Assessing Opportunities In The Land Of La Maquila

Once a pioneer in responsible supplements regulations that begat a burgeoning market, Argentina's crashed economy today gives pause to investors. But Latin America still houses more than 460 million other people, and therein resides a hemisphere of opportunity in markets and manufacturing. Jorge Weil, M.D., and Gerardo Rodriguez report.

If you think Latin America is just a single geographical unit, you are mistaken. If you think Spanish is the only language, you are wrong. Latin America is an emerging concept—500 million people, dozens of languages, diverse cultures, Brasil the same size as the United States, Belize a former British colony, small island-countries dotting the Caribbean and widely varying political systems. Latin America is a new concept in the global marketplace composed of more than 30 countries and half a billion people.

The young people of Latin America—probably half the population is under 30 years old—are demanding high standards. They are tired of corruption. Many are young professionals, and they know they need to demonstrate excellence in everything to the rest of the world, especially to their neighbor, the United States.

The maquila concept—across-the-border manufacturing plants that produce goods primarily for electronics and automobile industries—are true success stories. In Mexican border towns, 5 million workers produce goods that are totally exportable, with high-quality standards and reasonable labor costs. That experience reveals an opportunity for other industries, such as dietary supplements manufacturers. The manufacturing capacity is available and convertible.

Today, most Latin American countries emphasise that investments from overseas are secure. Every country from Argentina on up is trying to modify legislation to allow more foreign investment, particularly to allow export businesses.

Latin American companies, to be successful in launching new products, cannot rely solely on local markets; they also need to export. The low cost of manufacturing and high quality of their products makes export a great opportunity. A concurrent point: the cost of pharmaceuticals is overwhelming, and Latin American countries are relatively poor, so people are drawn to less-expensive health remedies, such as food supplements.

Financing and distribution are critical factors for business success. Translated to Latin America, foreign companies need a local partner. You can't go blindly into local or regional markets, particularly with different regulations throughout the region. Distribution systems are still a problem in most countries, because a distribution system specifically for supplements and functional foods does not exist. Distribution itself is therefore an opportunity.

Looking At Specific Markets
Argentina, with a population of 40 million people, was one of the first countries to start dealing with dietary supplements. The concept of food supplements started in the late 1980s as medicines populares, recognised as over-the-counter (OTC) medicines. In 1991—three years before the US passed DSHEA, which liberalised its dietary supplements market—Argentina started regulating food supplements, which is now a $220 million market, 70 per cent of its products imported from the US.

Argentina is a very international country. It is said that Argentineans buy German cars, Italian ties, French perfumes and American food supplements.

Every country from Argentina on up is trying to modify legislation to allow more foreign investment, particularly to allow export businesses.
The first milestone in Argentina's supplements legislation was in 1991. Products imported from countries with equal or better sanitary standards, or from Codex-standards countries, could be imported easily. One year later, the Argentine government classified some countries from which it received imports as Group 1—comprised of the United States, Western Europe, Japan and Israel—countries recognised as having the highest standards of quality. Latin American countries were not accepted in this group, which created strained relationships between Argentina and its neighbouring countries.

In 1994, by legislative decree, Argentina created, for the first time, a definition for supplements, which was close to the DSHEA definition. Between 1991 and 1994, Argentina was building a framework of regulation to allow the business of dietary supplements to flourish.

However, a resolution from the government to modify the business of food supplements was a first stumbling block. Basically, European pharmaceutical companies wanted part of the Argentine dietary supplements market. In order to create a business space for themselves, these companies portrayed weaknesses in the then-current Argentinean legislation regarding supplements.

Resolution 74 that came in response to the claim asked for a large amount of information that is unusual for food supplements and more suitable for prescription drugs. The government, however, was unable to put this resolution in force. So in 1999 and 2000, several extensions were approved. And we are still in negotiation.

In 1998, Resolution 144 created a definition of phytomedicine. This simultaneous action was not an accident. It's part of an apparent strategy by pharmaceutical companies to create negative information on some food supplements and to promote a switch to those phytomedicines that are considered OTC products, but with a lot of restrictions—for instance, that they can be sold only in pharmacies, which effectively ends sales in channels such as supermarkets and multi-level companies.

To add insult to injury, Argentina—a young democracy at only 19 years old—is struggling with the worst economic crisis in the country's modern history. Political chaos is rampant, marked by the downfall of four presidents in less than one month, a near-halving of the value of its currency, and bank shutdowns.

Still, European companies continue to lobby for advantages with which to gain part of the marketplace. For Argentine consumers, "Made in the USA" is basically a trademark. It gives American corporations a strong position in market competition in Argentina, backed by Food and Drug Administration (FDA) approval of manufacturing facilities that are using GMPs as well as improving their quality control and providing scientific support for their products. Those are vital factors for developing businesses that can compete successfully in Argentina.

Adjacent to Argentina is Uruguay, the only other South American country affiliated with IADSA, the International Alliance of Dietary Food Supplement Associations. Uruguay imports from Brasil and Argentina. The regulation of the food supplements business in Uruguay is, well, medieval. Uruguay still does not recognise the existence of dietary supplements; they treat food supplements the same as medicine. Still, Uruguay is an opportunity for companies that want to submit products as OTC or prescription drugs.

In summary, from a market perspective, Latin America offers enormous promise. Half a billion people and a youthful and growing demography all point to a market that is poised to capitalise on globalisation trends

Jorge Weil, M.D., is secretary of international affairs of the Argentine Phytomedicine Association and medical advisor for Paragon Laboratories in Torrance, California. Gerardo Rodriguez is president and CEO of Bienestar International, a division of Mt. Tremper, New York-based Bienestar Inc., an international managed care consulting company.

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