Five tips for doing business in Ecuador

Oct 4, 2016 | 0 comments

Before moving to Ecuador, I made an effort to read up on the political situation here. I read many articles and watched a lot of TV shows that painted the country as a dictatorship, banana republic, and a few that claimed it was a paradise.

chl-matthew-profileI must say that what I learned during my research is not to trust any major media outlets in the U.S., or the western world for that matter. The corporations own the news media and drive the entire news cycle based on the goals of a very few special interests at the top.

Countries like the United States wage wars in the name of bringing democracy while supporting brutal dictatorships that align with their “interests”. In the end, there is no real moral prerogative for anything the western world does in most cases. It’s about greed, pure and simple.

So how does Ecuador really compare to the hype written and spoken about it? First, I would like to share what I have heard and, in fact, seen first hand here in regards to doing business here.

chl-businessmanIt’s no secret that to do business in Ecuador is hard, if not almost impossible for some. With a system that focuses on facturas (receipts) to an obsessive and almost comical extent, random enforcement of laws, often ridiculous rights for worthless employees, and a Stasi-like Internal Revenue Service (SRI), the culture shock of trying to open a business can be insurmountable.

I find, though, that when people understand the reasons for these things, and the history that has led to the creation of these laws, attitudes, and institutions, it can help dampen the frustration.

Ecuador is a country with a colonialist past.

Colonialism is defined as so: “The policy or practice of acquiring full or partial political control over another country, occupying it with settlers, and exploiting it economically.”

This, of course, was the model used by Spain in Ecuador, as well as other Latin American countries. The Spanish established, essentially, a system of lords who owned everything, with the commoners, the indigenous population, having very few rights. As the country evolved and even overthrew the Spanish in 1822, the mind-set was slow to change. Even today, you can note a much greater emphasis placed on someone’s title in Ecuador, as opposed to the U.S. Even simple engineers, who have only four years of college, will demand that you call them “enginero”. This seemed funny and a little pretentious to me since I called my family doctor Jim back in the states Jim.

So what are the other current-day remnants of colonialism here? One of the most prominent are the class of powerful, very rich and well-connected families. These are the families who own the media, the supermarkets, the car dealerships here, most of the international franchises, the large haciendas … the list goes on and on.

Many in this power class abuse their employees, don’t pay overtime, lie, cheat, steal, and have done so for generations. My wife worked at the main offices of one rich family, so this is not hearsay. I have seen first-hand how they treat people. It’s is also rumored that some of them have worked with the CIA, to cause internal problems and to destabilize the country when they objected to the government. The United States has employed a pendulum system in South America using chaos, corruption, and trained dictators from institutions like the School Of the Americas to swing countries to the extreme right or left and using the ensuing chaos to gain more control of resources.

bizmanFactoring in the history, the abuse by the rich and previous puppet governments, is it any wonder the Ecuadorian government has taken a somewhat negative view of business? The current laws that so many of us find frustrating were created to target truly abusive oligarchic families who dominate the country. They have had the effect of stifling free enterprise, acting as mafia-type organizations, ensuring that few rise to the middle class, and taking hope from countless thousands of people.

When wondering why so many Ecuadorian employees never seem to “buy in” to your businesses, consider the history. If you don’t, and if you don’t understand the sense of hopelessness many workers feel, you will probably throw in the towel and give up.

Over the years, Ecuadorians have seen bank collapses, corrupt government officials and police, overbearing bureaucracy, and almost nothing to engender the sense of confidence in government found in many western countries. In this vacuum, it’s no wonder that Catholic church has grown so powerful.

Unfortunately, these condition have created and perpetuated a cycle of poverty. One of the greatest lessons I have learned from living here is that the one of the biggest sources of poverty in Ecuador is moral poverty. The poor often the oppress themselves by accepting and even relish being at the bottom of the economic ladder. They help maintain the “power distance, the extent to which the lower ranking individuals of society accept and expect that power is distributed unequally.”

Employees expect the owners to rip them off. Owners expect the employees to rip them off. The government understands that everyone wants to rip them off, which of course leads to an overbearing tax enforcement agency, stupid facturas that require pre-authorization, and a generally unfriendly business environment.

I write computer software here. I can tell you, that doing business is so off the wall that most software for business will not even work here. The technology used here is over 30 years old and most business function on Excel spreadsheets only.

My wife, who works as a CPA tells me that for many businesses, up to 20% of their time can be spent on just trying to get paid, due to the cumbersomeness of the system. Someone forgets to dot an “i” on a receipt and someone else has to travel across town to have fixed by hand.

Everything here is overly complicated, frustrating and crazy for gringos. For Ecuadorians, however, it may feel like a vast improvement over the old system.

On the bright side, the Ecuadorian government is spending more on education, and many of the younger generation are abandoning the old mentality and looking toward the future.

Here are my top 5 Tips for dong business here.

1. Don’t expect your employees to invest mentally and emotionally into a business.

I had a friend who worked at a Walmart distribution facility in Ga. The daily warm up for employees included vile, “team building” chants, and staged interactions all meant to inculcate in the minds of the employees their so-called ownership in the company they were entitled to for a measly $8.00 an hour. Good god don’t do that here. Many of the people here have zero trust in institutions, and no matter how much motivational psychology you use, you’re not going to get them on board with silly slogans.

Can you get them to invest by paying them more? NO. Throwing money at people here is the last thing you want to do. They will think your stupid, naïve, and take advantage of you even more. I am not saying to pay people low wages, not by any stretch of the imagination. I’m just saying throwing money at a problem here does not work. You can get employees or business partners here that believe in what you are doing much easier here if you are fully integrated into the culture, and aware of the mindset that people have, so you can avoid it. You have to network to find good people, and even look for people who have lived in North America or Europe or another country for some time. Remember your fighting against a closed-minded belief system. Find people who have demonstrably shown they can leave an old system and transition to a new one.

2. Trust but verify.

“I’m bringing it to you right now.” “I’ll be there in the morning, don’t worry.”  “I’m stuck in traffic and will there as soon as I can.” These are all Ecuadorian ways of saying I’m really drinking a beer somewhere and I’ll be there next week. Maybe. They lie. There I said it. They are accustomed to lies, acclimated to lying, and they often actually believe what they say. If you make a contract, always include a clause that allows you to pay less if items or services are delivered after a certain date. Don’t think for a second that you can actually enforce it. Resolution here is done more by personal mediation so taking someone to court will be a huge waste of time. Having it in writing, however can motivate the product or service provider to be timely, but that’s about it.

Don’t hire people on a permanent basis. Make a contract for a year, but be aware that after three months, if you fire them, you have to pay the full year’s salary. This means you need to run people through the ropes and really put them to the test in the first three months.

Above all, avoid the desire to be overly trusting or give too much freedom to people. This is the exact opposite of everything you have learned about how to treat employees back home. Doing this will make you look weak and naïve, and make many people want to take advantage of you. People here view micromanagement as power. Ecuadorians like things “bien masticado”, or as we say, easily digestible.

Yes, you must explain everything to some employees, even if they already know. All, of course, in a spirit of mildness. This point is so hard for some gringos to understand. You or I may be offended or angered by the repitition, but they are not. People here like things broken down and explained. They respect micromanagers and it’s not likely to change anytime soon. So adapt or die.

It’s also important to note, if you have hired an accountant or any other professional contractor, have weekly meetings to double-check that they are doing their job, filing returns, etc. People I know have paid CPA’s and bookkeepers for months to file returns, only to find out they were just taking the money and never did a thing.

3. Don’t get angry.

It’s so easy to get mad here. It’s really never helpful to express it though. People don’t like confrontation. In many cases simply being annoying and asking for something and explaining your situation is enough. In cases where nothing seems to work, keep your cool and reach out to people in your network of professionals for help. Someone somewhere will likely help find a solution to your problem. If you have the option, when dealing with institutions for example, seek out the highest ranking person you can. Unlike the states, you can get in to meet just about anyone here. I often walk into mayor’s office and get him to see him within minutes.

4.  Learn Spanish, and the culture.

Holy cow, you can’t believe the money wasted by foreigners who have tried to start businesses here. I have seen money thrown around and given to con artists, thieves and idiots, all because the people doing business had no idea how to speak and read the language, and just as important, to “read” the people they were working with. Don’t trust in intermediaries to get important stuff done. For sure, this this one of the reasons it’s hard to grow a business in Ecuador. Delegation is important. However, you need to delegate to people only after a long and close relationship has been established, and only after they have earned your trust. Business is done on a more personal level here, which of course makes the pace much slower, but that’s just how it is. That’s why Ecuador is underdeveloped, and hence why you came here in the first place, right? It’s cheaper, less crazy and has nicer people!

5. Stay positive.

Remember that there are people who are making it happen! It’s easy to focus on trying to meet every requirement, conform to every law, etc. Keep in mind that everyone here struggles. When you are getting your business going, you will find that getting to know people in the government offices or other institutions that you may be working with will be a huge help. I have many friends in business here and none of them are 100% able to do everything perfect. Constant changes in laws, disorganization of partner businesses and government offices all contribute to this. If you have a problem and someone gives you an answer you don’t like, keep asking. The words “I don’t know” are nonexistent in the Ecuadorian vernacular. Many times, a negative answer is simply the person saying I don’t know. This again is due to the colonialist mindset. If someone says they don’t know, it means they don’t have power.

Yeah, it’s frustrating and sometimes stupid, but that is how many people here think.


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