Doing Business in Colombia

Doing Business in Colombia? Why and how!?

Colombia has become one of Latin America’s hottest spots for international business, especially for American (US) companies. With a growing economy and a GDP of over $370 billion (2023), Colombia is now the fourth-largest economy in Latin America (after Brazil, Mexico, and Argentina).

Its prime location, between Central and South America with access to both the Pacific and Atlantic Oceans, will give businesses easy access to important global trade routes. Over the past 10 years, Colombia has worked hard to stabilize its economy, improve overall security in the country, and make the country more business-friendly and efficient. This makes it an attractive place for foreign companies.

While in the past Colombia’s economy was once mainly dependent on resources like oil, coal, and coffee, it has since been able to diversify. Sectors like technology, manufacturing, and services are thriving, creating new opportunities for companies interested in exploring the vast Colombian market. In addition to the country’s competitive labor costs, the well-educated workforce and various trade agreements with the U.S. make Colombia an interesting and important destination for American businesses wanting to expand.

What Are the Benefits of Doing Business in Colombia?

Let’s make a list:

1. Prime Location and Connectivity: Colombia’s strategic location makes it a key connection point between North and South America. Major cities like Bogotá, Medellín, Cali, and Cartagena are well-connected to the U.S. with flights and modern airports and roads, making travel and logistics easier for businesses.

2. Expanding Consumer Market: With a population of over 52 million people and a growing middle class, the Colombian market is ripe for businesses. As purchasing power is on the rise in Colombia, there’s an increasing demand for quality goods and services, especially in urban areas where consumerism is growing.

3. Skilled Workforce: Colombia has a young and educated workforce, with plenty of bilingual professionals (and schools!). Universities are turning out skilled graduates in professions like engineering, technology, and business, making this a strong selling point for doing business in Colombia, especially for industries relying on knowledge and innovation.

4. Government Support for Foreign Businesses: The Colombian government has been working to attract foreign investments by offering incentives like lower corporate tax rates and legal protections for international businesses. In addition, the country offers a 2-year visa for so-called Digital Nomands. The U.S.-Colombia free trade agreement (FTA), in place since 2012, has further eased the process for American companies, reducing tariffs and making business easier.

5. Political and Economic Stability: Colombia has come a long way from its violent past, with political stability improving significantly over recent years. The 2016 peace agreement with the FARC has brought newfound safety and stability, creating a more predictable and secure environment for foreign businesses to operate. Colombia is not the country anymore that we see on Netflix or other TV channels.

Colombian Culture & American Culture Compared

When doing business in Colombia, understanding cultural differences is key to success. Let’s look at the first primary dimensions of culture comparing Colombia relatively to the United States.

1. Hierarchy

Colombia has a higher score on Hierarchy than the U.S. This means that Colombians are more comfortable with hierarchy and unequal distribution of power in their society. In Colombian businesses, decisions tend to be made at the top, by the boss. Employees are more obedient to authority. On the other hand, American companies often value flatter organizational structures and encourage input from all levels of the organization. From low to high. If you’re used to the American way of doing things, you’ll need to adapt to Colombia’s more top-down approach.

2. Individualism vs. Collectivism

The U.S. is a very individualistic culture, where personal achievement and independence are highly valued. In contrast, Colombia is much more collectivist, meaning Colombians prioritize relationships, family, and group harmony. Business decisions in Colombia often consider what’s best for the group rather than just individual success. For American businesses, this means that building trust and strong personal relationships is crucial. Colombians like to know the people they are working with, so face-to-face meetings and rapport-building are essential.

3. Goal-Orientation vs. Process Orientation

The U.S. leans more towards a “goal-oriented” culture, with a strong focus on competition, achievement, and (individual) success. While Colombia values these things too, they also place a greater emphasis on relationships and quality of life, which lands them closer to the middle of this dimension. This means that while Colombians are results-oriented, they also care a lot about maintaining positive and respectful relationships in the workplace (due to their collectivistic score on the previous dimension). So, if you’re doing business in Colombia, you’ll need to balance your drive for results with a focus on people.

4. Predictability

Colombians have a higher need for predictability compared to Americans. They prefer having clear rules, structured environments, and avoid taking unnecessary risks. This means that while American businesses may be more comfortable with ambiguity or risk-taking, Colombians often prefer detailed planning and a slower, more cautious approach. To succeed, you’ll need to provide clarity and structure to your Colombian counterparts, ensuring everyone knows the plan and what’s expected.

Potential Challenges for North Americans Doing Business in Colombia

1. Bureaucracy: Although Colombia has made progress in streamlining processes, doing business there can still be bogged down by lots of red tape and regulatory hurdles. Patience and persistence are required to navigate the complexities. And having a local Colombian in your team will definitely help.

2. Corruption: While Colombia has taken steps to limit and reduce corruption, it remains a problem in some parts of the country. American businesses need to be cautious and ensure they are complying with both U.S. and Colombian anti-corruption laws to avoid any legal issues.

3. Different Negotiation Styles: In Colombia, business is often relationship-driven over task-orientation. Building trust and rapport is just as important as closing the deal. Americans, who tend to prefer efficiency and directness, may find this approach slower. Adapt to the Colombian style by investing time in relationship-building before diving into business negotiations.

4. Security Concerns: While Colombia is a lot safer today than it was in the past, some areas still have issues with crime and organized gangs. Businesses should carefully evaluate where they operate and take appropriate security measures.

Summary and Key Takeaways

Colombia offers immense opportunities for American businesses looking to expand. With its strategic location, growing economy, and increasing political stability, it’s a market that should not be overlooked. However, cultural understanding is of key importance. The hierarchical structures, relationship-driven decision-making, and cautious approach to business differ from the U.S. style. Working in Colombia’s business environment requires patience, adaptability, and a strong commitment to building relationships. For companies that are willing to put in the effort, Colombia will have a rewarding market ripe with huge potential.

Doing Business in Colombia on Culture Matters.