This is the conclusion of “Out of Adversity”, a new international survey by KPMG’s Global Tax Practice, which focuses on seven key Latin American economies.
Covering Argentina, Brazil, Chile, Colombia, Mexico, Peru, and Venezuela, the survey asked 165 business executives about their reactions to the recession, what lessons they have learned from previous recessions, and what plans they have for recovery.
It also compared their responses with those from business people in other regions of the world.
A key finding is that Latin American businesses are relatively relaxed about the impact of recession on their operations, much more so than Europeans.
Only five percent of Latin American respondents said that they had no clues from previous recessions on how to deal with this one. This compared with more than 40 percent of respondents in Germany and Italy, 24 percent in Spain and 20 percent in Portugal.
Among the Latin American states, the highest score came from Brazil, where seven percent said there were no lessons from the past that are relevant, and 13 percent said that every recession is different.
“It seems that in those economies that have been enjoying unprecedented prosperity for some years, like many of the European countries and, perhaps, Brazil, some of the lessons of entrepreneurship and managing through difficult times may need to be re-learned,” said Jose Aldrich, Managing Partner, Iberoamerica Tax Services. “But in many countries where the memory of difficult economic times is more recent, the problems we have seen this year are just part of normal business.
“This is a common view in the Asia–Pacific countries, and it’s very interesting that our Latin American respondents seem to share this view. They realize that the crisis has had a different impact on them than it has had on companies in Europe.
“Rather than following a European lead, as they might have done in the past, they have recognized that they now need to use their own entrepreneurial talents to face the challenges of this new global trade environment.”
This view is being translated into action. In Latin America overall, 61 percent of respondents said they are making substantial changes to their short-term strategies, and 59 percent are rethinking their long-term strategies.
Leading the pack in both long and short term reassessments is Mexico, with 80 percent making changes in the year ahead, and 76 percent planning longer term changes.
This puts Mexico alongside India and China in the desire for new ways of doing business. But they are still behind the world leaders, who are Japan, where 87 percent are planning radical long-term change, and Singapore, where the figure is 84 percent.
Next in Latin America for short term changes are Colombia and Venezuela, followed by Argentina, with between 64 and 65 percent reporting immediate plans to cut costs.
Many of the companies in these countries reported that they were focusing on cutting supply chain costs and improving business efficiency.
The study also asked executives what they wanted their governments to do to encourage a recovery. The most popular option in Brazil, Mexico, Chile and Peru was a simple cut in tax rates.
Colombian businesses favored investment in infrastructure, which was the choice of 25 percent of respondents, while executives in Argentina urged their government to produce a well thought-out finance plan and implement a tougher fiscal policy.
Nearly all respondents thought that their governments should play an active part in working to improve economic conditions, with only four percent saying that governments have already done enough.
This contrasted strongly with the global results, where nine percent overall did not want their governments to intervene further, rising to 14 percent in Japan and 36 percent in Singapore.
“Latin American businesses clearly do prefer their governments to act as partners in business,” said Mr Aldrich “and this was confirmed when we asked them whether they supported international moves to improve relations between tax authorities and large corporate taxpayers.”
KPMG asked these questions last year as well, and the comparison between the responses for 2009 and those for 2008 tells a clear story.
In 2008, 71 percent of respondents said they would be prepared to be more open with the tax authorities in exchange for more flexible regulation.
This year, that has risen to 81 percent, but at the same time, the proportion of businesses saying that their tax authorities are unwilling to help them develop their international business has risen from 48 percent to 56 percent.
“It seems that tax authorities, perhaps under pressure to bring in tax, have moved away from efforts to improve relationships.” Said Mr Aldrich. “If so, that would be a shame. The desire and the energy for improved relationships is still there in business, and for governments willing to build fairer and more effective tax systems, this has to be an excellent foundation.”
Read the full report
This information is taken from a global survey, commissioned by KPMG’s Global Tax Practice in April and May 2009 and updated in September.
The main report of the global survey, called “Never catch a falling knife”, was launched at KPMG’s Europe, Middle East and Africa Tax Summit in June, held in London.
This report, called “Out of Adversity”, is drawn from the same survey and focuses on the seven main Latin American economies, Argentina, Brazil, Chile, Colombia, Mexico, Peru, and Venezuela. In 165 interviews, researchers asked people from a wide range of businesses in the region, representing all major sectors, what their experience of recession has been, what lessons they take from previous recessions to help deal with this one, and how they plan to take advantage of the recovery.
“Out of Adversity” was launched at the 2009 IberoAmerica Tax Summit in Santiago, Chile on November 3-5.
The Summit is a meeting of KPMG member firms’ clients, guests and partners to discuss international business issues with a focus on tax. It is the latest in a series of Tax Summits. Past events have taken place in Lisbon, Barcelona, Mexico City, Beijing, Buenos Aires, Sao Paulo, Singapore and Berlin.