1. The Growing Middle Class
in Latin America
By: Jeffrey Patterson
atin
America
is
home
to
over
600
million
residents
that
sustain
a
$4.8
trillion
economy.i
With
almost
twice
as
many
consumers
as
the
United
States,
Latin
America
is
an
intriguing
global
market
for
U.S.
companies
that
are
hoping
to
escape
domestic
market
saturation.
However,
many
are
nervous
to
expand
into
a
region
characterized
by
some
of
the
most
prominent
income
inequality
in
the
world.
Currently,
the
richest
10
percent
earn
25
times
more
than
the
poorest
10
percent.ii
So
does
the
average
Latin
American
earn
enough
money
and
wield
enough
purchasing
power
to
create
a
truly
attractive
market?
Luckily
for
U.S.
business
owners,
Latin
America’s
increasing
middle
class
affirmatively
answers
that
question.
This
article
will
explore
the
definition
of
a
middle
class,
the
most
recent
developments
within
Latin
America’s
middle
class,
and
the
implications
for
U.S.
business
owners.
What
is
the
Middle
Class?
The
middle
class
is
commonly
defined
monetarily
either
based
on
income
levels
or
consumption
levels.
Pew
Research
Center
identifies
the
middle
class
as
those
within
“two-­‐thirds
to
two
times
the
national
median
income.”iii
Additionally,
Notre
Dame
Professor
James
X.
Sullivan
defines
the
middle
class
as
those
who
are
in
the
middle
fifth
of
the
average
spending
for
their
household
size.iv
These
definitions
demonstrate
that
as
the
middle
class
grows,
the
average
purchasing
power
increases
as
well.
In
its
2013
study,
“The
Expansion
of
the
Middle
Classes
in
Latin
America,”
the
UK
Foreign
&
Commonwealth
Office
specifically
defines
the
middle
class
in
Latin
America
as
those
who
earn
between
$6
and
$30
per
day
($2,190-­‐$10,950/year).v
The
UK
study
further
divides
those
that
earn
$6-­‐$10
per
day
as
the
“new”
middle
class
and
those
that
earn
$10-­‐$30
per
day
as
the
“established”
middle
class,
which
has
more
disposable
income
for
non-­‐
essential
items.
Middle
Class
Growth
in
Latin
America
Just
10
years
ago,
Latin
America’s
impoverished
population
was
2.5
times
larger
than
its
middle
class
population.vi
Today,
however,
“the
middle
class
and
the
poor
now
account
for
roughly
the
same
share
of
Latin
America’s
population.”vii
The
World
Bank
calculated
that
the
Latin
American
middle
class
expanded
from
103
million
people
in
2003
to
152
million
people
in
2009.
Through
its
more
conservative
measures
referenced
above,
the
UK
Foreign
&
Commonwealth
Office
calculated
that
over
the
last
30
years
the
Latin
American
middle
class
has
more
than
L

2. doubled
from
120
million
people
to
274
million
people,
which
represents
a
middle
class
larger
than
China
and
India
combined.
viii
Interestingly,
at
least
50
million
people
who
have
recently
joined
the
middle
class
did
so
by
leaving
poverty.
In
fact,
the
poverty
level
dropped
from
44
percent
to
30
percent
in
the
first
decade
of
the
21st
century.ix
Furthermore,
the
UK
government
concluded
that
over
70
percent
of
the
increase
in
the
middle
class
since
2002
has
been
to
the
“established”
middle
class,
which
has
a
lower
risk
of
falling
back
into
poverty
and
more
purchasing
power
than
the
“new”
middle
class.
Finally,
the
UK
report
cites
estimations
by
the
World
Bank
that
“the
middle
classes
in
Latin
America
will
increase
by
60-­‐70%
over
the
next
20
years
[to
create]
a
middle
class
of
around
450
million
in
2030.”
However,
this
growth
in
Latin
America
is
not
completely
uniform.
The
UK
study
states
that
“Brazil
contains
40%
of
Latin
American
middle
classes
and
Mexico,
25%,
with
significant
middle
class
populations
in
Argentina,
Colombia,
Peru,
and
Chile.”
Additionally,
Pew
Research
found
that
from
2001
to
2011,
South
America’s
middle-­‐income
percentage
(those
who
earn
between
$10.00
and
$20.00
per
day)
increased
over
five
times
more
quickly
than
that
of
Central
America.
Also,
South
America’s
poverty
percentage
decreased
over
three
times
more
quickly
than
that
of
Central
America.x
The
graph
below
highlights
Pew
Research’s
data
that
even
the
Central
American
countries
with
the
highest
middle-­‐income
growth
were
below
virtually
all
South
American
countries.
This
evidence
suggests
that
business
owners
should
view
Latin
America
as
separate
regions
with
distinct
economic
trends.
1Figure
1
Implications:
Expanding
Into
Latin
America
Business
owners
contemplating
expansion
into
Latin
America
should
first
determine
an
attractive
region
and
should
then
examine
the
country-­‐
specific
business
environment.
The
research
above
suggests
that
in
particular,
Mexico
and
parts
of
South
America
are
the
most
attractive
regions
in
Latin
America
for
U.S.
business
expansion.
One
additional
piece
of
evidence
for
investing
in
South
America
is
that
Argentina’s
average
disposable
income
has
grown
to
one-­‐third
of
the
average
for
the
United
States.xi
Next,
a
company
should
analyze
the
five
variables
that
the
U.S
Chamber
of
1
Gao, George. "Latin America’s Middle Class Grows,
but in Some Regions More than Others." Pew
Research Center. N.p., 2015. Web. 18 Nov. 2016.
0.0%
5.0%
10.0%
15.0%
20.0%
Argentina
Ecuador
Peru
Brazil
Colombia
Venezuela
Mexico
Chile
Paraguay
Panama
Bolivia
Costa
Rica
Nicaragua
Middle-­‐Income
Growth
Largely
in
South
America
and
Mexico
(2001-­‐2011)

3. Commerce
has
identified
to
have
the
greatest
impact
on
whether
a
US
company
will
find
the
business
environment
favorable
within
a
given
country:
Transparency—accessibility
and
clarity
of
laws
and
regulations
Predictability—consistency
in
application
of
law
Stability—constancy
between
administrations
and
freedom
from
retroactive
amendment
Accountability—law
upheld
the
same
regardless
of
whether
government,
national,
or
international
entities
Due
process—disputes
are
“resolved
in
a
fair,
transparent
and
predetermined
process”
xii
In
conclusion,
Latin
America’s
dramatic
middle
class
growth
has
increased
average
purchasing
power
and
created
an
attractive
market
that
U.S.
companies
should
pursue.
One
conservative
option
to
start
expansion
would
be
to
increase
exports
to
the
targeted
countries.
While
expansion
through
licensing
agreements,
joint
ventures,
and
business
acquisitions
are
significantly
higher
risk,
exporting
is
lower
risk
and
can
easily
reach
several
of
the
most
promising
countries.
The
U.S.
Department
of
Commerce
states
that
for
Latin
America,
businesses
exporting
to
one
market
generate
roughly
$375,000,
while
companies
with
two
to
four
markets
and
five
to
nine
markets
average
$1
million
and
$3
million
respectively.
xiii
In
the
end,
the
final
decision
depends
heavily
on
the
product
to
be
sold
and
could
be
different
in
each
case,
but
fortunately
600
million
consumers
backing
increasingly
stable
Latin
American
economies
are
waiting
to
see
what
American
products
and
companies
will
come
their
way.
i
Boyd, Gavin. "The Political Economy of Development
in Latin America." Free Trade in the Americas (2013): n.
pag. Web.
ii
Tsounta, Evridiki, and Anayochukwu Osueke. "What Is
Behind Latin America’s Declining Income Inequality?"
International Monetary Fund, July 2014. Web.
iii
Luhbi, Tami, and Tiffany Baker. "What Is Middle
Class, Anyway?" CNNMoney. Cable News Network, n.d.
Web. 02 Dec. 2016.
iv
ID.
v
Zammit-Maempal, Karl. "The Stable Consumer? The
Expansion of the Middle Classes in Latin America." UK
Foreign and Commonwealth Office (2009): n. pag. Web.
vi
Ferreira, Francisco, Julian Messina, Jamele Rigolini,
Luis Calva, Maria Lugo, and Renos Vakis. “Economic
Mobility and the Rise of the Latin American Middle
Class: Latin America and Caribbean Studies.” The World
Bank, 2013. Web.
vii
ID.
viii
Zammit-Maempal, Karl. "The Stable Consumer? The
Expansion of the Middle Classes in Latin America." UK
Foreign and Commonwealth Office (2009): n. pag. Web.
ix
Ferreira, Francisco, Julian Messina, Jamele Rigolini,
Luis Calva, Maria Lugo, and Renos Vakis. “Economic
Mobility and the Rise of the Latin American Middle
Class: Latin America and Caribbean Studies.” The World
Bank, 2013. Web.
x
Gao, George. "Latin America’s Middle Class Grows,
but in Some Regions More than Others." Pew Research
Center. N.p., 2015. Web. 18 Nov. 2016.
xi
Swanson,
Ana.
"How
Your
Disposable
Income
Compares
to
Other
People’s
around
the
World."
The
Washington
Post.
WP
Company,
24
Mar.
2015.
Web.
xii
"LATIN AMERICA/US: Prospects Mixed for US
Businesses." Oxford Analytica Daily Brief Service
(2012): n. pag. Web.
xiii
United States: Fact Sheet - Look South Initiative." Asia
News Monitor [Bangkok] (2015): n. pag. Web.