ODI: Latin American investments face challenges, but offer huge potential rewards

And even those who do manage to get a foothold, including an increasing number of Chinese companies, complained of various issues affecting success, such as political instability, government inefficiency, complicated legal and tax structures, and even problems with visa applications.

Local governments' attitudes toward foreign investment can also be ambiguous.

Brazil has seen a sharp increase in Chinese investment in recent years. By the end of 2009, the total volume of Chinese investment stood at $200 million.

In 2010 alone, $17 billion in Chinese investment flowed into Brazil, making China the country's largest foreign investor.

But despite China's enthusiasm to invest, the Brazilian government has seemed reluctant to facilitate the investments.

A well-known joke is that several bilateral business bodies — all claiming to be official China-Brazil chambers of commerce — compete for connections and business.

Another issue is that some Chinese companies have found their investments — and themselves — being used a pawn to gain power and popularity by competing political parties.

"They (the governments and political parties in Latin American countries) treat foreign investments in quite a different way from China," said TEQSA General Manager Li Dacan.

Success under strain

There are, of course, success stories, but even successes come with a degree of strain.

Shanghai-listed construction machinery giant Sany Heavy Industry Co Ltd, for instance, was one of the first Chinese investors in Brazil in the sector.

The company announced in March 2010 its first Latin American investment of $200 million in a production base in Sao Jose, two-hours' drive from the country's largest city, Sao Paulo.

The investment was Sany's largest in the Latin America region.

Over the past two years, it has seen explosive increases in its sales to local markets as a result.

In 2011, its sales reached $108 million compared with $30 million in the previous year. Competing with international players such as Caterpillar Inc, the world's biggest heavy machinery maker, some of Sany's products have become market leaders in Brazil.

But despite the growing sales, the company has admitted to difficulty in making profits.

"Labor costs are too high," said Xu Ming, assistant to the president of Sany.

He said the monthly salary for a middle-level manager in Brazil could stand at $7,000 on average, way above their Chinese counterparts and "almost the same as levels in the United States".

The Brazilian government also has localization regulations in force that mean if a foreign company wants to hire one Chinese worker, it must hire two local workers as a trade-off.

Sany currently has 345 employees in Brazil, 280 of which are local people, far above the stipulated localization ratio.

But having met the localization requirements, working visas are also still hard to apply. Even in cases of Chinese people hired in Brazil, all the necessary materials must be sent to the embassy back in China.

The application procedure can take months, and that's provided everything goes smoothly.

For a machinery manufacturer such as Sany, it is vital to have a skilled workforce, and their Brazilian employees at the production lines are in need of training by their Chinese counterparts.

"We cannot have the skilled Chinese workers we need in the workshop without working visas. But the application procedure consumes too much time, and often disrupts our schedules," Xu said.

Even top-level management can face the same dilemma.

Xu himself is waiting for his working visa to go to Brazil. A business visa grants people entry to the country, but they are still not allowed to work there.

The lack of management experience in Latin America poses another potential snag for Chinese companies.

Language and culture are a problem to begin with, and students in China studying Portuguese and Spanish remain a minority compared with the widely taught English.

In many Chinese companies, simple unfamiliarity with Latin culture can lead to avoidable disputes between local and Chinese employees.

In some extreme cases, the cultural barrier has affected business efficiency.

Most Chinese companies that achieved success in overseas markets mainly rely on their ability to respond fast to the local market's demands and provide products with decent quality and a reasonable price.

But compared with their rivals from Europe and the United States, Chinese companies need to improve their internal communications.

Adenilson Carvalho, head of human resources at Sany in Brazil, pointed out that some US companies are able to easily put employees of different nationalities into departments of different functions.

"But Chinese companies need to cross a wider cultural gap than US companies," he said.

Huge market potential and strong economic growth, especially at a time when the advanced economies such as the European Union and US are struggling with a sluggish economic recovery, make Latin American markets enormously attractive.

And so, despite the challenges posed by the investment environment and cultural barriers, Chinese companies still appear determined to stay and succeed in Latin America.