Written by Ethisphere
While by no means one of South America’s largest countries when measured by population or geography, Chile nonetheless distinguishes herself as the poster- child of Latin American economic growth and development. Although Chile her- alds only the 60th-largest population and 44th-largest economy (as ranked by total GDP) in the world, Chile has a sustained history of market-friendly reforms and – aside from Pinochet’s 16 1⁄2-year dictatorial regime – a long history of stable gov- ernance. As a sign of the stability of Chile’s economy, the country was the first in South America to join the Organization for Economic Cooperation and Develop- ment (OECD).
There are just more than seventeen million people in Chile, with almost a third of them living in the country’s capital city, Santiago, which is the largest city and located near the center of Chile’s sliver-shaped boundaries. The official language of Chile is Spanish, and the next most common languages are Mapudungun (a language local to the country), German and English. The majority of the people practice Roman Catholicism, according to the CIA World Factbook, followed by Evangelical Christians.
WHILE CERTAINLY NOT WITHOUT ITS INHERENT CHALLENGES TO FOREIGN INVESTORS, CHILE IS UNDOUBTEDLY SOUTH AMERICA’S MOST ADVANCED ECONOMY, AND IS A TRULY OPEN, FREE- MARKET ECONOMY.
The government of Chile is a presidential republic, and the current president is Sebastián Piñera, the fifth elected president since Pinochet ran the country. Chile’s elections are generally considered fair by third party observers. Probably the most well-known ruler of Chile around the world is Augusto Pinochet, who ran the coun- try as a dictator until 1990. Pinochet took control in the early 1970’s, after rising to General Chief of Staff of the Army and later Commander-in-Chief of the Chilean Army, a position he received by then president Salvador Allende. Pinochet later participated in a coup d’état which lead him to take charge of the country.
Chile is exceptionally rich geographically – from the Eastern and Southern alpine tundra and glaciers, to subtropical Easter Island, to Central Chile’s Mediterra- nean climate, to Atacama, the world’s driest desert found in Northern Chile – the country boasts an amazingly diverse climate. Chile’s largest border is shared by Argentina to the East, and the country also borders Bolivia to the northeast and Peru to the north. The west coast of Chile touches the Pacific Ocean. The climate of the country is varied as the north is primarily desert, and cools down with fre- quent rainfall in the south.
Thanks to the incredibly dry Atacama, Chile is rich in mineral resources, most prevalently copper. While certainly not without its inherent challenges to foreign investors, Chile is undoubtedly South America’s most advanced economy, and is a truly open, free-market economy.
A number of compliance challenges exist in Chile, which are explored in the fol- lowing pages, and include intellectual property protection and civil unrest within certain parts of the country.
Five Compliance And Ethics Issues To Consider
While Chile is committed to being an open business and trade partner, and remains the most open-market country in the region, there are certainly bureaucratic challenges. Perhaps due to the country’s relatively small size and sustained growth over an extended period of time, there is a markedly conserva- tive approach toward regulatory change. In- deed, foreign companies need be patient in their efforts to do business in Chile, as there can be cumbersome delays in processing pa- perwork and obtaining approvals.
Deal With It
In order to adequately deal with the unique delays associated with doing successful business in Chile, it’s important to find an in-country partner that can help overcome regulatory hurdles. Indeed, finding a good partner already operating in Chile can af- ford an international investor both busi- ness and social connections that can help mitigate cultural, language, and regulatory barriers. It’s important to keep in mind that there are a relatively small number of actors in control of most sectors of Chilean busi- ness. Finding a well-connected partner can open important doors throughout the Chil- ean business world.
Intellectual ProPerty ProtectIon
Although Chile is extremely advanced in many areas of legislature, the country con- tinues to face significant challenges in the area of intellectual property. While there have been legislative efforts made to en- hance IP protection laws, major challenges remain, both in hard goods and internet pri- vacy. This is a monumental hurdle for many businesses, especially given that Chile is undergoing a major push to market itself as a haven for high-technology manufacturing and research and development foreign di- rect investment (FDI).
Deal With It
While the issue of intellectual property rights is certainly a major concern for many foreign investors, the good news is that the government is taking strides to mitigate the issue. Former president Michelle Bachelet was a proponent for legislative reform, and supported various initiatives to improve IP protection. However, many hurdles remain before an acceptable level of protection can be expected. Until then, companies can help to protect proprietary knowledge and technology in a couple of ways. First, they be well-aware of existing legislature. Sec- ond, they can develop relationships with or- ganizations such as the International Intel- lectual Property Alliance in order to become better aware of existing IP laws in Chile and how to best handle their deficiencies.
Chile has performed admirably in its at- tempts to increase its economic standing, both within the region and in the world. In many ways, these attempts have resulted in unprecedented success. However, in one area this is not the case. Chile continues to struggle mightily with great economic disparity throughout the populace. In some aspects, Chile can argue that its develop- mental state is shifting from “emerging” to “developed.”
Deal With It
At first glance, the issue of economic dispar- ity may not be of major concern to interna- tional investors. However, this viewpoint can quickly shift when one considers the significant security implications inherent to economic inequality. The wider the gap between the poor and the members of the economic elite, the more significant the po- tential challenge to a foreign investor. In order to help mitigate the possible unrest presented by economic inequality, investors may want to consider increasing support of social programs meant to help develop less- er-developed sectors of the economy.
In comparison to many other countries in the region, Chile’s struggles with civil un- rest may appear somewhat insignificant. Nonetheless, they can present hurdles to effective and profitable business opera- tions. In the decades following the Pino- chet regime, Chile has done an excellent
job ensuring civil liberties, such as freedom of speech. This is obviously a positive indi- cator of development. However, there have cases where protests and political rallies have become violent, such as the education reform rallies organized by university stu- dents over the last couple years.
Deal With It
The best thing companies can do when po- litical rallies or protests begin to take shape is to remain as uninvolved and far-removed as possible from the situation. Protests and rallies are typically announced prior to when they actually take place, so it’s important for companies and their in-country representa- tives to be aware of these types of developing situations. Once it becomes apparent that a potentially-combustible situation is develop- ing, it’s imperative that companies and their representatives stay far away from them in order to ensure no connection is made to the organization and to make sure that employee safety remains uncompromised.
V. Corporate Taxation
Thanks to the devastating earthquakes that rocked the country in February 2010, Presi- dent Piñera enacted an emergency hike on royalties for mining companies and corpo- rate taxes – from 17% to 20% – in order to assist in the rebuilding of affected areas. While the emergency taxes are scheduled to expire in 2013, strong indicators say that President Piñera will make the changes permanent. This could certainly make life difficult for many current and potential for- eign investors, and could open the door for companies to attempt to subvert the new tax structure in unethical ways.
Deal With It
A 3% tax increase is certainly not insig- nificant. However, at the same time, even at 20%, Chile’s corporate tax rate does not even come close to being among some of the world’s highest. Indeed, the United States boasts the highest in the world, com- ing in at 39.2%. While Chile’s rate increase is certainly meaningful, it still remains far below what U.S. companies are paying in their home market.
Five Etiquette Tips You Should Know Before You Go
Chile has a generally very warm and open culture, and this extends to business inter- actions. While it is common to see individ- uals accompanying greetings or farewells with a kiss on the right cheek, in business dealings it is generally expected that you greet counterparts with a firm handshake. If meeting a woman, common courtesy is to wait for her to extend her hand first. Initial introductions typically dictate that greetings are formal, referring to counter- parts either by title, or the formal Señor or Señora. One should be careful when us- ing common American hand gestures, as they may carry vastly different meanings in other countries.
The concept of time is definitely more fluid in Chile than in the United States. Do not be offended if counterparts are slightly late for meetings, as this is not uncommon. However, as the guest, it’s important that you always be punctual. Chileans rely heavily on perception and personal interaction in business dealings. While business plans and related research are important as they are in any country, and will be considered, personal connec- tion will be the most compelling factor in successful interactions. Similarly, expect many business dealings to take place over lunch or after-work drinks, and for these interactions to begin and end with lengthy personal discussions. Indeed, business lunches are extremely common, and can be expected to last at least two hours. The ability to build a personal connection with the host will be integral to subsequent successful negotiations.
The exchanging of business cards is very common in Chile. As in many Latin Ameri- can cultures, advanced degrees are ex- tremely well-regarded, and should thusly be included on business cards. Further, business cards should also include a Span- ish translation on one side.
The exchanging of gifts is not generally ex- pected in Chilean business culture. How- ever, it’s quite acceptable to bring a small token, such as a pen engraved with your company name, for your host. Further, if you’re invited to dinner with your host, it is appropriate to bring a bottle of wine or alcohol for the occasion. Additionally, if in- vited to the host’s home for any occasion, it’s polite to bring a small gift for the host and his or her spouse.
Dinner and Social Events
As stated previously, relationship building is extremely important in Chilean business culture. It is not uncommon to be invited to dinner with one’s host, either with other work colleagues or with the host’s family. Dress at these events is usually business formal. Formal etiquette is also very im- portant. For example, be sure to refrain from speaking with food in one’s mouth, use the proper utensils when eating (such as using the knife rather than a fork for cutting), and keep elbows off the table when eating.
It’s also important to steer clear of com- bustible subject matter in conversations, such as politics and regional conflicts. Safe subjects to highlight include fútbol, pisco sour (the national drink), Chilean history, art and literature, and U.S. culture.