Foreign direct investment: how to combat underemployment and streamline global mobility in Latin America
Companies often face the challenge of navigating local labor laws and compliance requirements while addressing talent shortages.
From the rise of sustainable technology in Costa Rica to Chile's emerging banking sector, Latin America hosts some of the most dynamic and exciting economies in the world. However, one of the obstacles to sustainable growth is the prevalence of informal work and underemployment.
Companies often face the challenge of navigating local labor laws and compliance requirements while addressing talent shortages. According to the Inter-American Development Bank, while 70% of working-age people are employed, job quality is still low, according to indicators related to formal employment and wages high enough to lift people out of poverty.
A key factor that can help to address these employment issues and, at the same time, help companies expand their global presence is Foreign Direct Investment (FDI). Despite a general 9% year-on-year decrease in total FDI inflows into the region, in Mexico the FDI between January and September 2024 amounted to $35,737.5 million, an increase of 8.5% compared to the same period in 2023; and Latinometrics reports that certain countries experienced spectacular inflows during the last year. Argentina saw an FDI growth of 57%, Costa Rica of 28%, and Chile of 19%.
Foreign Direct Investment: Job Creation.
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Experts predict that, with abundant natural resources, relatively economical labor costs, and a highly skilled workforce, FDI will continue to drive sustainable growth and improve global mobility in this strategic continent. "FDI creates jobs, drives industries, and equips local workers with the necessary skills to fill in-demand jobs", says Jaime Bustamante, Regional Director of Business Development for Mauve Group in Latin America.
He added that, according to recent data, Latin Americans' dependency on smartphones for banking, commerce, and now, employment, emphasizes the need for investments that provide opportunities and training based on technology.
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FDI can help overcome this skill shortage by promoting training and development and creating robust labor markets. For example, when global companies invest in manufacturing, technology, and service industries, they bring with them the capital and technical knowledge to train local talent, reducing the underemployment gap.
"However, foreign companies expanding in Latin America often face a steep learning curve when it comes to compliance. Mexico and Brazil have complex labor regulations, and navigating through them can be a challenge for foreign employers," adds Jaime.
The tax season in Mexico, which begins on March 31st for legal entities, further complicates the landscape. The tax season in Brazil begins on March 17th and requires meticulous management of payroll and compliance with strict employment agreements.
Associating with a simplified record employer eases the complexities of contracts, payroll, hiring, and onboarding, while ensuring compliance with local regulations. This allows companies to focus on growth and expansion without the burden of navigating legal and administrative obstacles.
The region also offers unique challenges in terms of global mobility. A 2024 study by Mauve Group revealed that 90.8% of foreign professionals in Brazil, Mexico and Colombia admitted to having little knowledge of local regulations before their move, and 69.3% expressed being unprepared to deal with local bureaucracy. These challenges underline the need for expert advice and guidance for companies looking to invest and grow in Latin America.
A recent success story has been the current bilateral association between Brazil and China, which has facilitated mutual investments and growth for companies in both countries. Despite having significant cultural differences and being thousands of kilometers apart, Brazilian companies, especially those working in the agricultural sector, have been able to expand into Chinese markets, while Chinese manufacturers have been able to take advantage of Brazil's large labor and consumer market, adds Bustamante.
"This shows that companies should not limit themselves when considering global expansion and FDI. As long as international companies have the right guidance, FDI will continue to be a great engine for sustainable growth and opportunities in Latin America," emphasized the Regional Director of Business Development for Mauve Group in Latin America.