#640 – The Expat Files: Franchising, Business, and Life in Latin America

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 I wonder Hello there all you expat wannabes. I'm Johnny Mueller and you're listening to the expat files living in Latin America The show that tells you just what it's like to live work play and or retire down here in Latin America It's a mix of the good the bad the ugly and the great and it's all right here. So let's get started Everyone likes to talk about doing business in Latin America because I'd say at least half the people coming down that is gringles and expats Want to start a business or end up doing so and you know It's been a couple of years since I've talked about one of the most popular

[00:46] Means of doing business here for gringles and expats that is buying into a franchise and you know There's two kind of franchises International first-world franchises like McDonald's and Starbucks and local Latin American franchises In fact when you get boots on the ground here south of the border You'll be surprised at just how many franchises you see they're everywhere Most of the names you'll never recognize because they are Latin franchises that don't exist up in the States though. Some of them are Spectacularly famous down here. You've never seen any of them though like Transplanted first-world franchises. They easily roll off the tongues of latins like McDonald's Kentucky Friday Pizza Hut by the way, the latest first world franchise arrival down here is Carl's jr

[01:31] Two years ago, they didn't exist and now they're sprouting up everywhere now Of course, it doesn't take much of an eye to notice There's a big difference between first world franchises like Carl's jr. And their Latin franchise counterparts Sure, there are hundreds of Latin American franchises, but the fact is 99.9% of them would never survive a week up in the first world again It's all about the maintenance the standards the culture not to mention the normally disgusting state of the restrooms And it's not a stretch to say that the vast majority of successful Latin franchises got there by sheer luck Mostly because they were the first one in with a certain product, which is why when first world franchises land They almost always succeed beyond their wildest dreams

[02:16] Just look at Walmart. It's the biggest employer in all of Latin America How'd that happen in 20 years ago? Not a single Walmart down here then you have McDonald's the biggest fast-food employer second biggest subway Burger King and Domino's pizza third and fourth largest fast-food employers get the picture That's one of the beauties of coming here to Latin America and opening up a business franchise or not Latins love everything first world in gringo on top of that most of these places pay minimum wage Which in Latin America ranges from 250 to 400 bucks a month about five times the minimum wage up in the states Not to mention up where you live the employer has to kick in an additional seven and a half percent for FICA

[03:03] Workman's comp and other benefits all of that almost non existent down here Which is why down here you can employ five workers for the cost of one worker in the very same business up in the first world I know I know it doesn't seem fair, but it is a huge advantage for the business owner. What are you gonna do? That said if you check on the internet You'll find you can download reports and books that show all the different franchises there for sale all over the world you'll find out there are more than 4,000 that are available as Mentioned before when you're down here in Latin America with boots on the ground You'll see a lot of franchises that are local Latin franchises So for example in a country like let's say El Salvador You'll find maybe 20 or 30 hardware stores with the exact same name. It's a franchise

[03:49] However, these are local franchises that never broke out beyond their own countries borders and only about 10% of successful local franchises ever do By the way, not one in a hundred ever make it to the first world that being the case turns out as of the 1st of January 2017 there are about 400 different franchises located throughout Latin America. So since there are over 4,000 franchises available Internationally now and only 400 exists in Latin America That means only 10% of the available franchises have made a town Meaning the franchise business down here in Latin America is new and booming with plenty of lag time built in Which makes us gringos look like we're clairvoyance when we bring them down and they kick ass

[04:37] There's even a new Latin American franchise organization It's called Federation de la Iberio Americana Frankissias f I a up by the way franchises are called Frankissias in Spanish Frankissias, so this group kind of like a rotary club for Franchises in Latin countries includes Mexico, Guatemala, Costa Rica, Colombia, Venezuela, Argentina, Uruguay, Paraguay, Peru, Brazil, Portugal and wouldn't you know it Spain itself the mother country because you see after those famous or you could say Infamous well-known first world junk and fast food Franchises like McDonald's could chuck it fried and Domino's pizza first hit Latin America The next big wave of franchises came in directly from Spain those Spain franchises were lucky

[05:28] It was a perfectly easy and natural transition for them. They already had their marketing documents employee handbooks signs, etc In Spanish, so all they had to do is clone that stuff directly and send it over Whereas for example the first world franchise company like Sizzler or Carl's jr Had to jump over that language and cultural barrier with every aspect of their business So again bottom line there are one tenth as many franchises here in Latin America as there are up where you live in Cucamonga or Cleveland so do keep that in mind if your plan B involves starting a business However, you also have to keep in mind that buying into a first world franchise and bringing it down to Latin America Is not going to be cheap. However, once you get it off the ground south of the border You'll find your profit margins are double even triple compared to the same franchise numbers up in the states

[06:18] Because you see the price of a whopper or a little Caesars pizza Pizza is the same down here as it is in Atlanta with rent labor and other overhead costs at 1960s and 70s levels down here. All right now for another personal opinion. I've seen many many gringo start businesses I've seen them bring first world franchises down to like believe it or not. Dunkin Donuts and Dairy Queen. Yep They're down here too. And guess what? Even though their businesses are doing fine more than fine None of them seem very happy as one of them told me it's a regular grind and you have to be there all the time Or the standards just start slip. However, I've also seen a lot of very happy gringo business men and women Who just love going to work because they've got their own little niche business

[07:05] Something they started and got off the ground all by themselves That has nothing to do with the franchise and just might not be connected to anything first world at all So yes, you bring a franchise down You're bound to make some money But it's a grind and most gringos who end up in that business down here or even up in the states say it's just another Kind of treadmill which brings us to this short email. I thought you might be interested in this comes from a very young guy Who came down to my last expat insider seminar that was in the first week of January about exactly two months ago This young guy stayed on after the seminar and he's still down here He wants more boots on the ground and to check out business opportunities. He's a guy who's never been out of the US before I could be wrong, but this might have been his first plane flight, too

[07:52] In fact, I recall at the seminar He was on the phone quite a bit talking to his family members back in the states They were checking on him daily to make sure he wasn't kidnapped or shot sold into the white slave trade or head is organs harvested Whatever. Anyway, let me read this little email. He just sent me. He said hi, Johnny I'm in Panahachell right now, by the way If you're driving to the most beautiful lake in the world like Atitlan, that's the first city you landed Panahachell Anyway, he says I'm in Panahachell at Lake Atitlan and I'm trying to start three businesses Simultaneously, I'm starting a restaurant Making soap and trying to export custom-made hand-sewn items So I've been pretty busy getting these things off the ground and it's working out pretty good

[08:39] Hope things are going good for you, too By the way, Johnny I'm coming to Guatemala City in a couple days and I plan on going to Pricemark the Latin version of Costco to buy all the stuff I need for my new restaurant and while there I want to get a dental checkup and I need a favor Johnny. Can you give me the name and number of your favorite dentist there? Thanks a bunch Johnny Mr. M a recent seminar guy. All right, it's me Johnny again. Doesn't that little email speak volumes? By the way, speaking of happiness Steadily eroding commodity up where you live the other day I went with a rather fresh expat gringo to a doctor's office an ophthalmologist a specialist He's a guy who's probably a one on the 10 scale for Spanish and didn't want to go to the doctor alone

[09:28] Even though I explained to him almost all medical doctors and professionals under 50 speak passable English these days They have to pass that international English test called TOEFL TOF EL to get out of medical school and it seems I just wasn't able to convince my new gringo friend of that until he Actually got in the office and saw for himself Now the fact is when you're off the gringo tourist trail well off it like I am Even in big Latin cities you could walk into the doctor's office and he or she might be the only one that speaks English in the place So as you walk up to the receptionist, you just might have one big communication breakdown But not to worry as soon as you see the doctor He'll speak some English and he'll help you fill out the forms Anyway, I found myself sitting in the waiting room next to an older Latin guy with a patch over his eye

[10:14] And I made the mistake of asking him what had happened to his eye and he was very frank with me He said I have a cancer and I was thinking oh Talking about a gringo sticking his foot in his mouth, huh? Well, how was I to know? So what do you say after that? Well, you try to lighten up the conversation, right? And I said well, how's it going? You look good. He said well, I'm gonna die Well, I was digging myself into an even deeper hole there. How do you follow that one up? So to fill that big pregnant pause that came next I said we're all gonna die But hopefully not for a long time yet, then he shook his head and said doctor says I won't last the year out Hope I make it to Easter. So now suddenly I'm in one of the most depressing conversations. I've been in a long long time

[11:00] So what could I say? But man, sorry about that then he cracked a genuine smile and said don't be sorry I'm not I really had a nice long happy life And at that moment, I was guessing he was maybe 55 That's not long. Then he said, you know, what hovin hovin means young fella By the way, you'll hear that a lot if you're a gringo male hovin now Believe it or not many many Latin males and females over 50 will refer to us gringo males as hovin Latins who say that to us are not trying to butter us up. They really mean it hovin They always think we're much younger than we really are another gringo advantage I guess which always makes me laugh because many times the person that's saying it will be older than you are

[11:46] But don't correct him. Why ruin the fantasy, huh? So anyway, this poor guy with the eye patch said to me listen young man Hovin when you find out you're gonna die strange things go through your head you mourn for your friends Before you ever get the chance to mourn for yourself He said you find yourself relieved that you won't have to be there for their funerals And you know to me that says quite a lot about the happiness situation in latin america And why you'll never hear that kind of optimism come out of the mouth of a first world person Imagine being relieved that you won't have to suffer through your own friends funerals Yeah, you know different cultures and all that but remember this guy was probably only in his mid 50s All right on a lighter note, or maybe it isn't

[12:33] I've gotten a few emails lately from people asking me about environmental impact studies in latin america Well, it's like this all latin countries have what they call Departmentos de ambiente or departmentos de recursos naturales loosely translated environmental protection and natural resource departments Yep, they've got big first world sounding names in big expensive government buildings with huge staffs Of course 10 or 15 years ago. These things didn't even exist here in latin america But of course they copy everything first world. So that continues the trend Anyway, if you're gonna take out any kind of building permit and you're next to a protected wildlife area or park Or you're next to a body of water river or navigable stream Chances are if you're building a commercial property, you will have to do an environmental impact study

[13:25] All right, you might be thinking good idea, right save nature air water wildlife and all that good idea Except you know, this is latin america And even though an environmental study like that will cost about 10 of what it would up in the states The money still ends up getting wasted or in the hands of government puss bags or worse In fact, I just spoke to a belgian guy and a guy from spain They're presenting a hotel project right now That'll be built in honduras on the caribbean coast and they told me that they had to pay around 10 000 to do an environmental impact study which will end up being a 60 room hotel Now the spanish guy mentioned that that same environmental impact study if it had been in spain would cost him around a hundred grand And he said along the way they'd stack on so many regulations and changes just spend another hundred grand on top of that

[14:15] That he said was why they were building it in honduras and the bad news Well, he said the problem is with the other properties nearby where we're going to build the hotel There's a little town about a kilometer away right on the ocean They've got little businesses mom and pop restaurants grocery stores and little mostly rundown hotels on or near the beach That never ever had to do an environmental impact study Because he said for one thing that bureaucracy didn't exist years ago when they first set up shop But he said that's not what really bothers him. This is what really pisses him off 75% of the little towns up and down the beach for as far as the eye can see Have no sewage treatment whatsoever That means all gray and waste water end up in the ocean Meanwhile only a half a kilometer away or less will be his very first world project where he's done a ten thousand dollar

[15:07] Environmental impact study he'll install a thirty thousand dollar holding tank and treatment plant for his gray and wastewater While most all of his neighbors are dumping theirs right into the ocean But that's not all he said in our case. He says ten grand for the study and thirty grand for the treatment plant That's nothing. It's the government delays in processing that paperwork that screws us all up So he says they get their 10 grand up front and we got to wait six months before we get the authorization To stick one shovel in the ground. However, he did say unlike in spain Once you get that permit and build a project the government lardasses will never come around again They won't do periodic inspections They don't have the crew nor the persistence or the mandate to do any kind of follow-up or harassment

[15:55] Though he said you can't count on a few government types showing up at the restaurants with their wives or mistresses They'll hang around the beach in the pool and expect a few free drinks to be forthcoming All right As far as actually building a brick and mortar something or other down here if it's a big commercial or tourism project You better believe there's going to be a lot of permits a ton of paperwork Your lawyer will have to visit a lot of useless government departments get signatures and stamps and such The government delays will take months However, if it's a small brick and mortar project a private house a mom and pop little business If you go through the usual channels have an architect drop your plans and stuff Go down to municipality hand it in get it approved If you don't need an environmental impact study, it could take just a month and then you can get started

[16:44] Remember an environmental impact study only has to be done if it's a big commercial project Or it's on a river or a lake or next to a national park or wildlife refuge On the other hand if there's already a building or house on the premises and you're remodeling or adding a garage or a breezeway Or a pool you almost never have to pull a permit. Of course up in the first world It's a big no-no and a big fine if you get caught after you've done a project and didn't pull a permit In fact, they'll make you tear it out. Even if you're just gonna remodel your basement or a bathroom Sure, you can often get away with it if it's inside of your house But don't ever try that outside Not if you're living up in the states Anyway, the people down at your local assessor's office are going to pick it up on google earth google maps or even with their own drones

[17:32] Luckily, none of that's happening down here in latin america Oh, that's not to say latin governments aren't checking out google maps and google earth to look at people's properties Well, they're doing that in some of the big latin cities now only to try to get somewhat accurate property assessments for tax purposes That's because like I mentioned in a previous show most properties in latin america are assessed at ridiculously low values Turns out with most houses and buildings except with brand new properties Who happen to list their real selling prices and real estate magazines and such? So they have to be registered on the government property tax rolls that way That said brand new properties do pay much higher property taxes But as far as older real estate properties are concerned

[18:18] Some are registered on the books for as little as 10 percent of their real market value Which is why property taxes are so ridiculously low here in latin america compared to what you pay So let me repeat many people I know have three and four hundred thousand dollar houses and they're only paying something like two To 500 bucks a year in property taxes Of course, even then it's a rip-off because they don't get anything for their money. But do you? So anyway, if you hire a contractor to build your garage You got to remember a couple of things. No one down here is bonded They don't even know what that is. So if you ask them if they're bonded They're gonna give you a kind of a stevie wonder look not to mention. There's no such thing as workers comp So if someone gets injured on your job

[19:05] They just go off to the hospital and the next day the contractor brings in another worker And maybe some days later the injured guy will show up too Another thing to remember is if you're doing a small project remodeling building a garage, whatever There most likely won't be any kind of paperwork or contract for you and the contractor to sign at all Most small projects like that go down with simply a handshake deal That's not to say you couldn't have a contract sure. You can draw one up get your lawyer to do it Go that route, but if somehow you get scammed along the way You almost never have a way to get any recourse sure you can sue the guy bring him the court But most of your small-time latin contractors don't have a pot to pee in either Maybe a beat-up pickup truck and some power tools, but that's about it

[19:51] So how do you find a decent contractor you can trust? Well, it's almost always word of mouth and it's buyer beware, which is a good thing Now i've seen a lot of latin contractors good bad ugly and sloppy And it's easy to say well, just check out a contractor by word of mouth. But how do you do that? Well, for example, if you're living in a guarded gated community There's always some kind of construction activity going on somewhere in that subdivision a new house a garage a room edition Whatever and let's say you want a swimming pool duck or an addition to your house Well, you just go over and ask the owner who's hired those contractors for his project And ask him if he'd recommend that same crew again for another project Ask him if they're doing good work and if they're on time and on budget By the way, if you're doing a small project like a garage usually what you'll do is give the guy 50 percent down

[20:40] When he starts the job and 50 on completion But make sure they completely clean up the site And leave no loose ends when you give them that final amount because most likely if you have any kind of complaint after the fact They're probably not coming back unless you show them some more money And pay special attention to the ripio. That's ripio the garbage or refuse that accumulates around the site Let's say for example part of the job entails breaking up an old cement slab and pouring a new one Well, what are they going to do with the old stuff the broken up pieces? Generally, they'll just leave it in a pile outside the house or in the field next door across the street Well, you can't have that but if you've paid them up in full, they'll never come back and take it away

[21:26] So you wait till that's off the site before you pay them their final amount Oh, and one more thing. I mentioned this in a show a long time ago There are really no guarantees when it comes to contractors down here Oh sure They'll all say they guarantee their work for one two even five years You can even write that up in a contract if you want But like I've said a dozen times before once they've walked away and they've been paid You're not gonna get them back on the job unless you pay them something again And here's a good example of what i'm talking about. Isn't it true? Everyone loves a sunken living room kind of elegant in a way standard old track homes Don't have them takes a little bit of extra dough and a little bit of extra planning to make a nice sunken living room With a fireplace and all that right by the way almost all middle upper middle and high class latin homes have fireplaces

[22:15] Now that doesn't mean they're ever used at all I mean latin america is hot right even in the altiplano where it's constant spring-like weather I know many many people who have fireplaces and have never fired them up once, but they look nice, right? Kind of like jacuzzis even saunas if you have any of those things in your home You'll find out you almost never use them But they do add little upscale elegance to your house and serve to impress visitors and company right which may be their real purpose after all hmm Anyway, I know of a few upscale latins who built houses with sunken living rooms And man those rooms look nice and elegant for the first couple of years And now suddenly the parts of the wall that are below grade Are showing signs of mold humidity and paint peeling in other words

[23:03] They've got more than the beginning of a nice moisture problem That's never going to go away unless someone comes with a backhoe or something And digs out the foundation on the outside of the building And lays down some real nice first world style Waterproofing along those walls and backfill it with the right material and in the proper way Which of course should have been done when those houses were built, but the average latin knows absolutely Nothing about construction and just hires a firm to come in and build them a house I guess that's exactly what people do up in the states too, right? However up in the states contractors are bonded and have to give us sort of a guarantee And are held to it because you can get sued and go to court and pay damages up there But down here like I said forget about it In fact, even if it's a big commercial project you're building

[23:51] The court systems down here are so slow and lax if you do take someone to court It could take years and years Which is one reason why so few people are sued down here, which is a good thing, right? But that doesn't mean there aren't a lot of people that should be sued and over and over again Which brings us back to buyer beware and it seems not only are clueless latin suck into problems like that So are so many clueless gringos. Look take the example. I just gave about the sunken living room You'd think a contractor who's been building house after house would be completely up to speed on waterproofing foundations and walls Nope, this is latin america, you know in dealing with building contractors. Here's a few more tips Suppose you've made a deal with a contractor who's building a house down the street for a neighbor

[24:41] That's how you discovered this guy his work looks good The guy that hired him to build a house is very happy with the quality. Well to me that's not enough There's one more step I look at before I hire that guy for anything I ask him to take me to see a house or a project that he built a couple years ago And usually he's a local guy many of them are so there'll be one or two projects even more within a couple of kilometers And that's when you look for defects Because you can be sure those same type of defects are going to show up in any structure he builds for you So if the lighting's bad in one room or another there's humidity or mold in the closet tiles popping off in the laundry room Well, you can make a strong point that you don't want that happening in your house and really pay attention and do your research

[25:28] When they're waterproofing the outside of the foundation. Oh, and by the way, these defects show up routinely in big expensive projects, too For example a gringo friend of mine who came down to one of my first expat insider seminars He's living down here in central america now and he told me just a couple days ago He's moving out of his brand new upscale apartment after being there about a year Yep, he was the very first tenant and it looked great when he first got in but he started noticing things For example, you know how in some apartments there's kind of a popcorn finish They call it on the ceiling looks like little beads You might have seen how they do that with a special sprayer Well, he said they did the popcorn work but never painted it So every morning when he first wakes up and walks through that room There's a tiny little residue of that stuff that fell off overnight hits the floor and now it's underfoot

[26:17] And how could that contractor have avoided that from the start? Well, he could have just put a coat of paint on it. Meanwhile a year later You've got an unhappy renter on your hands. All right, we're getting towards the end of the show now Speaking of my upcoming july expat insider seminar Just go to www.thenewexpat.com and click on johnny's 2017 seminar link and again this time The john gult crew will be staging those fabulous pre and post trips So you'll want to add a couple of extra days before or after the seminar or both And by the way, if you want to kill two birds with one stone that has come to the seminar and Start the residency process in guadamala. You can save yourself a ton of money by doing all that stuff at one time But you'll have to stay down an extra week or two to do the paperwork and hit the various government offices and such

[27:04] So time to work out those details in your plan B now Read all about it and sign up for the seminar at www.thenewexpat.com And for those of you who as of now can't get your boots on the ground yet You can still make great strides by going to www.expatplanb.com check out my expat essentials course It's the best way to organize your plan B before you take that next step, which is boots on the ground south of the border This is the expat files living in latin america If you want me to help you out with your own plan B Just schedule a one-on-one consult send me an email the expat files at gmail.com And if you want to learn how to move forward with your own plan B from right up there in the states go to

[27:51] www.expatplanb.com and check out my three videos. See ya nos vemos