the country is 80.7 years for both sexes combined, with 82.8 years for females and 78.5 years for males, which aligns with the global trend of increased life expectancy for women compared to men (“Chile population,” 2020). The total fertility rate in the country, which represents the average number of children per woman, is 1.7 live births according to the latest statistics presented by Worldometer (“Chile population,” 2020). Infant mortality in Chile is 5.9 infant deaths per 1,000 live births, while there are 6.8 deaths per 1,000 births among children under the age of 5 (“Chile population,” 2020).

Population Distribution

As mentioned above, more than 80% of the Chilean population is urban, with the trend toward the move from rural areas remaining relevant. The Santiago region is the most highly populated, with 6,655,975 urban and 227,588 rural citizens, with the population’s density being the largest in the country (KNOEMA, no date). Biobío is the second-largest area in terms of its population, with 1,699,819 urban and 336,624 rural citizens followed by Valparaíso with 1,610,211 urban and 148,956 rural citizens (KNOEMA, no date). Thus, there is a significant contrast between the urban and rural population numbers, which could be indicative of unequal wealth distribution that leads to income inequality. According to the report by Laing, Sherwood, and Cambero (2019) for Reuters, Chile is still the most unequal country in the largely-developed Organization for Economic Co-operation and Development (OECD), with the income gap being 65% wider compared to the OECD average. Half of the workers in Chile earn $550 per month or less, while the latest government study conducted in 2018 showed that the income of the richest citizens in the country is 13.6 times larger than those of the poorest (Laing et al., 2019). Thus, the 2019-2020 protests occurring in large cities were linked to the fact that the regular population was struggling to “stay afloat” due to the high costs of partially privatized health and education systems, utilities, and rents, as well as the privatized system of pensions that have been criticized for being too low and delayed in its payouts.

Even though income inequality is a problem that affects hundreds of countries around the world, the protests in Chile are detrimental to considering the magnitude of the issue in the country. The government has been overall dismissive of the protests and called out the army on the protesting citizens. According to Laing et al. (2019), the population is critical of the government because it has shown to do little to nothing in terms of wealth redistribution or to decrease differences in the incomes of the highest- and lowest-earning citizens. What the general discontent leads to is that citizens get “fed up since Chile has a population that is increasingly educated, that is increasingly aware of the things that are happening” (Laing et al., 2019). While the government has decided to listen to the demands of the public, the proposed changes, such as the increase of the minimum pension by 20%, are cosmetic and will not result in substantiate changes for the country on a long-term basis. Therefore, income inequality is a significant issue that persists in Chile and requires substantial efforts from the government in order to guarantee the well-being of the population.

Cultural-Social Impacts

Social and Cultural Characteristics

Understanding the impact of cultural-social characteristics of Chile on global marketing potential is an important area of consideration. By analyzing points pertaining to such an area, potential US entrants to the market can have a clear idea of the country’s characteristics that should be considered when exporting to Chile. In terms of its genetics, the country is made up of a population of approximately half European and half Native American descent. Compared to the Andean nations residing in the world, Chileans are both culturally and genetically less indigenous, which makes the nation similar to Argentinians. Since the country has gained significant economic prosperity in contrast to other Latin American states, its culture is considered highly industrious with its resource-rich sea and land. Chile is a country with a strong national identity while also having a large number of different traditions and customs due to its geographical diversity (“Cultural considerations when doing business in Chile,” 2018).

Spanish is the official language of Chile, and the majority of the population is Roman Catholic. It is notable that religion and associated traditions have been playing significant roles in defining both social and political life in the country. For instance, religious instruction occurring at public schools is predominantly Roman Catholic, which means that from a younger age, the population is taught the core principles of Christian faith (“Cultural considerations when doing business in Chile,” 2018). Because of the significant influence of the Church on state affairs, abortion, except for therapeutic reasons, was illegal until 2017 (Maira, Casas, & Vivaldi, 2019). Such strict legislation was the subject of discontent among the population and led to women seeking illegal methods of terminating their pregnancies, which was dangerous to their health.

Family Structure

The structure of the family in Chilean society is extended, which means that couples are expected to remain in close contact with the members of their large families. The extended-family connections offer a reliable network of support during times of nuclear family crises. The breakdown of stereotypical gender roles had become significant in the 1990s when around half of the students in primary and secondary schools were female. Despite the family structure being patriarchal, attitudes toward the roles of men and women in society have been slowly shifting (Reynolds, Fernald, Deardorff, & Behrman, 2018). It is notable that the absence of fathers in families had a negative influence on the socio-emotional adjustment among Chilean children and adolescents, and, as a result, worse mental health outcomes among the adult population (Reynolds, et al., 2018). On the positive side, women who choose to separate from a spouse have begun receiving more economic and social support. Recently, the female population of Chile has been playing a predominantly important role in both professions and businesses, especially since the society of the country moves away from traditional roles and toward more open gender roles.

Education

The education system in the country has received some criticism during the latest riots against the government. Traditionally, the system was structured after the German and French models and is differentiated into eight years of primary education, followed by four years of secondary education, and additional years of higher education (Encyclopedia Britannica, 2020). More than 90% of Chileans aged 15 are literate, which is a positive indicator (Encyclopedia Britannica, 2020). Private schools are predominantly run by religious congregations, private educators, and ethnic groups and usually have high enrollments to cater to wealthy families, which serves to the income inequality in the country.

Social Issues

The latest developments in the social life of the country, not including the impact of the COVID-19 pandemic, show significant dissatisfaction with governmental efforts. The most ‘diehard’ protesters who gathered to oppose the government are young people, but their needs and grievances represent decades of discontent (Langman, 2019). With the rising student loan debts resulting from government-backed student loans, low-paying jobs, and high prices of living, the younger population is unable to reach their expected living standards (Langman, 2019). As mentioned previously, the unequal distribution of income is among the pressing social issues that concern a significant population section of the country, which requires resolving as soon as possible in order to reach peace between the government and its citizens.

Economic and Market Competitive Analysis

Economic System

The type of economic system in the country is market-oriented, which means that it has high levels of international trade and financial institutions. The system is associated with establishing sound legislation that would offer the country the most significant and strongest sovereign bond rating in the region (Santander, 2020). As to the economic index of the country, gross domestic product (GDP), the impact of the current COVID-19 outbreak could lead to the potential GDP fall in 2020 but would rise to 5.3% in 2021 as a response to the post-pandemic economic recovery. In 2019, the GDP of the country was the US $294.24 billion (Santander, 2020). Despite the declining indicators and external factors such as the pandemic or internal factors such as riots, Chile has exponential potential for economic growth, as shown in the GDP forecast for 2021.

Consumer income levels are important to consider as they could indicate potential purchasing power. In 2019, the GDP per capita was the US $15,399 (Santander, 2020). In 2017, it was estimated that around 53% of the income generated by the country was in the hands of the wealthiest 20% of its general population, although this share has been on the decline since 2011 (Statista, 2020). As the mining industry is among the leading contributors to the Chilean workforce, the demand for skilled workers in this area is on the rise. In 2019, “9% of the employees in Chile were active in the agricultural sector, 22.15% were in the industrial sector, while 68.85%” were in the industry of services (Plecher, 2020).

In addition, according to the recent report by Reuters (2020), protests and riots that began in October led to billions in financial losses both for public infrastructure and private businesses. As a result of the protests, it was expected that as many as 30,000 jobs would be lost in November due to the protests (Reuters, 2020). It is notable that the protests occurring at Santiago occurred in response to the rise in the metro fee in the city, the rising costs of living, privatization, and income inequality in the country. As the mining industry is among the leading contributors to the Chilean workforce, the demand for skilled workers in this area is on the rise. In 2019, 9% of the employees in Chile were active in the agricultural sector, 22.15% were in the industrial sector while 68.85% were in the sector of services (Plecher, 2020).

Despite the potential limitations in the political, economic, judiciary, and social affairs in Chile, the country has had a successful track record for attracting foreign direct investment (FDI), even considering the relatively small domestic market. For around four decades, the government has been working on promoting FDI as an essential part of the national development strategy (“Chile: Legal environment,” 2020). Childe’s market-focused economic policies have been shown to create opportunities for foreign investors. Also, the laws and practices have not been discriminatory toward foreign investors who have received treatment that is similar to the nationals of Chile.

However, it is important to note that while the business climate of the country is transparent and straightforward in permitting process of infrastructure, energy and mining projects have become more contentious, especially in terms of the politically sensitive environment influence assessments and indigenous consultations. Besides, foreign investors are given access to all productive activities, except for the internal waterways freight transportation sector, in which there is a cap on foreign equity ownership of companies of 49% (“Chile: Legal environment,” 2020). The majority of enterprises in Chile can be around 100% owned by foreigners, and the country only restricts the right to private ownership or establishment in what it defines as strategic sectors, such as mining and energy. Overall, the environment for foreign investment is favorable in Chile as the government took significant steps to facilitate business during the decade, including the introduction of digital procedures to start a company.

Entering the Market

The establishment of a local subsidiary or a branch office in Chile is recommended for US companies that expect to reach large sales volumes or require local service support or localized inventory. In addition, it could be good practice for new-to-market exporters and companies that are testing new markets to appoint in-country agents or representatives who have good access to relevant parties in Chile as well as can provide reliable technical expertise if needed. US businesses should note that the government of the country has been forced to make a shift in its focus toward addressing the social system demands, such as the reform of the pension system, high prices of healthcare, living, education, and utilities. Therefore, when entering the Chilean market, one of the most significant challenges is the high competition with a relatively small size of the market. While Chile is a market with a population of less than 19 million, the policies of open trade and investment have been attracting foreign companies and rank high among countries that receive US export goods (Gonzalez, 2018). At the same time, the small to moderate size of the market has caused many rivals on the global scale to overlook Chile, which means that US exporters have the opportunity to capture niche markets in the country.

On the downside, despite the openness of the country to new technologies and new products in niche categories, US companies may find that Chilean businesspeople are more conservative and cautious in their affairs, which is a significant trend to consider. US companies will have to consider this issue when entering the market in Chile and adjust their operations accordingly. In addition, while the country is working on streamlining business processes within its markets, US companies will find that working in Chile will require diligence and patience for delays linked to completing government-mandated paperwork and getting relevant permits for business (Gonzalez, 2018). Because of this, it is recommended for US companies to find an in-country partner that can use both business and social connections to overcome the barriers in either regulatory or cultural areas. Finally, it is important to consider that a relatively low number of entities and families controls a large section of Chilean businesses. Thus, low competition within industries has raised concerns about such issues as transparency and allegations of bribery and corruption.

Industry Analysis

For the purpose of the industry investigation, it was chosen to focus on the healthy foods market. Chile opens wide opportunities for US companies to export consumer-oriented products to the country. In the selected market specializing in healthy food products, the demand in Chile continues to grow. This category of products represents 68% of all US agricultural operations and related exports in Chile in 2017, reaching a value of $676 million, which is a 38.7% increase throughout 2016, which was a significant increase in exports (Gonzalez, 2018). This market is important to consider because of the rising health awareness of the population as well as their disposable outcomes (Gonzalez, 2018). In the mind of Chileans, US healthy foods are considered to be of high quality, safe, and unique, which leads to customers choosing such products, which offers significant opportunities for US exporters.

Best prospects for exporting US goods in the industry of healthy foods include dairy products, cereal, legumes, organic tea and coffee, organic sugar, as well as antioxidant-reach foods such as blueberries, chia seeds, and others (Gonzalez, 2018). The shares of the healthy food market include functional foods (39%), “reduced in” foods (39%), naturally healthy foods (21%), and food intolerance products (1%) (Gonzalez, 2018). Currently, there are several US companies supplying healthy foods to the Chilean market. Nido, Svelty, Milo, Nidal, and Nestle have all been developed under the Nestle umbrella run from the US (Gonzalez, 2018). Coca-Cola Light, Coca Cola Zero, Sprite Zero are the brands operating in the country under the Coca-Cola umbrella. Due to the largest urban population in such metropolitan areas as Santiago, the demand for healthy products will be rising. The overall trend is to consume less processed, low-sugar, and gluten-free products.

Market Competition

The competition from local companies, that are relevant to this industry, is from the production of organic production, which is small but remains growing. With an objective to expand and develop the organic sector, Chile’s National Institute of Standards created the criteria for accrediting organizations for them to be certified as organic. Between 2016 and 2014, the agricultural area for certified organic products increased by 30%, which is indicative of the market’s development and expansion (Gonzalez, 2018). Because of this, US companies are expected to meet competition from local firms. In addition, there is a rising demand for ready-to-cook and on-the-go food products that are healthy and safe to consume. Although, such products are usually in a higher price range and are available to customers with a higher income, which means that a significant portion of the national consumer income is being left behind.

Conclusion

The analysis showed that Chile has wide opportunities for entry for foreign companies, especially for US businesses. Compared to other companies in South America, Chile shows substantial levels of stability and prosperity, which is important for US companies planning to enter the market. The policies of trade openness and the work to strengthen the economic environment for the entry of foreign companies, which is representative of Chile’s success in attracting Foreign Direct Investment. Nevertheless, it is important that companies planning to enter the market in Chile consider the current socio-economic challenges that the population is facing. The high costs of living and the unequal distribution of income between the richest and the poorest limit the quality of life for some populations, which ultimately reduces their purchasing power. In the chosen segment of healthy foods, the potential for market entry is high due to the rising demand for such products despite their increased price.

References

Chile population. (2020). Web.

Chile: Legal environment. (2020). Web.

Cultural considerations when doing business in Chile. (2018). Web.

Encyclopedia Britannica. (2019). Atacama desert. Web.

Encyclopedia Britannica. (2020). Chile education. Web.

Gonzalez, S. (2018). Chilean demand for healthy food products continues to grow. Web.

KNOEMA. (no date). Data and statistics. Web.

Laing, A., Sherwood, D., & Cambero, F. (2019). Explainer: Chile’s inequality challenge: What went wrong and can it be fixed? Web.

Langman, J. (2019). From model to muddle: Chile’s sad slide into upheaval. Web.

Maira, G., Casas, L., & Vivaldi, L. (2019). Abortion in Chile: The long road to legalization and its slow implementation. Health and Human Rights, 21(2), 121-131.

Plecher, H. (2020). Employment by economic sector in Chile 2019. Web.

Reuters. (2020). Chile economic activity down 3.3% in November as mining slumps. Web.

Reynolds, S., Fernald, L., Deardorff, J., & Behrman, J. (2018). Family structure and child development in Chile: A longitudinal analysis of household transitions involving fathers and grandparents. Demographic Research, 38(58), 1777-1814.

Santander. (2020). Chile: Economic and political outline. Web.

Statista. (2020). Chile: Wealth inequality based on income concentration 2011-2017. Web.

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