#199 – The Expat Files: Business in Latin America and Expatriate Life

Automatically transcribed from the original recording; names and wording may contain errors.

[00:00] South of the border down Mexico way That's where I fell in love when the stars above came up to play and now as I wonder My thoughts ever straight. Hi everybody. I'm Johnny Mueller and you're listening to the expat files living in Latin America The show that tells you what it's really like to live work play and or retire in Latin America I tell it just like it is. So Today I'm gonna start out with an email question. Okay, and this one's from Richard He says when I moved down to Latin America and look around for business ideas Well, my business or businesses be only targeting that top 10% of the population that actually has disposable income or

[00:50] Have people been successful in targeting the masses? Hmm, you know, that's a question I get a lot from people first of all expat wannabes always seem to look at what a Decent wage or salary is up in the first world and they use that as a guideline or a base as to whether they can make A successful business down here in Latin America or not For example, if you're used to making $60,000 a year in the States You could shoot for that income range in your mind when you come down to Latin America, but it's really not necessary I know this seems hard to swallow But don't come down here thinking you have to make a first world style income or you're gonna be unnecessarily Stressed out and you're coming down to shed some of that first world stress, aren't you? So why shouldn't you shoot for your old first world income or even better? Well, there's nothing wrong with that. But the truth is it's not really that useful to use first world standards like that

[01:42] Especially after you're here a while and you realize that a business kicking out 20,000 bucks a year down here is like a business kicking out 80 grand up in the States a business up in Chicago Let's say kicking out 20 grand a year would be an embarrassment would be considered a joke and utter failure So first of all you wannabes when you're thinking of coming down here It's a big mistake to use the same economic measurements that you use for success up in the first world Because the fact is I know tons of expats down here who run little small businesses Maybe even part-time not even full-time and they're pulling in 20 or 30 or 35 thousand dollars a year And they're as happy as clams and living like kings So it's a big mistake for you wannabes sitting up there at your kitchen table in Cleveland to judge any proposed Latin American

[02:28] Business venture that you might be hatching on first world terms Because the rules are very different In fact is down here a lot of times you make your own rules for example just the other day I was sitting together with a bunch of guys talking about an idea to buy 10 to 50 acres of marginal crap land Dirt cheap then plant a really fast-growing hardy crop of which there's dozens to choose from and start producing alcohol You know to power your car's engine instead of gasoline Because these days every single car from the factory comes with the capability of running at least a 50 50 alcohol gas mix And down in Brazil as you might know most cars can run on 95% alcohol Now from my understanding if you wanted to do this kind of thing up in the States You know get some land grow a crop and use it for alcohol

[03:13] You could actually produce up to 2,000 gallons of alcohol an acre for about 60 cents to a dollar a gallon And that's with your typical US one growing season using first world manpower and those high first world labor costs Now we've done some numbers down here where the land is much cheaper You get four growing seasons and all the farm laborers you can handle that'll work for 10 or 12 bucks a day And our numbers say we could produce alcohol as a fuel for about 30 to 50 cents a gallon and easily Produce about 4,000 gallons an acre per year double the yield per acre in the first world So anyway, I mean a few expats are toying around with this idea and one of the guys in the group says I don't know about that. You're definitely gonna butt heads with the government You know competing with big oil companies for a chunk of their business

[04:01] They're definitely not gonna like that and I bet there's gonna be quite a few legal obstacles. You're gonna have to overcome I mean What if you can't get the permits to produce this stuff or to sell it and what about the taxing authorities? You know, they got a huge tax on gas down here What about alcohol you start producing that stuff and they're liable to ball you up with all kinds of red tape You might get the whole damn thing going and run into a brick wall made out of government paperwork but luckily we had a local lawyer sitting there at the table with us a lawyer by the way who has a few local oil Companies for clients and he just laughed and he said I think we should do this alcohol thing And he said that there were virtually no rules or regulations on alcohol production unless you're selling it as an intoxicating beverage

[04:47] Then he went on to point out that all the sugar companies in Latin America are self-sufficient energy wise They use no gasoline or petroleum products at all. Why because they make their own alcohol on the premises When they refine the sugarcane they get molasses then they process that down to alcohol and they run their trucks and their Sorters and their car fleets and they run their own electric generators with this stuff, too And what's the government's position on that? Well, they say and do absolutely nothing about it. And even if they wanted to they haven't got the time energy or the Manpower to even go out to these places and check up on what these guys are doing In other words, what the lawyer said was don't worry about the red tape because there ain't any now If you tried to do this up in the first world, you know start your own alcohol production facility from scratch

[05:37] Talk about paperwork regulations and red tape not to mention environmental impact studies Transportation department inspectors and EPA people up in the states the alphabet agencies that could mess with a project like that They'd be on you like flies on cow pies That is unless you're producing under 2,000 gallons a year Which is a regulation that's been around for a long time that allows farmers to make the stuff and power their own equipment But if you were to try selling it on the open market Forget about it at least for now But down here in Latin America Well, the path has already been blazed by Brazil, which no longer imports any petroleum at all More than half of that country's fuel is alcohol and they're pushing to make Brazil 85% alcohol by 2020

[06:25] no one in their right mind wants to depend on the Middle East or the Russians or Venezuela for their oil and if you're a country with huge tracts of marginal land and cheap labor making alcohols a no-brainer and Since startup costs are very cheap and you could buy that technology ready-made right off the shelf It's an ideal business for expats, especially since down here now Gasoline prices are from four to five bucks a gallon except of course in Venezuela, which has a huge subsidy So they don't count and I know as usual I've gotten a little bit off the subject But the point I was trying to make that unlike in the first world when you're starting a business down here You just have no alphabet agencies to deal with aside from the usual suspects like the tax guys The building inspectors and the health and sanitation guys

[07:12] So get used to the pleasant fact that governments down here They don't have 25 or 50 agencies watching every little move you make when you start a business No matter how big or small fact is you could create a business from start to finish down here and never step one foot Into a government office at all your lawyer, of course will do all that for you So back to that original email question. Who is your market? Well, that all depends if you're on or off the gringo tourist trail Because of course if you're on that tourist trail, there will be three different markets to choose from There's the tourists, of course Then there's the upper five or ten percent of the population that has extra money to spend Then there's the masses the people making three or four hundred bucks a month And since they've got almost no extra spending money if that's your market, you'll have to do a huge volumes

[08:00] Like for example opening up a Dairy Queen or a subway franchise that'll be for the masses Just remember there's one huge Drawback when you're opening up a business on the tourist trail your competition will not be the locals You're gonna be in competition with a bunch of other gringos who got down there before you would have the same idea And those are exactly the people you don't want to be in competition with but unfortunately many green expats come down and make that very mistake Anyway, I've had green expats and expat wannabes try to argue this point with me. They say look Johnny What if I'm really good at something or I have a fresh brand-new idea and I take it down to Costa Rica Panama Wouldn't I naturally clean up if I'm the first guy down there with that idea? And you know what I say to those guys you're absolutely right if you're the first guy down there with something you will clean up if and only if

[08:50] The marketing and the advertising have already been done for you In other words your market whether it's the tourists or the masses have to be aware that your product now exists down there And there has to be a certain amount of built-in or pent-up demand And believe me if you're the first one down with a new product You're not gonna be able to do two things at once stock and sell that item whatever it is and create the market for it too, and that's why these first world franchises like subway McDonald's Wendy's Kentucky Fried even Starbucks Do so well right out of the gate? That's because the marketing and the brand recognition has already been done way in advance Through first world TV and media and Latins, you know are addicted to first world cable TV and stuff But if they never saw or heard of a Kentucky Fried or a subway before you could open up a hundred of those things

[09:40] And nobody would come but the Latins are bombarded with that stuff on US cable TV and media outlets So the demand is already there way in advance And there's another problem with that argument of well Johnny. I'll bring down a new product and I'll clean up Okay, I say show me that new idea that no one's brought down yet. Sure I've seen expats do it off the tourist trail all the time. They bring a product down It's not new to us first worlders but it hasn't landed in San Pedro Sula Honduras yet and suddenly you're the only Applebee's or Mailbox, etc. Or King goes in a city of almost a million people and all of a sudden you're raking in the cash So yes, that idea works fine when you're off the tourist trail. In fact, that's one of the keys to a quick success Check out what is available in that town or area and look for a niche that you can fill

[10:30] But just a warning about those heavily gringo iced areas When I pass through a gringo tourist area There's always so many gringos around that nearly every business niche has been filled and it's not a good idea to compete against Those guys. I mean gringo businessmen But often on the tourist trail I see early retired couples come down and try their hand at a business and they don't do it to necessarily make a lot of Money nor do they care about competition even if it's a gringo competition They just need to have something to do Like I said, you'll have a lot of time on your hands So you're gonna need a hobby or two and if your business and hobby are one in the same Let's say you love to cook and you start a restaurant then then normal rules of business sometimes don't apply. Let me explain

[11:17] You see most of the early retired couples that I meet have a pretty nice nest egg a pretty nice cushion so they come down to a place like panamora costa rica and try to live out their retirement dream by starting a bed and breakfast or a restaurant These new owners these early retirees are more than likely going to be living on the premises And working full time with no pay and more to the point They've got that big cushion nest egg that they can tap every time they run short So technically when you're on the tourist trail a lot of these mom and pop bed and breakfast hotels Restaurants and tourist and hospitality businesses are just barely breaking even but since they're not actually losing money The husband and wife team and it usually is a husband and wife Just keep plugging along year after year

[12:02] Even though any first world business account worth is salt would have told that couple to pack it in a long time ago But if you're living out your retirement dream and it's your hobby too Even if you're not making any money, it's still a pretty good life So that's a little known secret about mom and pop and small expat owned businesses on the tourist trail A large percentage of them are just breaking even And basically the owners aren't that concerned because they've made it to paradise and they've got a social security check and a nest egg too But back to richard's email question Now here's another thing to consider if you're going to bring a first world franchise down here to latin america And like I said, at least 90 of these things end up as gold mines for the owners Anyway, if you bring a franchise down 95 percent of the time you're going to be targeting the masses

[12:51] Now, of course i'm assuming if you do buy a franchise you're going to get into one of the lower priced franchises Maybe under 150 000 dollars or even much less than that Because you see if you go for one of the higher priced franchises like for example Sizzlers or tony romas or even tgifs chilies or applebees You're looking at a half a million bucks or more at least and down here those places aren't your neighborhood corner restaurants They're going to be located in the higher end districts of town And of course those places are marketed to the masses up in the first world But down here the masses will not be able to afford that kind of stuff For example a trip to tgifs or applebees is more than what the average guy can afford when taking his girlfriend out for a saturday night Because you know you're talking about guys here who make 300 bucks a month

[13:38] The fact is when an average middle class guy takes his girlfriend out for a date He doesn't take her to chilies or tgifs. He takes her to mcdonald's or pizza hut So what i've noticed as a rule down here the bigger more expensive franchises like sizzler or tgif for tony romas They're not owned by individual expats who had the idea to bring a franchise down in almost all the cases i've seen A consortium of wealthy latin businessmen will buy three or four chilies Franchises and bring them into some of the big cities in their country all at one time And these consortiums of wealthy latin guys i'm talking about have a lot of old money behind them They're the helicopter crowd their parents own beer companies and sugar plantations and stuff And these guys are always jetting back and forth to the united states

[14:25] They have one foot in latin america and one foot in the first world And they know what a success some of these franchises are up in the first world But not only are these franchises much more expensive than let's say a subway or a quick heel shoe fix-it shop They're also much more vulnerable to failure because only the upper 10 of the population can afford to go there So these higher end franchises are kind of tricky You have to place them in the right part of the city Which is the higher rent district where you always have parking and traffic problems, too And though you certainly can't stick a franchise like that just anywhere They always seem to draw big crowds because after all they come directly from the first world and latins love everything and anything That has to do with it And you know i've walked through a lot of these more expensive franchises like skillets for example, which of course is strictly middle class in the states

[15:15] Even ihop has landed down here and that's strictly lower class like denny's up north Which just goes to show how the gringo advantage can turn everything topsy turvy in our favor, of course But don't get me wrong Sometimes you do see these expensive franchises from the first world with practically no customers in the parking lot at all And you wonder how can these businesses crack their nut like that? Well aside from the fact that labor costs are a fifth of what they'd be up in the first world The prices at these places are not third world at all. They're absolutely first world The franchise itself sets the prices worldwide not you And that's a huge reason why even places that look marginal often are surviving quite nicely

[16:01] It's like this McDonald's burger king wendy's and all the rest of them still basically charge three or four bucks for a hamburger combo But they only pay their help a buck and a half to two bucks an hour Whereas up in the states the very same mcdonald's or wendy's has to pay seven bucks an hour plus benefits So figure it out. You don't need a full house of customers to keep a place like that going In fact in latin america your average first world fast food franchise like popeyes dominos or kentucky fried Could survive quite nicely on just a quarter of the traffic flow that the identical franchise would need if it were up in the states And the same is true for a much more expensive franchise like tgif's So two easy ways for expats to get started with a brick and mortar business

[16:46] Start your own little mom and pop thing or bring down a franchise And yes, there are thousands upon thousands of franchise that haven't made it down here yet And because it's so easy to make small franchises work down here expats who do that often end up building an empire But it's not necessary to have a franchise to build such an empire an expat friend of mine from germany Came down to guatemala city about 15 years ago and just could not find a good italian restaurant Sure, they had italian restaurants latin style, of course But like he said every restaurant seemed to be the same people went there. All right, I had plenty of customers But the pasta was always soggy the food too salty the sauce always tasted like watered down ketchup

[17:33] And no one had one of those nice imported expresso machines 15 or so years ago that stuff didn't exist Instead you got percolator coffee. Yuck in guatemala That's what passed for an italian restaurant and the atmosphere even worse No scenes of venice melon or gondolas and the music no trace of dean martin perry como victimone or even frank sinatra And when you got your little basket of bread, it was your regular sliced white bread and you know that italian staple Chianti in a wicker basket on your table non-existent The closest thing to red italian table wine was this rot gut cheap red wine from chile gato negro double yuck So my german buddy dying for a good italian restaurant

[18:21] Decided there was a little niche to be filled So he went down to the historic district in guatemala city and opened up a tiny little hole in the wall Italian restaurant right across the street from the federal buildings in the halls of congress And being that tom was a fastidious german. He really italianized it dean martin amore and all Like he said it didn't take much to kill the competition. There was no competition And now more than a dozen years later, I guess he has about 20 or more restaurants and every time I run into him He's always asking me over to his beach house or offering to take me up for a ride in his plane Yep, his private plane And here's a guy that came down to guatemala with about 2000 bucks to his name He didn't speak a lick of spanish and his english wasn't that great either and now he's got more than 20 restaurants

[19:10] owns a few bars Has a few german sports cars and sent all four of his kids to private schools in the states and europe And all that happened to him because he couldn't find a good italian restaurant And the odd thing about it is he did all that being german and not italian But then again hitler and muslini had a thing going now, didn't they? And back to the original question of who do you market to well in tom's case with his first little hole in the wall joint He wasn't really marketing to the masses because they already had their trashy low-end restaurants And he didn't really want to compete with them and their rock bottom prices He said if he was going to use real good ingredients real mozzarella olive oil real italian pasta A real expensive espresso machine and not use ketchup in his sauce

[19:58] His prices would necessarily have to be a little higher than in the trashier joints So for him his first market was to government employees Basically to all those suits and their underlings that came in and out of those government buildings every day now His logic was this all government employees make about twice or even more What that same job pays in the private sector? So he was smack dab in the middle of a section of town Where the people actually did have a little extra spending money for lunch and dinner And what's his market now over a dozen years later? Well, he still is a cut above the average skanky italian joints. I was talking about before But he does not market to the upper or upper middle classes He runs his ads on the radio and the local tv stations His prices are just a shade above dominoes and little caesars yet when you walk into one of his restaurants

[20:46] There's no resemblance to a fast food joint And of course people with real money would never go there because now throughout guatemala city There are real 100 bonafide italian restaurants actually owned and operated by italians or latin's who are part italian And by local standards, these are elegant high-class restaurants, but to us first worlders again Immanently cheap. I mean you'd have a hard time spending 20 bucks on yourself in a place like that Which leaves out about 90 of the population of latin america. So there you have it My friend tom found his perfect niche between elegant and mediocre And many years ago when he first decided to put in his first restaurant He told me he would have preferred to have opened a real elegant italian restaurant with a nice big wine seller and all

[21:33] But he didn't because he only had 2 000 bucks And by the way the gringo advantage works for europeans, too Now tom says he's very glad he didn't have the money to open an elegant italian restaurant Because like he says no matter how successful an elegant restaurant might have been Franchising a high-end restaurant like that is almost impossible Even big latin cities can only afford to support a few high-end italian restaurants But small inexpensive franchises you can stick one of those in every shopping mall So the moral of that story is down in latin america. Sometimes you don't pick your market your market picks you Now i'd like to change the subject a bit I'm sure you all know by now that i'm doing another seminar in latin america in january

[22:19] And just lately i've been getting a lot of inquiries from single women They want to become permanent expats too, but many of them are a little bit gun shy about coming down alone And that's why I think it's a good time right now for me to read this letter from one of our single female Participants in the last seminar who also had serious second thoughts about coming down even after she'd signed up So let me read you lily's letter not her real name by the way Why would you go to guadamala? What is even in guadamala? Where is guadamala? Is that next to argentina or chili? Isn't it unsafe there because it's right next to mexico? Then lily puts in parentheses a note to herself the Reminder the us is also right next to mexico

[23:07] Then she continues with the letter isn't guadamala a drug haven My nail lady is from guadamala and she seems nice Those were comments that people made when I said I might be going to guadamala You have to love the ignorance of most americans After about a day. I realized I wouldn't tell anyone that I was going Someone that is near and dear to me recommended me to johnny and his show I remember when I first started listening I was thinking to myself with all of these negative things that johnny says about latin america Why would I ever want to move there or do business there? At the same time johnny had a real sense of calmness and contentment in his voice that was quite refreshing He seemed to really be enjoying life and living without regret of leaving the us

[23:56] I Have learned from my other international trips not to read the state department's website Because I would talk myself out of traveling in any event My curiosity and my sense of caution made me review the website and I almost canceled my trip I contacted johnny to make sure in his opinion that I would be safe at the seminar He assured me that I would be fine, but I wasn't fully convinced That said I decided the opportunity was worth it and would take the necessary precautions to prepare myself And make sure that I would be safe while I was there I remember arriving at the airport and it is just as johnny described It's very clean and organized and far more modern than I'd imagined The people were extremely friendly and the immigration officials actually made me feel very welcome in their country

[24:46] When I exited the airport, I was looking around for the expat wisdom sign And then had the pleasure of meeting johnny for the first time. That's where the adventures started Transportation was provided to the hotel which reminded me of a very typical hotel in any major urban area in the us The seminar unfolded just as johnny described it in his show I also stayed for the post-seminar days and that was well worth it I should also mention that guatemala is a truly beautiful country and the weather is perfect There are many ways in which someone can go about exploring areas of the world as a potential place to live and work I can't imagine ever moving or doing business in a place where my feet haven't spent some time on the ground That said just visiting a country and staying as a tourist is not the same as really

[25:36] Experiencing the country through the eyes of someone that has lived there and done business there for a long period of time That insight is the very essence of what made this seminar so valuable spending eight days with johnny Out and about in guatemala and hearing how it really is in guatemala and not how the media portrays the country with something That doesn't have a price tag Every country and every culture and people have the outside image and then the in the know reality Johnny provided the in the know on the country He didn't sugarcoat things and he didn't try to convince us to do anything. He just spoke the truth I would be remiss at this point not to mention the other remarkable people that johnny introduced us to during the seminar In addition, I have to mention that being able to be around a group of like-minded people was quite refreshing

[26:24] I had the fortunate opportunity to really get to know a few of the other attendees and they have become good friends I have to say that I was a skeptic going into the seminar and coming out of the seminar But I couldn't imagine not having gone It was a real eye-opening experience for me and showed me firsthand that moving abroad and or doing business abroad is very possible In addition It really reminded me of all the things we have to stress and deal with on a daily basis in the u.s That simply don't exist in other areas of the world Sometimes you need to remove yourself from the treadmill before you can realize that you're even on a treadmill Quote courage is not the absence of fear, but rather the judgment that something else is more important than fear unquote Ambrose redman and finally lily says

[27:12] Guatemala is a hidden jewel and johnny is a diamond in the rough. I would highly recommend this seminar That's how the letter ends and by the way If you're interested in my next seminar in january Just go to expat wisdom calm and click the seminar link and that goes for you single ladies who are on the fence about it too south of the border down mexico way You've been listening to the expat files living in latin america Coming to you each week from somewhere south of the border and don't forget you can email me on anything at all about latin America the expat files at gmail.com See you next time