For an enterprising young American woman, starting a luxury leather-goods business in Buenos Aires made perfect sense
By the time Amanda Knauer graduated from Brown University with a degree in international relations, she was infected with the entrepreneurial bug. But opening her own company in New York, while eating rice and beans for dinner, seemed impossible.
Things are very different in Buenos Aires, where Knauer moved two years ago and started her own luxury leather-goods company, Qara Argentina, (qara.com). The 25-year-old small-business owner spoke recently to Smart Answers columnist Karen E. Klein about the perils and possibilities of expatriate entrepreneurship. Edited excerpts of their conversation follow.
What motivated you to start your own company?
While at Brown, I was involved in the entrepreneurship program and studied business as much as possible. I've always been drawn to the fashion business. My grandfather and his brothers were all entrepreneurs in manufacturing, so my mom jokes that it's in my blood. When I was growing up, my grandfather spoke highly about being your own boss and having your own business, and I guess that affected me at an early age.
How scary was it to pack your bags and move to South America?
It wasn't so bad. My parents traveled a lot with me when I was growing up, and I loved being exposed to other cultures and finding out how people in other parts of the world lived. I guess you could say I have a flair for adventure.
In 2004, I did some research about international business and found out how much the peso was devalued. I could see I would have a lot of purchasing power with the dollar in South America. I had also heard that Buenos Aires was the Paris of South America, that there are a lot designers here and a great design university and a highly educated workforce. But I had never been to South America, so I didn't know what I'd find.
Did the business conditions meet your expectations when you arrived?
Well, I felt kind of ridiculous, and sometimes even I thought, "What am I doing?" I did speak Spanish, though not very well, but I didn't know a soul here. I decided to stay three months while I looked for a business opportunity. As soon as I started investigating the market, it was clear immediately to me that leather is one of the strongest products in the country. It's beautiful, and it's all over the place.
Why not start a U.S.-based leather company and outsource your production to Argentina, or even import Argentinean leather?
I was 23, living in New York City, and had very limited funds. Starting any kind of fashion business with the money I had in New York was pretty much impossible. Running a company entirely in Buenos Aires allows me to focus on quality while taking full advantage of the low prices in Argentina and high skilled-labor-to-cost ratio. Here I can pay a highly competent staff of seven with the equivalent of a single entry-level salary in the U.S.
Also, by manufacturing nearly all our products in-house, using just-in-time production, we minimize inventory and contain costs. That leaves us free to concentrate on creating quality goods.
How difficult was it to start a company in Argentina as a U.S. citizen?
Running a business in a developing country is especially challenging, I think. I pay a price, both emotionally and financially, for my unfamiliarity with Argentine cultural nuances and bureaucracy. The government encourages foreign investment, so you can start a business here with relative ease. I was required to get an Argentine partner and hire a lawyer to take the company through the startup process, which is more complicated and takes longer than it does in the U.S.
How long did it take, and how did you fund the startup?
Forming the company took about 10 months. I got wonderful help and encouragement from the U.S. Embassy. I used my own funds — a small inheritance from my grandfather — to start the company, and now I'm closing my first deal with investors, a U.S. retail company and an Argentine investment company.
What are the cost advantages of doing business in Buenos Aires as opposed to New York City?
The rule is that what will cost you $5 in the U.S. will cost you 5 pesos in Argentina. There's a 3-to-1 exchange rate that's been maintained for some time, although inflation runs about 12% or 13% a year. So, while prices have increased during the time I've been here, we still have incredible purchasing power with the dollar.
There's also a very skilled workforce that's rather inexpensive. Entry-level salary for a college-educated executive assistant runs about $5,000 U.S. annually. The skilled artisans who work with the leather at my company earn less than $10,000 U.S. a year.
How have you and your company been viewed by Argentineans?
For the most part, we've been very well received. The Argentine press has paid a lot of attention to us, mostly because it's so unusual for an American to come here and start a business in Argentina. They seem to appreciate the fact that I make an effort to understand their culture.
Every now and then, however, I run into a roadblock. The leather industry is a very old, very male-dominated industry here, for example. Going in as a young American woman to talk to 70-year-old tannery owners is difficult. I've learned to send an Argentine to represent the company with those people. One of my employees can usually do better with them than I can.