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Market Plans

Argentina Environmental Export Market Plan
Chapter 7-Business Development Strategies for U.S. Firms

Understanding the Business Climate

As one of the strongest economies in the region, Argentina is an attractive market for U.S. companies. Due to the economic reforms of the Menem administration, Argentina has successfully stabilized its currency, liberalized its trade laws, reduced tariffs, and curbed inflation. The ongoing privatization effort, coupled with the 1993 relaxation of the foreign investment regulations, spurred foreign investment and helped put Argentina’s economy on a growth track that is expected to continue. Many U.S. companies are also looking to invest in Argentina to access the Mercosur market, which consists of Argentina, Brazil, Paraguay, and Uruguay.
Argentina’s business culture is very strongly capitalist oriented, although personal relations in business deals are often more important than the relationship between institutions or organizations. In many business areas, transactions are finalized with a handshake or telephone call between people who know each other. As the legal processes are very slow and unreliable, it is important to establish strong personal relationships and find out the background and reputation of the people with whom a long-term business transaction is being developed. Taking these steps is equally important when identifying clients, business partners, and/or agents or distributors.
Some useful resources for doing business in Argentina include: Argentina Business: The Portable Encyclopedia for Doing Business with Argentina (World Trade Press, 1996) and Argentina Business Guide: 1997 (the Chamber of Commerce of the United States of America in the Argentine Republic, 1997). The U.S. and Foreign Commercial Service located in the U.S. Embassy in Buenos Aires also offers a variety of services to help U.S. companies identify potential partners and appropriate representatives. Additionally, the American Chamber of Commerce in Buenos Aires is active in supporting the development of trade relations between the two countries and is a good source of information (see appendix B for contact information).
Additional relevant information about doing business in Argentina that may be of interest to U.S. companies includes:
Importing equipment: Argentina imposes 12 percent duties on most capital goods, 2-10 percent on most industrial outputs and raw materials, and 15-20 percent on all consumer goods. In addition, there is a 3 percent statistical fee on CIF value and a 21 percent value-added tax (VAT). Import license requirements were eliminated in 1991, but importers still must file a simplified Unitary Certificate of Taxes and Duties (CUIT) document, which is used primarily for statistical purposes. Importers must be registered with customs, and goods must be cleared through customs by registered importers using licensed customs agents.
Taxation: Profits in Argentina are subject to a corporate tax rate (currently 33 percent). Foreign companies that have set up a branch office are taxed in exactly the same way as local companies, while others without an established local office may be subject to a withholding tax based on assumed net profit.
Foreign investment: Since 1989 Argentina has actively encouraged foreign investment and successfully created one of the most liberal foreign investment regimes in Latin America. Some of its reforms have included the elimination of bans on foreign investments in certain sectors, the extension of “national treatment” to foreign investors, leveling the playing field for foreign investors, allowing foreign entities to own 100 percent of Argentine companies, and repatriations of capital and profits. Foreign investors are eligible for incentive programs and state procurements. There are no barriers to capital repatriation or on any other type of foreign exchange transaction. The Argentine peso is pegged to the U.S. dollar and the 1:1 exchange rate is guaranteed by law.
The country’s 1992 Bilateral Investment Treaty with the United States guarantees U.S. companies the right to invest in the private sector on a most-favored-nation status — meaning that U.S. companies will receive terms at least as favorable as those accorded to domestic investors (except in shipbuilding, fishing, nuclear power generation, and uranium production).
There are several options for establishing a commercial entity in Argentina, and interested companies should fully explore them. They include the: 1) joint stock company (sociedad anónima); 2) branch office of a foreign company (sucursal de sociedad extranjera); 3) limited liability partnership (sociedad de responsibilidad limitada); and 4) joint venture (unión transitoría de empresas). The joint-stock company is the most common. Although it may entail more paperwork than U.S. companies are used to, establishing a branch office or joint venture is also relatively straightforward. Of the two, a branch office may be easier, but there are limitations in the ability to attract local capital for investments.

Positioning for Success

Successfully establishing a presence in Argentina requires time and an investment of human and financial resources. Key to any strategy is the thorough investigation of the market, analysis of the local customer base, and an assessment of the competition. There are typically three ways to enter a local market:
--Companies can participate in infrastructure development projects through international bidding from a U.S.-based office or from a local branch office. This strategy is typically most effective for bidding on large infrastructure projects backed by international funding from institutions such as the World Bank and the Inter-American Development Bank.
--Companies can establish a joint venture or partnership with a local firm. Establishing a relationship with a company with strong contacts in a specific market will facilitate business.
--U.S. equipment manufacturers can establish relationships with distributors to sell their products in the local market.
Strategies for entering three specific markets follow.
Infrastructure Development. Argentina has moved to a strictly concession-based system for infrastructure development. Although some of the larger water and wastewater systems have already been privatized, many of the provinces are just beginning to prepare bidding documents for their water systems. Having experience with concession-type operations is extremely important.
Due to their experience with water supply and wastewater collection concessions at home, European companies have had a significant advantage over U.S. firms and have successfully competed for the concessions that have been awarded to date. However, some U.S. companies have entered into partnerships with the leading European firms and are gaining a foothold in this business. Also, as the United States begins to privatize some of its public treatment works, companies should use projects to gain experience that will allow them to successfully compete in the international market. Companies interested in pursing infrastructure development opportunities should have a strong local presence either through a local office or a strong local partner that will enable them to establish the linkages necessary to be successful in this market and should focus on opportunities to develop contacts with municipal authorities and bank representatives that will be involved in privatization efforts.
Another good opportunity for infrastructure development is through the several water basin cleanup programs that are currently under way in the Matanza-Riachuelo and Reconquista basins. There are opportunities for construction, flood control projects, water and wastewater systems, and landfill upgrading and closure.
Equipment Sales. U.S. technologies are generally well received in Argentina. However, given Argentina’s long-standing relationship with European countries, European equipment vendors have established a strong presence in the country. Gaining a reputation for quality products that meet client needs and providing after-sales support is important. Finding a well-established local partner or representative is equally important. In Argentina, there are three types of equipment vendors:
--Local equipment manufacturing companies. These tend to be small organizations with an average of 10 employees and a technical team of one or two engineers that are usually owners of the companies. These companies usually have a special niche or specialty area.
--Local companies that act as representatives for foreign equipment manufacturers. These are also typically small firms that may manage several different lines of equipment.
--Local companies that manufacture equipment with international business licenses. These firms have approximately 20 employees with a larger technical staff that works extensively with foreign firms.
The first two types of companies are the most common in Argentina; however, the market is beginning to demand global quality equipment produced locally under an international business license service. In Argentina, there are a few firms that provide these types of services: Degremont (France), Lockwood (Argentina), US Filter (USA), and Ecopreneur (Argentina).
It is also important to recognize that European companies tend to be more aggressive and committed to the market than their U.S. counterparts. They often offer lines of credit and are willing to assume higher risk. The French have had the added advantage that they have been awarded a number of water concessions which has created a market for French water equipment. U.S. companies must be able to counter these factors by providing appropriate solutions and attractive terms.
Environmental Services. With the regulation requiring environmental impact assessments and the increasing focus on environmental management, consulting services will be in more demand. There are a number of local consulting companies, but international expertise is highly regarded in Argentina, and there is an increase in demand for U.S. expertise. It is not overly difficult to establish a local office in Argentina and staff it with expatriates as well as qualified technical professionals.
The current trend is for Argentine and U.S. consulting firms to form joint partnerships. A local presence gives U.S. firms an edge. It provides them with current market prices and firsthand knowledge on opportunities and access to up-to-date market prices (see appendix B for a list of environmental companies). To be most successful, it is important to offer a full range of services to the client. Moreover, all companies providing services to the industrial sector should be versed in environmental management systems.
Another strategy for developing relationships with potential clients is training. Companies can offer training courses on key environmental topics (monitoring techniques, pollution prevention methods, hazardous waste management, and environmental management systems) to help educate clients and showcase their own expertise.
In all cases, companies should build on their existing contacts and clients. A good strategy is to contact U.S. multinational companies working in Argentina, particularly those which are already clients in the domestic market.

Accessing Financial Resources

An important source of funds for environmental projects in Argentina is the major multilateral development banks, particularly the World Bank and the Inter-American Development Bank. These organizations are involved in a range of projects to strengthen the environmental regulatory structure, support major river basin cleanup projects, and undertake regional pilot projects for environmental improvements. Much of the project funds are disbursed through local agencies, but international companies are often used for project development and design. Companies should track the development of these banks’ projects through their offices in both Washington, D.C. and Argentina (see appendix A for a list of projects and appendix C for contact information).
For project financing, there are a couple of different options, including loan guarantees and export credits as well as private investment funds. See appendix C for descriptions of these resources and contact information.
Environment working capital guarantees and export credit and insurance: In addition to its normal financing program, the U.S. Export-Import Bank (Ex-Im Bank) has special enhancements designed to assist the export of environmental technologies and services. Through this program, Ex-Im Bank provides insurance for small environmental exporters, loans, and working capital guarantees for environmental projects, products, and services. The Oversees Private Investment Corporation (OPIC) also provides loan guarantees and insurance for U.S. investment overseas.
Private investment funds: A number of private funds make equity investments in environmental companies and projects in emerging market countries such as Argentina. These include the AIG-GE Latin American Infrastructure Fund and the Global Environmental Emerging Market Funds.
Local financing options can also be accessed by local clients. U.S. companies should be aware of these and work with their potential clients to take advantage of these funds. For example, the Bank of the Province of Buenos Aires (Banco de la Provincia de Buenos Aires) has a specific credit line for environmental investments that will cover up to 80 percent of the total investment costs. These funds can be used for environmental audits, environmental impact assessments, purchases of air and water pollution control or monitoring equipment, and the installation of water treatment plants. This same bank also has credit lines available to support projects complying with “green label” programs, acquisition of know-how, and ISO 14001 certification. These funds are available to private sector companies in the Province of Buenos Aires that generate wastes or air and water discharges that must receive treatment. To be eligible for the funds, companies must present an investment proposal and an environmental audit done by accredited professionals and validated by the competent provincial authority.

Taking Advantage of Information Resources

The U.S. Department of Commerce has a number of programs that provide assistance to U.S. companies interested in doing businesses outside the United States (see appendix D for more detail and contact information). The first point of contact should be with the Environmental Technology Exports office, which was established in 1993 to help promote the export of U.S. environmental technologies. This office offers a number of information resources on prospective markets in emerging countries, leads environmental trade missions to create linkages for U.S. businesses, and provides insight on getting established in this market.
The Department of Commerce has a number of other programs to help exporters. The U.S. Foreign and Commercial Service maintains an office in the U.S. Embassy in Buenos Aires, which has a trade advisor whose portfolio includes the environment. This office can conduct customized market research, provide information on trade leads, and help make contacts between U.S. companies and potential local partners.
Another source of trade lead information is the Global Technology Network for the Americas, which is supported by the U.S. Agency for International Development (USAID). This program maintains a network of local partners that identify possible trade leads for U.S. companies in Latin America.
The U.S. Trade and Development Agency has also targeted the Argentine market and has recently completed a definitional mission to develop a strategy for supporting U.S. companies entering this market. Follow-on activities may include supporting feasibility studies for several new projects (which can provide a good opportunity for U.S. consulting and engineering firms and provide a path for U.S. technology providers to enter this market) and reverse trade missions to enable U.S. companies to get to know some of the key decision-makers in Argentina for upcoming projects.
The Chamber of Commerce of the United States of America in the Argentine Republic is a good source of information for U.S. companies. Many U.S. companies doing business in Argentina are members. The chamber hosts a variety of informational meetings and networking opportunities, publishes a newsletter, maintains an information resource library, and provides market entry services. It also has a committee that focuses on environmental issues. There are also a host of industrial chambers and trade associations that can be excellent sources of information for assessing specific technology and service needs, and provide a contact point for getting in touch with Argentine companies.
Appendix B provides a full list of these organizations with contact information.

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