Starting Business In Chile

1

DOING BUSINESS IN CHILE

2014

Feasibility Report

Starting Business In Chile

2

Contents 1. Introduction: ............................................................................................................................................. 3

1.1 Chile as a south American Independent State: ................................................................................... 3

1.2 Country Description: ........................................................................................................................... 3

2. Political Environment of Chile: .................................................................................................................. 6

2.1 Political Structure: ............................................................................................................................... 6

2.2 Political Parties: ................................................................................................................................... 6

2.3 Political Risk: ....................................................................................................................................... 6

3. Legal Environment: ................................................................................................................................... 7

3.1 Legal System Introduction: ................................................................................................................. 7

3.2 Legal Issues & Risks in Business: ......................................................................................................... 9

4. Economic environment: .......................................................................................................................... 10

4.1 Products and Services: ...................................................................................................................... 12

4.2 Economic Risk: .................................................................................................................................. 12

5. Monetary Environment: .......................................................................................................................... 12

5.1 Elements of Monetary System: ......................................................................................................... 13

5.2 Currency Risk:.................................................................................................................................... 13

6. Trade Environment: ................................................................................................................................ 14

6.1 Majors Exports & Imports along with Trading Partners: .................................................................. 14

6.2 Regional Trade Integration & Tariffs, Trade barriers: ....................................................................... 17

7. Cultural Analysis: ..................................................................................................................................... 18

8. Challenges and Opportunities in Chile for a business:............................................................................ 20

9. Doing Business in Chile ........................................................................................................................... 21

9.1 Guideline to start a business in Chile: ............................................................................................... 21

Starting Business In Chile

3

1. Introduction: This report will provide the whole information regarding Chile, including all the major systems

working there. The complete specifications of those systems have been discussed here in terms of

business. This report constitutes of different elements such as, Political Environment (political

system, structure, political parties, political risk), Legal environment (legal system, legal issues in

international business, legal risk), Economic environment (economic system, main products and

services, economic risk) , Monetary environment (currency system, currency risk) , Trade

environment (major exports/imports, main trading partners, regional economic integration, tariff

and trade barriers, government incentives for conducting business there), Cultural analysis

(cultural determinants, cultural dimensions, norms), Outline of challenges and opportunities of

doing business in the country (i.e. analysis and integration of information from other parts of the

project and other country data), Guidelines for success when doing business in the selected

country.

1.1 Chile as a south American Independent State: Prior to the arrival of the Spanish in the 16th century, the Inca ruled northern Chile while the

Mapuche inhabited central and southern Chile. Although Chile declared its independence in 1810,

decisive victory over the Spanish was not achieved until 1818. In the War of the Pacific (1879-

83), Chile defeated Peru and Bolivia and won its present northern regions. It was not until the

1880s that the Mapuche were brought under central government control. After a series of elected

governments, the three-year-old Marxist government of Salvador ALLENDE was overthrown in

1973 by a military coup led by Augusto PINOCHET, who ruled until a freely elected president

was inaugurated in 1990. Sound economic policies, maintained consistently since the 1980s,

contributed to steady growth, reduced poverty rates by over half, and helped secure the country's

commitment to democratic and representative government. Chile has increasingly assumed

regional and international leadership roles befitting its status as a stable, democratic nation. In

January 2014, Chile assumed a non-permanent seat on the UN Security Council for the 2014-15

term.

1.2 Country Description:

Specification: Details

Location Southern South America, bordering the South Pacific Ocean, between

Argentina and Peru

Area total: 756,102 sq km

country comparison to the world: 38

land: 743,812 sq km

water: 12,290 sq km

It also includes Easter Island (Isla de Pascua) and Isla Sala y Gomez

Starting Business In Chile

4

Climate Temperate; desert in north; Mediterranean in central region; cool and

damp in south

Terrain Low coastal mountains; fertile central valley; rugged Andes in east

Natural resources Copper, timber, iron ore, nitrates, precious metals, molybdenum,

hydropower

Environment -

international

agreements

party to: Antarctic-Environmental Protocol, Antarctic-Marine Living

Resources, Antarctic Seals, Antarctic Treaty, Biodiversity, Climate

Change, Climate Change-Kyoto Protocol, Desertification, Endangered

Species, Environmental Modification, Hazardous Wastes, Law of the

Sea, Marine Dumping, Ozone Layer Protection, Ship Pollution,

Wetlands, Whaling

Signed, but not ratified: none of the selected agreements

Ethnic groups white and non-indigenous 88.9%, Mapuche 9.1%, Aymara 0.7%, other

indigenous groups 1% (includes Rapa Nui, Likan Antai, Quechua, Colla,

Diaguita, Kawesqar, Yagan or Yamana), unspecified 0.3% (2013 est.)

Languages Spanish 99.5% (official), English 10.2%, indigenous 1% (includes

Mapudungun, Aymara, Quechua, Rapa Nui), other 2.3%, unspecified

0.2%

Religions Roman Catholic 66.7%, Evangelical or Protestant 16.4%, Jehovah's

Witnesses 1%, other 3.4%, none 11.5%, unspecified 1.1% (2013 est.)

Population 17,363,894 (July 2014 est.)

country comparison to the world: 65

Median Age total: 33.3 years

Male: 32.2 years

Female: 34.6 years (2014 est.)

Population Growth

rate

0.84% (2014 est.)

country comparison to the world: 131

Urbanization urban population: 89% of total population (2010)

Rate of urbanization: 1.1% annual rate of change (2010-15 est.)

Starting Business In Chile

5

Population Growth in Chile:

Why Chile?

Reasons to invest in Chile:

Dynamic Economy

Highly Competitive

Globally Integrated

Institutional and Financial Strength and Low Country Risk

Tax-Friendly Economy

Great Business Environment and Economic Freedom

Highly Skilled and Competitive Human Resources

Outstanding Quality of Life

Business Confidence Level in Chile:

Starting Business In Chile

6

2. Political Environment of Chile: Introduction:

Chile Government is based on a democratic republican framework. The President of Chile is both

the 'head of state' and 'head of government'. The executive power is exercised by the government

of Chile. The judicial branch of Chile functions independently. The legislative powers are vested

both with the Government and the National Congress of Chile.

2.1 Political Structure: There are 3 branches to the government: executive, judicial, and legislative. The executive branch

in Chile is composed of 16 ministries and 4 cabinet-level agencies: the Central Bank, the

Production Development Corporation (Corfo), the National Women's Service, and the National

Energy Commission. Each minister is appointed exclusively at the president's discretion.

2.2 Political Parties: During the brutal dictatorship of General Augusto Pinochet, which lasted from 1973 to 1990,

political parties were severely repressed. After the return to a civilian democratic government,

political parties began re-emerging and eventually consolidated into 2 major blocs, the centre-

right and the centre-left. Historically, Chilean politics have been split 3 ways: the right, centre,

and left. The centre-left is currently the governing coalition and includes the centrist Christian

Democratic Party (PDC), the Radical parties, the moderate leftist Party for Democracy (PPD), and

the Socialist Party (PS). The opposition centre-right includes the National Renewal Party (RN)

and the Independent Democratic Union Party (UDI). In addition to these parties, Chile has several

small-scale leftist parties, including the Communist Party. While these parties are not represented

in the Executive Branch or Congress, they do have elected representatives in some local

governments.

2.3 Political Risk: Hall argues that decision makers in tourism “need to become far more sophisticated in their

approach to crisis management and be more aware of the political dimensions of tourism

development”. Traditionally, MNE preoccupation was with economic risk when engaged in FDI

(i.e. an assessment of whether the economic climate for such investments was suitable to assure

sufficient profit). International events, beginning with the 1979 revolution in Iran, have broadened

the intelligence requirements of MNEs and have placed increasing emphasis upon attempting to

assess the potential political risk involved before making any firm investment decision. Edge11

advises that this is no less true for MNE hotels since they are likely to become more impacted by

government policies as the industry grows. Clearly, “whenever possible proactive measures can

be taken to ensure that the overall political environment is favourable to tourism development”

and PRA may well provide a means to assess that environment for large hotel corporations

operating in LDCs. There are, however, a number of controversial issues raised by the practices

and assumptions of PRA and any discussion of these must be explored within a North-South

framework and from the perspectives of both the MNEs and the LDCs. Although some

conventional factors used in contemporary analysis are considered here, attention is focused on

Starting Business In Chile

7

several other significant but overlooked issues which reflect the important, evolving relationship

between North and South within the international economic system.

There are following magnitudes of political risk which needs to undermine while doing tourism

hospitality business in Chile:

Political violence or terrorism (including riots, revolution or civil war);

Contract frustration (including the host government’s revocation of permits or changes in

laws that prevent contract performance);

Governmental expropriation or confiscation of assets (including nationalization of

property); or

Currency incontrovertibility (including the enactment of more restrictive exchange

regulations).

3. Legal Environment:

3.1 Legal System Introduction: A single presidential term in Chile is for four years. So there is a Republican system of Ruling.

Under the present republican framework, the President of Chile is unanimously voted through

elections. The current President of Chile Is Michelle Bachelet, belonging to the Socialist Party of

Chile. Her tenure is expected to end on March 2018.

Law of Chile is controlled by the legal system of Chile. The legal system in Chile functions

independently. The Chilean legal system model is based on the civil law model similar to Europe

and Latin America. The legal system lay emphasis on the importance of, statutory law. The

National Police Force (4th among forces i.e. Army, Navy & Air Force) of Chile bears the

responsibility of maintaining law and order throughout the country. The legal system of Chile

belongs to the Continental Law tradition.

The basis for its public law is the 1980 Constitution, reformed in 1989 and 2005. According to it

Chile is a democratic republic. There is a clear separation of functions, between the President of

the Republic, the Congress, the judiciary and a Constitutional Court. On the other hand, private

relationships are governed by the Chilean Civil Code, most of which has not been amended in 150

years. There are also several laws outside of the Code that deal with most of the business law.

a. Constitution:

The current Political Constitution of the Republic of Chile, approved by Chilean voters in a

tightly plebiscite (the direct vote of all the members of an electorate on a question of change

in the constitution) controlled on September 11, 1980 under Augusto Pinochet, and made

effective on March 11, 1981, has been amended in 1989, 1991, 1994, 1997, 1999, 2000, 2001,

2003 and 2005.

b. Administrative law:

The President of the Republic must fulfil the administrative function, in collaboration with

several Ministries or other authorities with ministerial rank. Each Ministry has one or more

Starting Business In Chile

8

sub secretaries. Public entities act through administrative procedures, that is, processes with

formal stages where opportunities to deliver evidence and exercise appeals are granted to the

citizens. The recent basic law of administrative procedures deals with most of the general

matters pertaining the administrative procedures of all public entities. There is not a singular

Administrative court to deal with actions against the administrative entities, but several

specialized courts and procedures of review. However, civil courts have jurisdiction over all

matter that are not in the scope of other tribunal, such as public liability and the overturn of

single administrative acts.

c. Regulation:

Since the privatization of most economic activities in the 1980s, the President and the

independent agencies became the main policy makers regarding the regulation of the economy,

subordinated to legislation. The exploitation of mines and water resources is given in

concession to private entrepreneurs. All activities that can have a significant impact on the

environment must obtain an administrative authorization and are subject to heavy regulation

by several different agencies.

d. Civil Code:

After several years of individual work (though officially presented as the work of multiple

Congress commissions), Congress passed the Civil Code into law on 14 December 1855, and

came into force on 1 January 1857. The Code has kept in force since then though it has been

the object of numerous alterations. The main modernizations the code has undergone have

affected family law and the law of successions. On one hand, these reforms have introduced

more equal relations between men and women and, on the other, they have eliminated

discriminations between children born from married couples and those born extramarital.

e. Commerce:

Though the Commerce Code of 1868 was the main source of business law, nowadays the

legislation is widely spread in many legislative bodies. For instance, both the Civil Code and

the Commerce Code deal with the basic matters of enterprises, but Corporations and limited

liability enterprises have a statute of its own. Recently the law of bankruptcy has been

incorporated in the Commerce Code, in a process of re-codification. Matters such as banking

and the stock exchange are strongly regulated by government agencies and therefore are

subject to public scrutiny. Recently, these agencies have fined important executives for insider

trading.

f. Criminal Law:

The Chilean Criminal Code, which defines the conducts that constitute an offense and the

applicable conviction, dates back to 1874. It was greatly inspired by the Spanish Code of 1848

and the Belgian Code of 1867. The Code has been widely criticized.

Starting Business In Chile

9

g. Labour rights in Chile:

The law allows unions to conduct their activities without interference, and the government

protects this right in practice. While employees in the private sector have the right to strike,

the government regulates this right, and there are some restrictions. The law prohibits forced

or compulsory labour, and there have been no reports that such practices occurred. The law

restricts child labour, but it is a common problem in an informal economy. There are reports

that children are trafficked. The minimum wage is set by law and is subject to adjustment

annually. The law sets the legal workweek at six days or 45 hours; the maximum workday

length is 10 hours. The law establishes occupational safety and health standards.

Right to organize and bargain collectively

Prohibition of forced or compulsory labour

Prohibition of child labour

3.2 Legal Issues & Risks in Business: The Ministry of Labour, is responsible for effectively enforcing minimum wage and other

labour laws and regulations.

The law sets the legal workweek at six days or 45 hours.

The maximum workday length is 10 hours (including two hours of overtime pay), but

positions such as caretakers and domestic servants are exempt.

All workers enjoy at least one 24-hour rest period during the workweek, except for workers

at high altitudes who may exchange a work-free day each week for several consecutive

work-free days every two weeks.

The law establishes fines for employers who compel workers to work in excess of 10 hours

a day or do not provide adequate rest days.

Labour law states that at least 85 per cent of the employees hired by a company must be

Chilean. This rule does not apply to employers with less than 25 employees.

Specialized and technical employees who cannot be replaced by local employees are not

to be considered for these purposes.

Employees married to a Chilean, widower of a Chilean, with Chilean sons or domiciled in

Chile for more than five years are considered as Chilean for these purposes.

Labour laws are considered of public order and thus labour or employment agreements,

termination of those agreements and any other labour issues are subject only to local laws

and Chilean courts.

Any business contract or agreement, international relationships or labour agreements, even

for international business contracts, are to be ruled by Chilean law and enforced in Chile if

the services will be rendered in Chile.

If the employee is Chilean but the employer is foreign and services are rendered abroad,

they can be ruled by foreign laws and enforced in the agreed jurisdiction.

The problem arises when foreign judgments of any kind need to be executed in Chile or

regarding assets located in Chile. In this case, a previous process of recognition before the

Chilean Supreme Court is needed, which is known as exequatur (recognition of foreign

judgments). Nevertheless, execution regarding assets located in Chile is usually more

Starting Business In Chile

10

difficult and sometimes denied based on the rules that goods located in Chile are subject to

Chilean law and thus foreign judgment involving assets located in Chile will be considered

as against local laws.

4. Economic environment: Chile has a market-oriented economy characterized by a high level of foreign trade and a reputation

for strong financial institutions and sound policy that have given it the strongest sovereign bond

rating in South America. The main pillars of Chile economy, apart from the trade and commerce,

are, the agricultural industry, mineral resources and also other industries. Chile deepened its

longstanding commitment to trade liberalization with the signing of a free trade agreement with

the US, which took effect on 1 January 2004. Chile has 22 trade agreements covering 60 countries

including agreements with the European Union, Mercosur, China, India, South Korea, and Mexico.

Chile has joined the United States and nine other countries in negotiating the Trans-Pacific-

Partnership trade agreement. As per Chile is agriculture based country so the main agricultural

area in Chile is the Vale of Chile. The main crops of this South American country are beans,

potatoes, sweet beets and wheat. The large vineyards in the Vale of Chile is the main source of the

industry of wine in Chile.

Determinants of Economic system:

Specification: Current Status

GDP (purchasing power parity): $335.4 billion (2013 est.)

country comparison to the world: 43

$321.3 billion (2012 est.)

$304.2 billion (2011 est.)

note: data are in 2013 US dollars

GDP (official exchange rate): $281.7 billion (2013 est.)

GDP - real growth rate: 4.4% (2013 est.)

country comparison to the world: 70

5.6% (2012 est.)

5.8% (2011 est.)

GDP - per capita (PPP): $19,100 (2013 est.)

country comparison to the world: 74

$18,500 (2012 est.)

$17,600 (2011 est.)

note: data are in 2013 US dollars

Gross national saving:

20.8% of GDP (2013 est.)

country comparison to the world: 77

21.4% of GDP (2012 est.)

22.2% of GDP (2011 est.)

GDP - composition, by end use:

household consumption: 63.2%

government consumption: 12%

investment in fixed capital: 25%

investment in inventories: 0.6%

exports of goods and services: 32.7%

Starting Business In Chile

11

imports of goods and services: -33.5%

GDP - composition, by sector of origin: agriculture: 3.6%

industry: 35.4%

Services: 61% (2013 est.)

Agriculture - products: grapes, apples, pears, onions, wheat, corn,

oats, peaches, garlic, asparagus, beans; beef,

poultry, wool; fish; timber

Industries:

copper, lithium, other minerals, foodstuffs,

fish processing, iron and steel, wood and wood

products, transport equipment, cement, textiles

Industrial production growth rate: 3% (2013 est.)

country comparison to the world: 105

Labour force: 8.367 million (2013 est.)

country comparison to the world: 58

Labour force - by occupation:

agriculture: 13.2%

industry: 23%

services: 63.9% (2005)

Unemployment rate:

6% (2013 est.)

country comparison to the world: 59

6.3% (2012 est.)

Population below poverty line: 15.1% (2009 est.)

Household income or consumption by

percentage share:

lowest 10%: 1.5%

Highest 10%: 42.8% (2009 est.)

GDP Growth rate of Chile:

Starting Business In Chile

12

4.1 Products and Services: The products and services which are other than the above mentioned are as follows:

Products:

Medical drugs Technological products

(Computers, Mobile phones,

Machinery etc.)

Textile-Products Telephone integrated products

Electrical products Machinery-Farm

Agro-Chemical products Brewery

Water products Miscellaneous Manufacture

Metallic products (Minerals

Enriched Country)

Containers-Metal/Glass

Services:

Investment funds Rental services

Fisheries Home Furnishings

Construction Services Networking Products

Food-Retail Leisure & Rec/Games

Electric-Distribution Racetracks

Oil Comp-Integrated Cable/Satellite TV

Transport-Marine Retail-Discount

Investment Companies Medical-HMO

Electric-Integrated Professional Sports

Steel-Producers Retail-Drug Store

4.2 Economic Risk: Fiscal crises in key sectors of economy

Failure of a major financial mechanism or institution (legislative control is too much)

Liquidity crises

Structurally high unemployment/underemployment

Oil-price shock to the global economy

Failure/shortfall of critical infrastructure

Decline of importance of the US dollar as a major

Currency

Chile does not produce more than adequate foodstuffs and that is one of the main economic

problem of this country.

5. Monetary Environment: Introduction:

Chile has strong monetary system through which it controls several factors which might cause a

serious harm to its overall economy. Chile now has the third-highest benchmark rate in Latin

America, after Brazil and Argentina. Brazil earlier this month unexpectedly cut rates by 50 basis

points after five increases, in response to a deterioration of the global economy. In contrast, the

Starting Business In Chile

13

Reserve Bank of India (RBI) raised interest rates on Friday for the 12th time in 18 months, and

said it would stick to its anti-inflationary stance despite slowing growth.

5.1 Elements of Monetary System:

Specifications: Current Status

Budget: revenues: $58.49 billion

Expenditures: $61.26 billion (2013 est.)

Taxes and other revenues: 20.8% of GDP (2013 est.)

country comparison to the world: 158

Budget surplus (+) or deficit (-): -1% of GDP (2013 est.)

country comparison to the world: 63

Public debt:

13.9% of GDP (2013 est.)

country comparison to the world: 145

11.9% of GDP (2012 est.)

Inflation rate (consumer prices):

1.7% (2013 est.)

country comparison to the world: 52

3% (2012 est.)

Central bank discount rate:

3.12% (31 December 2010 est.)

country comparison to the world: 136

0.5% (31 December 2009 est.)

Commercial bank prime lending rate:

9.5% (31 December 2013 est.)

country comparison to the world: 88

10.06% (31 December 2012 est.)

Current account balance:

-$10.97 billion (2013 est.)

country comparison to the world: 178

-$9.499 billion (2012 est.)

Stock of direct foreign investment - abroad:

$109.2 billion (31 December 2013 est.)

country comparison to the world: 29

$91.3 billion (31 December 2012 est.)

Stock of direct foreign investment - at home:

$214.8 billion (31 December 2013 est.)

country comparison to the world: 26

$192.8 billion (31 December 2012 est.)

Exchange rates:

Chilean pesos (CLP) per US dollar -

491.7 (2013 est.)

486.49 (2012 est.)

510.25 (2010 est.)

560.86 (2009)

509.02 (2008

5.2 Currency Risk: Peso of Chile is going stable from previous 5 years. It’s the sign of continuous improvement.

Chile’s economy and monetary structure in growing now. With exports representing 38% of its

GDP, of which primary products (over 50% copper, but also molybdenum, cellulose, paper, fruit,

fish, wine) account for 70%, and a banking system 40% of which is owned by foreign institutions

(especially Spanish), Chile is very exposed to global economic activity. China is its main market

Starting Business In Chile

14

(23% of sales), chiefly for copper, followed by the United States, the European Union, Japan,

Brazil and Korea. Considering this vulnerability, the public and external accounts have the

capacity to resist. Official foreign exchange reserves represent 5% of GDP and are geared towards

creating the country’s net creditor position abroad. Private sector debt accounts for ¾ of external

commitments.

Stability of Peso:

6. Trade Environment:

6.1 Majors Exports & Imports along with Trading Partners: Specifications Status

Exports:

$77.94 billion (2013 est.)

country comparison to the world: 46

$78.28 billion (2012 est.)

Exports - partners: China 23.3%, US 12.3%, Japan 10.7%, South Korea 5.8%,

Brazil 5.5% (2012)

Imports:

$75.7 billion (2013 est.)

country comparison to the world: 40

$74.86 billion (2012 est.)

Imports - partners: US 22.9%, China 18.2%, Argentina 6.6%, Brazil 6.5% (2012)

Starting Business In Chile

15

Chile Exports (Actual figures):

Chile Imports (Actual figures):

Chile Balance of Trade:

Starting Business In Chile

16

Confidence of Chilean Consumers upon Overseas Business persons:

Consumer’s Level of Spending:

Corporate Taxes in Chile:

Starting Business In Chile

17

6.2 Regional Trade Integration & Tariffs, Trade barriers: Introduction:

Chile started the process of opening up its economy through unilateral trade liberalisation in the

1970s. It proceeded to negotiate a number of regional – both bilateral and plurilateral – agreements

in the 1990s. It has also participated in the multilateral trade liberalisation (MTL) process, and in

groups with common interests at the WTO such as the CAIRNS group.

Phase 1:

Chile started reforming its trade policy in the 1970s.

Trade liberalisation was based on the implementation of a uniform tariff, which – except for a

temporary increase during the economic crisis of the early 1980s – was gradually reduced.

The uniform tariff reached eight per cent in 2001 and is scheduled to reach six per cent in 2003.

Chile has also applied price bands to a few products, an important departure from its policy of

uniform tariffs. The price band became binding for wheat and sugar in 1982, with wheat flour and

oil seeds added later on. The effectiveness of the price band for oil seeds (rape and sunflower) has

been undermined by a loophole in the FTA with Bolivia because none was imposed on oil mixes

despite their existence in vegetable oils.

Phase 2:

During the 1990s, Chile also moved away from its uniform tariff policy by embarking on a strategy

of preferential trade agreements, forming FTAs with MERCOSUR, Mexico, Canada, Andean Pact

and Central American countries, and Cuba. Chile is also negotiating FTAs with the US and the EU

and EFTA (comprising Switzerland, Norway, Iceland and Lichtenstein). It is also planning to

resume negotiations on a FTA with Korea. Furthermore, Chile recently passed legislation on

safeguards, despite the opposition of one hundred of the most reputable Chilean economists who

expressed their views in a public letter. This may explain a sort of ‘compromise’ whereby Chilean

safeguards were designed for a one-year period (renewable for a second year), even though four-

year safeguards are legal under the WTO (renewable for another four-year period).

Phase 3:

Safeguards were used to raise protection on milk and products derived from it, and on 27

November, 1999, a safeguard for sugar was implemented that raised protection to levels of 70–80

per cent and even over 100 per cent at times, significantly above the 31.5 per cent binding at the

WTO.

Because the safeguard for sugar was set to expire on 26 November, 2001, Chile requested that its

tariff binding be raised from 31.5 per cent to 98 per cent. This was accepted under the condition

that Chile provide compensation to its most important sugar provider, Argentina, and enter into

‘good-faith’ conversations with its second and third providers, Guatemala and Brazil.

Starting Business In Chile

18

Compensation was made through the provision of zero-tariff sugar quotas. This was accepted by

Argentina and Guatemala, but Brazil has complained that its quota is too small and does not

compensate for its loss.

Phase 4 (Final & recent phase):

Chile has recently signed a phytosanitary agreement with China that includes a dispute settlement

mechanism. Articles in the local press have reported that Chile is expected to sign a similar

agreement with India, and a zoo-sanitary agreement with China.

Finally, Chile has been an active member of the CAIRNS Group, which consists of developed and

developing agricultural exporters. The CAIRNS Group was influential in having agriculture

included at the Uruguay Round of the WTO (and thus in future Rounds as well).

7. Cultural Analysis: the quality in a person, society, nation or a country that arises from a concern for what is regarded

as excellent in arts, letters, manners, scholarly pursuits.

Culture of Chile

Traditional Chilean culture is of rural and agrarian origin, where horsemen, the Huaso of Central

Chile, are the most emblematic symbol. While Chile has a geographically diverse territory, the

lifestyle of the Central Chile has not been possible everywhere and different customs exists

towards the north and south of Chile. Additionally, while some regions of Chile have very strong

indigenous heritage, such as Araucanía Region, Easter Island, and Arica y Parinacota Region,

some regions lacks considerable indigenous communities and a few other regions have noteworthy

non-Spanish European immigrant heritage.

Business Etiquette and Protocol in Chile:

a) Meeting and Greeting:

Chileans like an element of formality in all they do.

A firm handshake accompanied with a smile and appropriate greeting is normal in a

business setting.

Direct eye contact is important.

Some women may not shake hands with men, although this is becoming less common.

Chileans stand very close when conversing.

Always use surnames and titles - wait to be invited to use someone's first name.

Business cards are exchanged on the initial meeting at the very start.

b) Business Meetings:

Chile has a relationship driven culture so initial meetings should be used to build a

relationship and establish trust. Devote time to non-business discussions and wait for the

other party to initiate the change in topic.

Pay attention to hand movements - gestures change in meaning across cultures.

Starting Business In Chile

19

It is common to interrupt someone while they are speaking.

Meetings are not always linear in their progression. Schedules are not very structured and

issues can be tackled all at the same time.

It is important to be patient as time is not of the essence in Chile - meetings will last as

long as they need to last.

Remember that decisions are not made at meetings so it is important to provide all

necessary information during the meeting.

Chileans are generally indirect in their communication styles, but can become very

animated and assertive when if they get emotional.

Communication styles tend to be tuned to people's s feelings. Confrontation is generally

avoided in order not to jeopardize another's honour or dignity - it may therefore be

necessary to read between the lines in order to fully understand what is really meant.

Never openly criticize anyone.

Hofstede Model of Culture: (Chile in comparison with Pakistan)

Starting Business In Chile

20

8. Challenges and Opportunities in Chile for a business:

Opportunities:

Mining (leading world copper producer), agricultural, fishing and forestry resources

Climatic diversity and reversed seasonality compared with developed countries

Several free-trade agreements

Satisfactory budget situation

Free floating currency

Good business environment

International companies operating in distribution, aviation and paper

Member of the OECD since end 2009

Challenges:

Small and open economy, vulnerable to external shocks

Dependent on copper

Vulnerability of road network and power grid and high energy prices

Exposure to climate and earthquake risk

Huge income gap and poor education system

Starting Business In Chile

21

9. Doing Business in Chile

The Chilean economy is among the most stable, open and competitive in Latin America,

however, businesses still struggle to navigate the bureaucratic and regulatory environment,

which is why having local help on hand is crucial. Chile is the best evaluated economy in Latin

America and one of the best evaluated among emerging economies worldwide thanks to

sustained economic growth and social progress, coupled with governmental changes designed to

attract foreign direct investment (FDI). The country has remarkable fiscal discipline which has

underlined GDP growth of 4.8% between 2004 and 2011. This discipline also helped it to

weather the economic storm during the financial crisis better than most, with its subsequent

recovery one of the fastest among emerging economies. FDI plays a central role in Chile’s

economic growth and development, and there has been a sustained increase in levels of overseas

investment in recent years. This has helped to enhance Chile’s competitiveness by contributing

not only resources and new markets but also technological development, specialised knowhow

and inputs conducive to innovation and entrepreneurship. For businesses looking to make strides

into Chile, having local know-how positioned in the country can be a huge asset and an enabler

of the company’s ambitions.

Attracting FDI with young Minds: (Start-up Chile)

Start-Up Chile is a program of the Chilean Government to attract world-class early stage

entrepreneurs to start their businesses in Chile. This program is for those who want to accelerate

and develop a world-class start-up in Chile, while helping us shape the local culture to embrace

entrepreneurship. Talented entrepreneurs from all over the world are invited to apply to be part of

the program.

Start-Up Chile’s admission process is organized with the support of YouNoodle, a California-

based company that provides a technology platform used by leading entrepreneurship clubs and

university competitions worldwide. An internal selection panel will make the final approval

decision. – Those who are selected to participate in the Start-Up Chile program must be able to

move to Chile and stay here full time and take active part in the program for 6 months (consider

one extra month, devoted to program procedures to get you started).

The program is being managed by CORFO, the Chilean Economic Development Agency, in 2011

the goal was 300 start-ups expected that in 2014 it will be 1000.

9.1 Guideline to start a business in Chile:

Starting a Business:

The World Bank and International Finance Corporation (IFC) rank Chile 32nd in the world for

ease of starting a business. There are seven procedures to complete when first starting up and a

long line of bureaucratic challenges. That includes notarized articles of incorporation, a

registration certificate, a tax registration number and a "patent municipal" working license, as

well as registering with the appropriate authorities.

Starting Business In Chile

22

Step1: Dealing with Construction Permits:

Obtaining construction permits is a lengthy procedure in Chile largely because of the amount of

steps it takes to receive them. Businesses must navigate their way through 15 requirements and

many stages are carried out by disparate governing bodies and firms. Obtaining indication on

water and sewage availability, for example, must be completed with a sanitation company, and

checks with the telecom company, the environmental health services, SERVIU and DOM must

all be conducted during the process.

Step 2: Getting Electricity: Businesses will likely engage with La Compañía Chilena de Electricidad (CHILECTRA) when

getting electricity, with documentation sent to the firm before an external inspection is carried

out and connection is made. Businesses are also required to receive approval of the internal

installation works by the "Superintendencia de Electricidad y Combustibles (SEC)" before they

receive final connection and a meter.

Step 3: Registering Property:

Registering property is a similarly laborious process, although it takes far less time than

elsewhere in Latin America and the Caribbean. Businesses must request copies of property titles

for the past 10 years, the ‘Certificado de Vigencia’ and certificate of encumbrance from the

registry in order to register a property, and also need to pay land tax, sign the public deed and

obtain a Property Certificate and a Mortgages and Ownership Limitations Certificate.

Step 4(a): Getting Credit and Protecting Investors:

Getting credit is quite difficult in Chile, despite its robust financial sector. Protecting investors is

similarly concerning, although it performs far better than its South American and Caribbean

counterparts.

Step 4(b): Paying Taxes: There are six tax payments to make each year in Chile, but each step can be a painstaking

procedure. Employment taxes, for example, take 124 hours of the company’s time, and value

added tax (VAT) takes the same amount.

Step 5: Trading Across Borders:

Cross border trade is a relatively cheap endeavour in Chile, but it can take a long time to

complete. There are 15 steps involved in exporting goods and 12 when importing.

Step 6: Enforcing Contracts:

Enforcing contracts takes significantly fewer days than in the rest of Latin America, but takes a

similar amount of procedures. The judicial system efficiently processes the claim, but filing and

service adds a large amount of time to the overall procedure.

Step 7: Resolving Insolvency:

Resolving insolvency takes an average of 3.2 years in Chile, which is longer than both the OECD

average and the Latin America and Caribbean average. The recovery rates are also rather low,

dropping under both regional averages.

Starting Business In Chile

23

Model for Risks which may occur in upcoming year:

Starting Business In Chile

24

References:

1. Global Edge (http://globaledge.msu.edu/countries/chile/risk)

2. Chile Information on Tourism and Culture (http://www.fremdenverkehrsbuero-

chile.com/03-ingles/surchile.html)

3. The World Fact book (https://www.cia.gov/library/publications/the-world-

factbook/geos/ci.html)

4. Kwintessential (http://www.kwintessential.co.uk/resources/global-etiquette/chile.html)

5. Encyclopaedia of the Nations

(http://www.nationsencyclopedia.com/economies/Americas/Chile-POLITICS-

GOVERNMENT-AND-TAXATION.html)

6. Spencer Global (http://www.spencerglobal.com/chile-commercial-law-.html)

7. Latin Business Chronicle

(http://www.latinbusinesschronicle.com/app/article.aspx?id=5931)

8. Latin Americans (http://www.pbs.org/latino-americans/en/education/)

9. Index of Economic Freedom (http://www.heritage.org/index/country/chile)

10. Beyondbrics (http://blogs.ft.com/beyond-brics/2014/01/24/chile-and-argentina-economic-

worlds-apart/)

11. Bloomberg (http://www.bloomberg.com/)

12. International Business Times (http://www.ibtimes.com/)

13. Trading Economics (http://www.tradingeconomics.com/chile/gdp)

14. The Hofstede centre (http://geert-hofstede.com/chile.html)