Asymmetric information

Asymmetric information

In an evolving marketplace, data, information and benchmarking play crucial roles in establishing a competitive advantage. A lack of information, inversely, can be a competitive disadvantage, and may play a key role in the long-term success of a hotel’s operational performance. 

As the trend of hoteliers, operators and investors seeking opportunities in Latin America’s diverse and complex landscape continues to grow, so will the need for reliable, transparent and country-specific local market intelligence. Brazil, Colombia and Argentina have vastly different economies; however, they share certain commonalities. They all possess maturing hospitality sectors in both traditional and emerging markets, yet also have unique fundamentals and operating landscapes that are difficult to navigate.

Brazil, which has a large and ever-improving diversified economy that presents many trade and investment opportunities to U.S. companies, also comes with its fair share of challenges, such as uneven income distribution, poor public education, imbalanced market concentration and a highly complex tax system that has hindered economic growth. These factors have created a complicated business environment; succeeding in it requires one to have an intimate knowledge of its costs of doing business as they relate to distribution, government procedures, employee benefits, environmental laws, the overloaded legal system and, most importantly, the aforementioned tax structure, as there are more than 60 different types of taxes.  

High tariffs on imports have promoted foreign direct investment by multi-national companies in order to access local manufacturing markets for production of products — Foxconn, Apple’s Taiwan-based manufacturing partner, recently announced plans to invest nearly US$12 billion in Brazil to build an additional five plants.

Despite managing an exceptional period of economic growth in Argentina, the current administration is facing issues surrounding freedom of speech, governmental accountability, free-trade policies and foreign currency exchange regulation. However, the Argentine government recently passed into law a series of bills that may lead the country down a path not intended for the faint of heart. This relatively lax view of accountability, transparency and reliable benchmarking metrics has manifested itself in Argentina with very little confidence in forward-planning and a hesitation in adopting some of the emerging competitive intelligence solutions.

The national bureau of statistics, INDEC, was recently rejected by the International Monetary Fund as a relied-upon source to measure GDP growth and inflation figures. Argentina reported inflation in 2011 to be 9.5%, whereas economists, consultants, multilateral organizations, provincial governments and the international banking community estimate real inflation ranging between 25% and 30%. Argentina’s lack of transparency has created serious issues, including capital flight, restricted access to global capital markets, a run on central bank reserves and a growing “informal” economy, all of which have lead to suffocating capital controls.  

While Argentina and Brazil’s trade logistics pose many challenges to the United States, Colombia is well positioned for future growth, pending its approval of the U.S.-Colombia Trade Promotion Agreement, which was recently signed by President Obama. The agreement is intended to reduce barriers to U.S. exports, protect U.S. interests and enhance the rule of law in Colombia. The reduction of trade barriers and the creation of a more stable and transparent business environment will facilitate U.S. companies’ ability to export their products and services to Colombia, with some economists predicting this will increase U.S. GDP by approximately US$2.5 billion.

Despite struggles competing in the global market in recent years, the market fundamentals present in seeking opportunity are ripe for the taking throughout Argentina. As is the case globally, investors willing to utilize their cash reserves are at an advantage in the current marketplace, becoming a contrarian investor seeking the same returns sought after by private equity 10 years ago in the United States. Brazil’s economic growth remains the driving force behind the region, and combined with Colombia’s doors recently opening to free trade with the United States, Latin America may soon be the region of tomorrow, today. 

Wilshire Hospitality, a boutique hospitality-focused consultancy with offices in Buenos Aires and Chicago, offers acquisition, development and disposition advisory services; site selection and development planning; product conceptualization; brand and operator selection and contract negotiation; third-party project management; operational preparation; and asset management.