J. Lat. Amer. Stud. 40, 513–544 f 2008 Cambridge University Press
doi:10.1017/S0022216X08004410 Printed in the United Kingdom
513
The Foreign Direct Investments
of Spanish Multinational Enterprises
in Latin America, 1989–2005*
P AB L O T O RA L
Abstract. The inflow of Spanish investment in Latin America after 1989 was the
result of a strategy by the managers of seven leading firms to gain access to new
markets and to become world leaders in their industry, by applying the know-how
that they had developed in Spain during the period of rapid economic modernisation
in the 1980s. This article examines the context for these investments in Spain and in
Latin America and provides a constructivist theoretical framework to explain them.
It analyses seven firms in four industries (BBVA and SCH in banking, Repsol-YPF
in oil and natural gas, Endesa, Iberdrola and Unión Fenosa in public utilities, and
Telefónica in telecommunications). The knowledge and techniques that developed
in Spain in the 1980s, it is argued, gave them significant advantages in Latin
American markets during the period of liberalisation and privatisation in the 1990s.
The Spanish government played a significant role in this process, by promoting the
growth of large firms in the service industries through mergers and acquisition,
protecting their domestic market, and encouraging their investments overseas.
Keywords: structural reforms, privatisation, multinational enterprises, foreign direct
investment, telecommunications, public utilities, oil, natural gas, banking, Latin
America, Spain, constructivism, social theory
Introduction
Spain has been the second country of origin for foreign direct investment
(FDI) in Latin America since the mid-1990s ; only the United States has
Pablo Toral is Mouat Junior Professor of International Studies at Beloit College. Email :
[email protected]
* I should like to thank my research assistant, Alec Chiquoine, for his help compiling data
from the firms, and to Cynthia Gray for designing the figures. Fieldwork was assisted by
grants from the following institutions: Keefer grants, Rath Foundation, and the Mouat
Junior Chair of International Studies at Beloit College ; the Department of International
Relations, the Office of the Dean of Arts and Sciences, the Miami European Union Centre,
the Center for Transnational and Comparative Studies, the Latin American and Caribbean
Center, and the Graduate Student Association at Florida International University ; and the
Library Travel Grants of the Center for Latin American Studies at the University of
Florida. I am also grateful to the four anonymous JLAS reviewers who provided helpful
comments.
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Pablo Toral
invested more in the region.1 Between 1996 and 2000, 34 per cent of inward
FDI in Latin America came from the United States and 23 per cent from
Spain. Between 2001 and 2005, 39 per cent came from the United States and
12 per cent from Spain.2 While Spanish investment in Latin America was one
of the more unexpected but remarkable aspects of the growth of FDI in the
1990s, Spain’s investments in banking and telecommunications were also
part of a global trend towards FDI in services that has attracted a significant
amount of academic research as its importance has become more marked.3
Some of the more comprehensive studies of Spanish FDI in Latin
America are based on John Dunning’s theories, especially his ‘ eclectic’ or
OLI paradigm, which states that MNEs make foreign investments when they
possess a combination of three types of advantages : ownership, location and
internalisation.4 Within this body of literature Bernardo Batiz-Lazo, Juan
José Durán, José Antonio Alonso, Yolanda Fernández, José Galán and
Javier González, and William Chislett have emphasised location advantages
(the processes of privatisation and liberalisation in Latin America, culture
and language), and ownership advantages (the ability of Spanish firms to
adopt technological developments and to raise financial resources for their
expansion).5 Cristina López, however, focused on internalisation advantages,
1
2
3
4
5
The International Monetary Fund defines FDI as an investment resulting in the ownership
of 10 per cent or more of a company.
CEPAL, La inversión extranjera en América Latina y el Caribe, 2005 (Santiago de Chile, 2006),
p. 27.
See Ravi Ramamurti (ed.), Privatizing Monopolies : Lessons from the Telecommunications and
Transport Sectors in Latin America (Baltimore, 1996) ; Daniel J. Ryan (ed.), Privatization and
Competition in Telecommunications : International Developments (Westport, 1997) ; Roy C. Smith
and Ingo Walter, Global Banking (Oxford, 2003) ; UNCTAD, World Investment Report 2004:
The Shift Toward Services (New York, 2004), pp. 95–180.
John H. Dunning, Economic Analysis and the Multinational Enterprise (New York, 1974) ; John
H. Dunning, ‘Trade, Location of Economic Activity and the Multinational Enterprise : a
Search for an Eclectic Approach ’, in John H. Dunning (ed.), The Theory of Transnational
Corporations (New York, 1993), p. 191 ; and John H. Dunning, ‘The Eclectic Paradigm as an
Envelope for Economic and Business Theories of MNE Activity ’, International Business
Review, vol. 9 (2000), pp. 163–90.
José Antonio Alonso, ‘ La inversión española en América Latina : ¿tiempos de crisis ? ’,
Economistas, vol. 80, número extraordinario (1999), pp. 163–71 ; Bernardo Batiz-Lazo, Ana
Blanco and Sara Urionabarrenetxea, ‘ Growth of the Spanish Multinational in Latin
America during the 1990s’, Latin American Business Review, vol. 8, no. 1 (2007), pp. 1–36;
William Chislett, Spanish Direct Investment in Latin America : Challenges and Opportunities
(Madrid, 2003) ; Juan José Durán (ed.), Multinacionales españolas I. Algunos casos relevantes
(Madrid, 1996) ; Juan José Durán (ed.), Multinacionales españolas II. Nuevas experiencias de internacionalización (Madrid, 1997); Juan José Durán, Multinacionales españolas en Iberoamérica:
valor estratégico (Madrid, 1999) ; Yolanda Fernández, ‘España como inversor en América
Latina ’, Análisis Financiero Internacional, no. 98 (February–March 2000), pp. 41–50 ; José
Galán and Javier González, ‘Distinctive Determinant Factors of Spanish Foreign Direct
Investment in Latin America ’, Journal of World Business, vol. 41, no. 2 (2006), pp. 171–89.
Foreign Direct Investments of Spanish Multinational Enterprises
515
arguing that Spanish FDI resulted from the companies’ inability to transfer a
series of advantages through the market at arm’s length.6
A second group of scholars followed the ‘ investment development path’
model developed by John Dunning and Rajneesh Narula in 1996, which
analyses the relationship between the economic development of a country
and its foreign direct investments.7 This approach concludes that as countries develop, their firms generate more competitive goods and services that
they decide to produce in new markets. José Manuel Campa, Mauro Guillén,
Cristina López-Duarte and Esteban Garcı́a argue that this was the case in
Spain in the 1990s. Guillén illustrated this approach in later papers with short
histories of some Spanish multinational firms, but did not focus exclusively
on their investments in Latin America.8
A third group of scholars follows the gradualist theory of the Scandinavian
School, which posits that firms in small countries begin to make foreign
investments once they have developed their national markets, even though
the firms themselves may still be small. FDI is thus an independent decision
of incremental expansion. Firms expand their international operations
gradually as a logical process of their growth.9 Other authors followed a
fourth approach based on the theory of international trade. They explored
the relationship between exports and FDI, and concluded that Spanish FDI
in some industries was the result of the substitution of trade by investment.10
6
7
8
9
10
Cristina López, ‘Internacionalización de la empresa española mediante inversión directa en
el exterior, 1988–1994 ’, Economı́a Industrial, no. 318 (1997), pp. 141–50.
John H. Dunning and Rajneesh Narula, ‘ Transpacific FDI and the Investment
Development Path: the Record Assessed ’, Essays in International Business, vol. 10 (1994),
pp. 1–69.
José Manuel Campa and Mauro Guillén, ‘ A Boom from Economic Integration ’, in John H.
Dunning and Rajneesh Narula (eds.), Foreign Direct Investment and Governments: Catalysts for
Economic Restructuring (London, 1996), pp. 207–39; José Manuel Campa and Mauro F.
Guillén, ‘Evolución y determinantes de la inversión directa en el extranjero por empresas
españolas ’, Papeles de Economı́a Española, vol. 66 (1996), pp. 235–47 ; Mauro Guillén, The
Limits of Convergence : Globalization and Organizational Change in Argentina, South Korea, and Spain
(Princeton, 2001), pp. 3, 214; Mauro Guillén, The Rise of Spanish Multinationals : European
Business in the Global Economy (Cambridge, 2005) ; Cristina López-Duarte and Esteban
Garcı́a, ‘ La inversión directa realizada por empresas españolas : análisis a la luz de la teorı́a
del ciclo de desarrollo de la inversión directa en el exterior’ (Universidad de Oviedo,
Papeles de Trabajo, Doc. 146/97, 1997) ; José Molero and Mikel Buesa, ‘ La expansión
internacional de la empresa española : posibilidades y limitaciones hacia Iberoamérica’,
Economı́a Industrial, no. 283 (January–February 1992), pp. 25–41.
Adolfo Gutiérrez and Luis Javier Heras, ‘ La proyección exterior de las empresas españolas :
de la teorı́a gradualista de la internacionalización ’, Información Comercial Española (hereafter
ICE), no. 788 (November 2000), pp. 7–17.
Marı́a Teresa Alguacil et al., ‘¿Existe causalidad entre exportaciones e inversión directa en
el exterior ? Algunos resultados para el caso español ’, ICE, no. 782 (November–December
1999), pp. 29–34 ; Marı́a Teresa Alguacil and Vicente Orts, ‘Relación dinámica entre inversiones directas en el extranjero y exportaciones : una aproximación VAR al caso español,
1970–1992 ’, ICE, no. 773 (September–October 1998), pp. 51–63 ; Eduardo Cuenca,
516
Pablo Toral
Another group of scholars in the field of strategic management see Spanish
FDI simply as a strategic move by the managers of the firms to add value to
their firms because they perceive business opportunities abroad, or because
their domestic market slows down.11 Finally, a number of authors reject
theoretical approaches and use empirical historical analysis to highlight
the growth of the Spanish economy and the processes of privatisation and
liberalisation in Latin America.12
The goal of this article is to develop an alternative theoretical framework
to explain foreign direct investment, taking the investments of seven Spanish
MNEs in Latin America as case studies. It shares with Dunning’s OLI model
an emphasis on the concept of advantage. However, Dunning takes the
advantages of firms as given. He does not provide a model to explain how
the advantages come into being and, once the investments are made, how
they change as the MNEs adjust to conditions in the host countries.13 This
article contributes to debates on FDI on three grounds. First, it tries to
bridge the gap between structuralist and volitional approaches by showing
how firms and context, agency and structure, co-constitute one another.
It moves away from structuralist approaches that regard firms mainly as a
11
12
13
‘ Comercio e inversión de España en Iberoamérica ’, ICE, no. 790 (February–March 2001),
pp. 141–62 ; Carlos Rodrı́guez, ‘Un estudio preliminar de la relación por paı́ses entre las
inversiones directas españolas en el exterior y las exportaciones ’, Boletı́n Económico de ICE,
no. 2683 (26 February–4 March 2001), pp. 7–14.
Miguel Ángel Gallo and José Antonio Segarra, ‘ La tendencia en la internacionalización de
la empresa’, ICE, no. 643 (March 1987), pp. 87–90 ; Francisco Mochón and Alfredo
Rambla, La creación de valor y las grandes empresas españolas : los casos de BBV, Banco de Santander,
Endesa, Iberdrola, Repsol y Telefónica (Madrid, 1999) ; Miguel Ángel Gallo and José Antonio
Segarra, ‘ La tendencia en la internacionalización de la empresa ’, ICE, no. 643 (March
1987), pp. 87–90.
José Antonio Alonso and J. Manuel Cadarso, ‘La inversión directa española en
Iberoamérica ’, ICE, no. 590 (October–November 1982), p. 116; Álvaro Calderón, ‘El
boom de la inversión extranjera directa en América Latina y el Caribe : el papel de las
empresas españolas’, Economistas, no. 81 (September 1999), pp. 24–35 ; Álvaro Calderón,
‘ Inversiones españolas en América Latina : ¿una estrategia agresiva o defensiva ?’, Economı́a
Exterior, vol. 9 (1999), pp. 97–106; Ramón Casilda, La década dorada: economı́a e inversiones
españolas en América Latina, 1990–2000 (Alcalá, 2002) ; Guillermo de la Dehesa, ‘ La inversión
directa española en Latinoamérica ’, Boletı́n del Cı́rculo de Empresarios, vol. 65 (2000),
pp. 201–41; Marı́a Teresa Fernández, ‘Presencia y efectos de arrastre de las filiales extranjeras de servicios a empresas en España’ (Universidad de Alcalá, Documento de Trabajo
No. 1/2000) ; Rafael Pampillón and Ana Raquel Fernández, ‘Comportamiento reciente y
perspectivas de la inversión española en América Latina ’, Economı́a Exterior, vol. 9 (1999),
pp. 58–70 ; Santos M. Ruesga and Julimar S. Bichara, ‘Las empresas españolas en
Iberoamérica ’, Economı́a Exterior, vol. 7 (1998–99), pp. 187–96; Juan Velarde, José Luis
Garcı́a and A. Pedreño (eds.), Apertura e internacionalización de la economı́a española : España en
una Europa sin fronteras (Madrid, 1991).
For a review of the main theories of FDI see Richard Caves, Multinational Enterprise and
Economic Analysis (New York, 1996), and John Dunning (ed.), Theory of Transnational
Corporations (New York, 1993).
Foreign Direct Investments of Spanish Multinational Enterprises
517
function of their environment (the OLI and investment development path
approaches and the theory of international trade) and from volitional approaches that privilege the firm as the unit of analysis over the context (the
Scandinavian school and the strategic management approach). Both these
approaches conceive of an atomistic universe of self-regarding units (firms,
governments, etc.) whose identity is assumed, given and fixed. Instead, this
article argues that firms and markets co-constitute one another. Second, it
also seeks to make a contribution to the political economy literature by
moving away from studies of state-firm bargaining.14 Instead, it shows how
the relationship between states and firms may not necessarily be a zero-sum
game. Finally, it also seeks to fill a gap that the literature on structural reforms in Latin America has ignored. Because of their focus on the economic
and political rationale behind privatisation and regulatory reforms in Latin
America, scholars of the region tended not to analyse MNEs and thus paid
little attention to the ways in which Spanish firms became prominent in
infrastructure.15
The approach used in this paper is to apply rule-oriented social theory to
the study of MNEs, by using the concept of ‘advantage ’. It explains FDI by
looking at the strategic decision-making of individual firms in the light of
their corporate competences. Social theory regards social facts as constituted
by the combination of individual facts via social interactions that influence
social behaviour.16 In proposing a mode of analysis for the social sciences,
Nicholas Onuf tackled the agency-structure debate by explaining how agents
and institutions (or structures) co-constitute each other. Agents (firms, regulators) construct the social institutions (markets) in which they operate and
these institutions, in turn, constrain agency. Institutions are sets of rules that
tell agents how to behave in a given setting. The firm can be regarded as an
institution or set of rules (normative framework) created by its own employees (the agents). Outside the firm, the market is the institution and the
14
15
16
See Alan Rugman and Alain Verbeke, ‘Multinational Enterprises and Public Policy ’, in
Alan Rugman and Thomas Brewer (eds.), The Oxford Handbook of International Business
(Oxford, 2001), pp. 819–27 ; Stephen Kobrin, ‘ Sovereignty @ Bay : Globalization,
Multinational Enterprise, and the International Political System ’, in Rugman and Brewer
(eds.), Oxford Handbook of International Business, pp. 186–99.
Manuel Agosin (ed.), Foreign Direct Investment in Latin America (Washington, DC 1995) ;
Werner Baer and Melissa Birch (eds.), Privatization in Latin America. New Roles for the Public
and Private Sectors (Westport, 1995) ; Melissa Birch and Jerry Haar (eds.), The Impact of
Privatization in the Americas (Coral Gables, 2000) ; Luiz Carlos Bresser-Pereira, José Marı́a
Maravall and Adam Przeworski, Economic Reforms in New Democracies (Cambridge, 1993) ;
Sebastian Edwards, Crisis and Reform in Latin America : From Despair to Hope (Oxford, 1995) ;
José Antonio Ocampo and Roberto Steiner (eds.), Foreign Capital in Latin America
(Washington DC, 1994).
John Ruggie, Constructing the World Polity: Essays on International Institutionalisation (London,
1998), p. 29.
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Pablo Toral
firm(s) become(s) the agent(s). These rules and practices constitute ‘corporate competences ’, defined as an ensemble of human practices seen by
those engaging in or observing them to have coherence, setting them apart
from other practices. They guide (but do not determine) the conduct of its
members, thereby giving it social meaning.17
Explaining Spanish Investment in Latin America
The main thesis in this article is that Telefónica (telecommunications), Banco
Bilbao Vizcaya Argentaria (BBVA) and Santander Central Hispano (SCH) in
banking, Endesa, Iberdrola and Unión Fenosa (public utilities), and RepsolYPF (energy) made significant investments in Latin America in the 1990s
because their managers believed that they had an advantage, their ‘knowledge of the needs of the Latin American markets’, which was embodied in
their corporate competences.18 This advantage stemmed, first, from their
experience of how to undertake a process of modernisation of infrastructure
and development of new services in a short period of time. They believed
that the needs of the Latin American markets in the 1990s resembled those in
Spain in the 1980s, and that the knowledge, products and services they had
developed in Spain could be easily applied in Latin America. Their advantages, in terms of investing there, resulted both from a shared culture,
and from the technical know-how specific to each industry that they had
acquired. The managers argued that the common language and Hispanisation
of Latin America during the colonial period created similar mindsets. They
concluded, therefore, that it would be easy for them to operate in this cultural environment, because it would facilitate personal relationships, transfers of know-how, and mobility of personnel.
The technical knowledge necessary in each industry and the managerial
skills of each firm were built up in Spain in the 1980s and early 1990s. The
chief executives and other senior managers of these firms believed that the
institutional context in Latin America following the implementation of
structural reforms was very similar to that which they had experienced in
Spain for several reasons (see Figure 1). With the exception of the banks, the
Spanish firms included in this study had been state-owned and undergone
processes of privatisation themselves. Many of them entered Latin America
by taking over former state-owned enterprises. This was a quick way to gain
access and market share. They also believed they had developed know-how
17
18
Nicholas Onuf, World of Our Making : Rules and Rule in Social Theory and International Relations
(Columbia, 1989), pp. 7, 17–20, 196.
These sectors accounted for almost 70 per cent of Spanish FDI in Latin America in the
1990s.
Foreign Direct Investments of Spanish Multinational Enterprises
519
Table 1. Sectoral Allocation of Spanish FDI flows going to Latin America
between 1980–2000
Per cent
Energy
Communications
Banking and finance
Holding*
Total**
1980–1984
1985–1989
1990–1994
1995–2000
0.1
0.7
48.9
0.2
2.3
57.5
49.7
58.8
9.2
25.1
40.3
17.1
53.9 (69.8)
22.7
5.8
13.2
27.3
41.7 (69.0)
Source: Ministerio de Economı́a, Dirección General de Comercio e Inversiones.
Note: * ‘ Holding ’, ‘ Holding societies ’ or ‘ETVEs’ are terms used by the Spanish Ministry
of Trade in its statistics for firms through which Spanish multinational enterprises channel
their FDIs for fiscal reasons (to pay fewer taxes). In other words, if Telefónica in Spain takes
over a Brazilian telephone company, it might make the acquisition through one of its holding
societies in order to pay fewer taxes. This means the money for the acquisition is transferred
to the holding society, which then makes the acquisition in Brazil. ** Refers to the addition of
these industries, not to the total amount of FDI flows going from Spain to Latin America in
these periods.
religion
people’s mindset
language
SHARED CULTURE
education
history
culture
MARKET KNOWLEDGE
CONSUMERS
technology
privatisation
globalisation
SHARED INSTITUTIONAL EXPERIENCES
liberalisation
frequent interactions
with the government
heavy regulation
managerial experience
Fig. 1. Development of the advantage as perceived by Spanish executives.
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Pablo Toral
in Spain on how to participate in privatisation processes.19 Moreover, the
Spanish government was gradually lifting restrictions on entry into its own
market in the 1990s.
Liberalisation in Latin America sometimes even preceded liberalisation in
Spain, and the managers took this as an opportunity to learn how to operate
in a new competitive environment.20 The Spanish firms had to modernise
their services, technologies and products very quickly in the 1980s, and
intended to do so in Latin America in the 1990s.21 These factors forced the
firms to adopt new organisational arrangements and managerial processes.22
Furthermore, the process of liberalisation of markets that occurred in the
European Union in the 1990s made the Spanish managers concerned that
globalisation would result in a process of takeovers and that only the large
international firms would survive. They decided, therefore, to develop an
aggressive strategy of growth overseas in order to pre-empt competition in
their domestic markets.23 Finally, the sectors included in this study were also
characterised by heavy regulation, which required managers to engage in
continuous lobbying with the regulators and government officials.24
The conditions that existed in Spain in the 1980s and 1990s thus forced
the managers to adopt patterns of behaviour, both within the firm and externally, in order to adjust. They devised rules of behaviour that their employees had to follow within the firm (internal organisation) and in their
relations with other actors, including regulators (external behaviour). These
rules constitute the core corporate competences that embody the knowledge
developed by the firms and institutionalised their advantage. This understanding of the corporate competences bridges the gap between agency and
structure, between firms and context, and provides a dynamic approach to
the construction of advantages (see Figure 2).
19
20
21
22
23
24
César Alierta, ‘Telefónica : de un operador local a un operador multinacional y multidoméstico’, ICE, no. 799 (2002), pp. 148–9.
Ibid.; Antonio Brufau, ‘El grupo Gas Natural en Latinoamérica ’, ICE, no. 799 (2002),
p. 177.
Alierta, ‘ Telefónica’, pp. 149 and 154; Emilio Botı́n, ‘ La experiencia internacional de
Santander Central Hispano’, ICE, no. 799 (2002), p. 124 ; Francisco González, ‘Las empresas multinacionales españolas: el caso de BBVA en Latinoamérica ’, ICE, no. 799
(2002), p. 130.
Alierta, ‘Telefónica ’, pp. 154–5; Botı́n, ‘La experiencia internacional’, p. 120; Brufau, ‘El
grupo Gas Natural’, pp. 177–9; José Prieto, ‘El compromiso con el conocimiento, clave
para la expansión internacional de Unión Fenosa ’, ICE, no. 799 (2002), pp. 189–90.
Rafael Miranda, ‘Estrategias de internacionalización : la experiencia de Endesa ’, ICE,
no. 799 (2002), p. 181.
Alierta, ‘ Telefónica’, pp. 148–9; Brufau, ‘ El grupo Gas Natural’, p. 177; Interview with
Enrique Waterhouse, Finance and Project Manager, Repsol-YPF, Buenos Aires, 13 March
2005. Waterhouse was the only person interviewed for this project whose rank in his firm
was not that of CEO.
Foreign Direct Investments of Spanish Multinational Enterprises
521
Market Knowledge
Processes within the firm
(internal organisation)
Firm’s relations with regulators
(external relations)
Products and services
Patterned behaviour (normative framework)
corporate competencies
Belief that some Latin American markets are similar to Spain’s
FDI in Latin America
Application of corporate competencies in Latin America
Fig. 2. Application of the advantage.
The Telecommunications Sector
In early 1990 Telefónica did not have a single customer in Latin America. In
2005 it had 98 million (70.5 million in mobile telephony, 21.8 million in fixed
telephony, 5.2 million in internet and data, and 0.5 million in pay-TV). It also
had 131,968 employees in Latin America and 41.5 per cent of its consolidated
revenue came from its Latin American subsidiaries. With 180.9 million customers worldwide, Telefónica had become the third largest telecommunications company in the world by number of customers.25
Telefónica’s investments in Latin America were motivated by a number of
factors: the liberalisation of the telecommunications sector in Spain in
December 1997, the culmination of Telefónica’s process of privatisation,
which had started in the 1970s ; the privatisation of state-owned telephone
operators in Latin America; and the evolution of the telecommunications
sector globally, which favoured the creation of large multinational groups. In
this context, its managers believed that the technology and know-how they
had developed in Spain in the 1980s in order to upgrade telecommunications
25
Telefónica, Annual Report (2005), pp. 4, 8, 23, 47.
522
Pablo Toral
infrastructure in a short time could be applied in Latin America, where they
thought that conditions were similar.26
Demand for new telephone lines in Spain grew by 27.9 per cent in 1986
and 17.9 per cent in 1987, resulting in a dramatic increase in waiting time for
the installation of new connections and considerable deterioration in the
quality of service. In 1988 the Spanish government appointed new managers
to Telefónica and asked them to prepare the firm for full privatisation in
1997. The new managers raised funds in the stock markets of Madrid,
London, Paris, Frankfurt, Tokyo and New York, and began a programme to
modernise infrastructure. They replaced Telefónica’s obsolete technologies,
digitised the network, and introduced satellite telecommunications, fibre
optics, and, later, Internet access. Telefónica digitised 41.4 per cent of its
urban network and increased the number of land lines from 11 million (28.1
per 100 inhabitants) in 1989 to 14.3 million (36.6) in 1993, and to 20.8 million
(45.9) in 2002. The waiting list for installation fell from 539,000 lines in 1988
to 25,000 in 1993. After 1992 cellular access technology allowed Telefónica
to extend basic telephone services to rural areas. Worker productivity grew
from 149.30 lines per employee in 1982, to 181.36 in 1988, and to 213.61 in
1993. Telefónica’s investments in this period were equivalent to 4.5 per cent
of gross capital formation in Spain.27
The managers believed that this experience in Spain had allowed
Telefónica to develop the institutional know-how to undertake similar processes successfully in other countries. Ignacio Santillana, chief executive of
Telefónica Internacional between 1990 and 1996, explained in 1997:
The internationalisation of Telefónica was established on the basis of the competitive advantages that Telefónica had vis-à-vis the American and European operators.
It was based on the ability to undertake important investment programmes in short
periods of time. Particularly in the late 1980s, Telefónica faced a crisis of demand for
telephones and telephone services in Spain. In this period, Telefónica had close to
one million requests to install a telephone. This crisis forced Telefónica to develop
efficient large investment programmes quickly. This know-how, which some characterised as ‘ trench technology’, was very useful and extraordinarily attractive as a
means of satisfying the demands of the countries that required an urgent expansion
of their telephone systems, given the high demand of the people for telephones
waiting to be installed. It was a coincidence that the countries with these problems
were involved in a process of privatisation of the state-owned firms that had provided telecommunication services under conditions of monopoly.28
26
27
28
Ignacio Santillana, ‘ La creación de una multinacional española : el caso de Telefónica ’,
Economistas, no. 73 (1997), p. 94.
Rafael Aparicio, La evolución de las telecomunicaciones españolas 1982–1983 : el caso de Telefónica de
España, S.A. (Fundación Empresa Pública, Madrid, Programa de Historia Económica,
Documento de Trabajo 9404, 1994), pp. 13–14, 50–67, 76.
Ignacio Santillana, ‘La creación de una multinacional española ’, p. 94.
Foreign Direct Investments of Spanish Multinational Enterprises
523
The process of privatisation of state-owned telephone operators that swept
through Latin America after 1987 reversed the expropriation of telephone
operators from private firms that had begun in the 1940s. The government
of Argentina nationalised the country’s telephone company in 1945 citing
‘ national security concerns’. Brazil had followed in 1962, Peru in 1970, Chile
in 1971, and Venezuela in 1976. Telefónica itself had been nationalised by the
Spanish government in 1944 for similar reasons.29 However, poor performance, growing technological demands, and lack of resources to undertake
new projects led governments to privatise telephone operators after 1987.
They expected that the newcomers would modernise the infrastructure, improve service, and provide fresh funds for the state. By privatising telephone
operators governments also expected to send a signal to private investors
that they embraced the ‘ Washington Consensus’.30
Telefónica’s strategy of expansion in Latin America began in 1987, when it
submitted a bid for Chile’s operator, and continued in 1990, in Mexico, with
the privatisation of Telmex. In both cases Telefónica’s bids were lower than
those of its competitors. As a result its executives decided to offer more
money in the future. It submitted the highest bid in Argentina in 1990
(Telefónica was awarded the southern half of the country), in Venezuela in
1991, in Peru in 1992, and in Brazil in 1996 and 1998 (for the Companhı́a
Riograndense de Telecomunicações and Telecomunicações de São Paulo SA, respectively). In 1990 Telefónica also bought the Chilean telephone operator from
the firm that had outbid it three years before. In addition to these large
acquisitions, Telefónica also took over other operators and obtained new
concessions (see Table 2).31
To undertake this expansion, Telefónica again raised funds in the stock
markets of Madrid, New York, London, Paris, Frankfurt and Tokyo, before
1993 mainly through capital increases, and thereafter through a combination
29
30
31
Adeoye Akinsanya, The Expropriation of Multinational Property in the Third World (New York,
1980), pp. 115–16; Albert Carreras, Xavier Tafunell and Eugenio Torres, ‘ Against
Integration : The Rise and Decline of Spanish State-Owned Firms and the Decline and Rise
of Multinationals, 1939–1990’, in Ülf Olson (ed.), Business and European Integration Since 1800 :
Regional, National and International Perspectives (Göteborg, 1997), p. 32; Paul Sigmund,
Multinationals in Latin America : The Politics of Nationalization (Madison, 1980), pp. 36–9.
Ravi Ramamurti, ‘ The New Frontier of Privatization ’, in Ramamurti (ed.), Privatizing
Monopolies, pp. 1–45.
Pablo Gerchunoff and Germán Coloma, ‘ Privatisation in Argentina ’, in Manuel Sánchez
and Rossana Corona (eds.), Privatization in Latin America (Washington DC, 1993),
pp. 251–300 ; Dominique Hachette et al., ‘Five Cases of Privatization in Chile’, in Manuel
Sánchez and Rossana Corona (eds.), Privatization in Latin America, p. 90; John Kline, Foreign
Investment Strategies in Restructuring Economies. Learning from Corporate Experiences in Chile
(Westport, 1992), p. 189; Ben Petrazzini, ‘ Telephone Privatisation in a Hurry : Argentina ’,
in Ramamurti (ed.), Privatizing Monopolies, p. 127; Manuel Sánchez et al., ‘The Privatization
Process in Mexico : Five Case Studies ’, in Sánchez and Corona (eds.), Privatization in Latin
America, p. 162; Telefónica, Annual Report (1999), pp. 12, 21.
524
Pablo Toral
Table 2. Telefónica’s Main Subsidiaries in Each Country, 2005
Country
Argentina
Brazil
Chile
Colombia
Ecuador
El Salvador
Guatemala
Mexico
Nicaragua
Panama
Peru
Puerto Rico
Uruguay
Venezuela
Subsidiary
%
Telefónica de Argentina
Telefónica Móviles Argentina, S.A.
Celular CRT S.A.
Tearce Celular, S.A.
Telebahia Celular, S.A.
Telecomunicacações de São Paulo, S.A.
Telegoias Celular, S.A.
Telemat Celular, S.A.
Telems Celular, S.A.
Telergipe Celular, S.A.
Teleron Celular, S.A.
Telerj Celular, S.A.
Telest Celular, S.A.
Compañı́a de Telecomunicaciones de Chile, S.A.
Telefónica Móviles Chile Larga Distancia, S.A.
Telefónica Móviles Colombia, S.A.
Otecel, S.A.
Telefónica Móviles El Salvador, S.A. de C.V.
Telefónica Móviles Guatemala, S.A.
Baja Celular Mexicana, S.A. de C.V.
Celular de Telefonı́a, S.A. de C.V.
Movitel de Noroeste, S.A. de C.V.
Pegaso Comunicaciones y Sistemas, S.A. de C.V.
Telefónica Celular del Norte, S.A. de C.V.
Telefónica Celular de Nicaragua, S.A.
Telefónica Móviles Panamá, S.A.
Telefónica del Perú, S.A.
Telefónica Móviles, S.A.C.
Telefónica Larga Distancia de Puerto Rico, Inc.
Abiatar, S.A.
CANTV
Telcel S.A.
98.03
31.13
31.13
16.11
23.54
87.49
16.11
16.11
16.11
23.54
16.11
42.28
42.28
44.89
92.91
92.91
92.91
92.91
92.91
92.91
92.91
83.64
92.91
92.91
92.91
92.91
98.19
91.08
98.00
92.91
6.92
92.91
Source : Telefónica, Annual Report (2005), pp. 131–61.
of bonds and equity. As a result, by 1993, 24 per cent of its stock was held by
non-Spaniards. The Spanish government also gave Telefónica $1 billion in
1997, when it agreed to open up the Spanish telecommunications industry
before the deadline set by the European Union.32
Telefónica’s goal in Latin America was to become the leading provider
of comprehensive telecommunications services, integrating telephone with
Internet and multimedia across Latin America, and eventually entering the
32
Aparicio, La evolución de las telecomunicaciones españolas, pp. 60–5, 68, 76 ; Juan Perea, ‘El
desarrollo internacional del Grupo Telefónica ’, Economı́a Exterior, no. 7 (1998–99),
pp. 104–5 ; Telefónica, Annual Report (2002), p. 8.
Foreign Direct Investments of Spanish Multinational Enterprises
525
33
Spanish-speaking market of the United States. Telefónica’s managers began
to replicate in their subsidiaries the organisational culture that they had developed in Spain in the late 1980s. They transferred their know-how and
technology, devising a set of four policies. The first was the expansion of
telecommunications services to individuals and firms. Between 1989 and
2005, the number of land lines per 100 inhabitants grew by 349.7 per cent in
Chile, 304.4 per cent in Brazil ; between 1995 and 2005 it grew by 130.3 per
cent in Argentina, and 70.9 per cent in Peru. The number of cell phones
reached 67.8 per 100 people in Chile in 2005 (the highest in the Americas),
57.3 in Argentina, 47.8 in Colombia, 46.3 in Brazil, 35.1 in El Salvador, 25.0
in Guatemala and 20.0 in Peru. The second policy was to improve the quality
of service. In 2002 Telefónica completed its Pan-American optical fibre
network, allowing it to provide comprehensive telecommunications service
to the corporate sector, as well as to other telecommunications operators. By
2005 all of Telefónica’s lines had been fully digitised, except in Peru, where
the rate was 97 per cent. Third, in order to cut costs, Telefónica concentrated
procurement in a few centres in Spain and South America. It also centralised
customer relations after 1999 and human resources after 2001 (saving $112
million per year). In Chile labour productivity (the number of lines per employee) grew from 108 in 1990 to 1,058 in 2002, and in Brazil it reached 1,314
in 2002, one of the highest levels in the world. Finally, Telefónica invested in
media, services to business, advertising and e-commerce, especially after
1999, thus leading the process of convergence of telecommunications,
Internet and audiovisual services in much of Latin America.34
The Banking Sector
In 2005 Banco Bilbao Vizcaya Argentaria (BBVA) and Santander Central
Hispano (SCH) had $270.6 billion managed customer funds ($125.2 billion
and $145.4 billion, respectively) in Latin America, a figure 28 per cent greater
than Argentina’s GDP in 2005. They had 36.9 million customers in retail
banking (16.6 million and 20.3 million, respectively), and 124,350 employees
(61,604 and 62,746, respectively). 43 per cent of BBVA’s net profit and
32 per cent of SCH’s came from their Latin American subsidiaries.35
33
34
35
Telefónica, Annual Report (1996), pp. 14–15 ; Santillana, ‘ La creación de una multinacional
española ’, pp. 91, 94.
Santillana, ‘La creación de una multinacional española ’, pp. 96, 98; Telefónica, Annual
Report (1993), p. 36 ; (1996), p. 46 ; (1999), pp. 23, 57 ; (2000), pp. 12–14 ; (2001), pp. 9, 21–4,
30, 33–5, 55 ; (2002), p. 40 ; (2005), p. 118.
BBVA, Annual Report (2005), p. 102; SCH, Annual Report (2005), p. 23.
526
Pablo Toral
The managers of the Spanish banks had developed their advantages in the
context of a radical transformation of the Spanish banking and financial
markets in the 1980s. The international crisis that began in 1973 affected
Spanish banks very severely because tourism, property investment, construction and metallurgy, where they had made heavy investments, were so
seriously affected. Fifty two of the 110 banks that were in operation in 1977
had found themselves in difficulty by 1985. The Spanish government devised
a salvage operation that saved all of them from bankruptcy, but imposed new
regulations that included stronger oversight of the financial sector by the
state authorities, market-based exchange rates and interest rates, reform of
their deposit requirements in the Bank of Spain, liberalisation of fees and
commissions, elimination of the legal restrictions that barred banks, savings
and loans, cooperatives and other financial institutions from entering each
other’s business activities, and authorisation for foreign banks to enter the
Spanish market (although some restrictions remained until 1993).
The banks responded by increasing efficiency : they closed 700 offices
between 1992 and 1994 and reduced their labour force by 35,000 employees
between 1981 and 1995. A process of mergers and takeovers followed. In the
second half of the 1980s, the Spanish government feared that Spanish banks
would not be large enough to compete in the single European market and
recommended growth through a policy of mergers. The Banco de Bilbao
merged with the Banco de Vizcaya in 1987, creating the Banco Bilbao
Vizcaya (BBV), which in turn took over state-owned Argentaria Caja Postal
and Banco Hipotecario SA in 1999, to form Banco Bilbao Vizcaya Argentaria
(BBVA). The Banco de Santander took over Banesto in 1994 (Spain’s third
largest at the time) and Banco Central Hispanoamericano (BCH) in 1999, to
create SCH. The Spanish government in fact contributed to the creation of
the two large Spanish banks by selling the state-owned Argentaria to BBV,
and Banesto, a large private bank that had been bailed out by the government
in the mid-1990s, to SCH.36
In response to serious banking crises in the 1980s and 1990s, the governments of Latin America also embarked on ambitious processes of reform.
Until the 1980s, governments had set interest rates, directed credit, and insisted that banks hold a large share of deposits as reserves. Nonetheless,
financial institutions were often subject to lax rules and engaged in risky
investments. Lack of an adequate supervisory framework precipitated the
36
Jordi Canals, Bancos universales y diversificación empresarial (Madrid, 1996), pp. 291–6; Ramón
Casilda, La banca española: análisis y evolución (Madrid, 1997), pp. 45–58 ; Ignacio Lagartos, ‘El
papel de la banca española ’, Perspectivas del sistema financiero, no. 66 (1999), p. 87 ; Altina
Sebastián, Nuevas estrategias del sistema bancario en la Unión Económica y Monetaria (Madrid,
1999), pp. 44–5 ; Gabriel Tortella, The Development of Modern Spain : An Economic History of the
Nineteenth and Twentieth Centuries (Cambridge, 2000), pp. 397–8.
Foreign Direct Investments of Spanish Multinational Enterprises
527
so-called ‘Debt Crisis ’ of 1982. Many firms defaulted on their loans or
their interest payments to the local banks. In some cases, the proportion of
non-performing loans exceeded 20 per cent. As a result the financial reforms
implemented from the 1980s restricted the role of governments to the enforcement of legislation and the creation of independent supervisory agencies. The reforms also included the deregulation of interest rates, the
elimination of direct credit allocation rules, the reduction and harmonisation
of reserve requirements for commercial banks, the relaxation of barriers to
entry, the development of securities markets and institutional investors, the
implementation of modern and efficient supervisory legislation, stricter accounting standards, and new safety nets to protect deposits.37
At this point the managers of Spanish banks saw that Latin America was
an attractive region in which to invest and that BBVA and SCH had the
know-how needed to help develop the market. Matı́as Rodrı́guez Inciarte,
the vice-chairman of SCH in the 1990s, argued that the elimination of trade
barriers, fiscal discipline, macroeconomic stability, and privatisation made
the region more stable and that the relative underdevelopment of the banking sector created great prospects for growth. The proportion of loans and
deposits to GDP in Latin America was very low (23.5 per cent for deposits
and 22.9 per cent for loans, compared with 68.2 per cent and 71.2 per cent in
Spain in 1996). The number of accounts per capita in Chile, the Latin
American country with the highest number, was 0.9 in 1998, compared with
2.6 in the United States. Mediation margins were higher than in the more
developed countries (5.0 per cent on average for the period 1993–96), as well
as in Eastern Europe (3.5 per cent) and Asia (3.2 per cent). The operating
ratio (the relationship between expenses and revenue) was 78 per cent in
Latin America, 47 per cent in Southeast Asia, and 51 per cent in Eastern
Europe, creating great opportunities for efficiency gains. The process of
privatisation of state-owned firms, reforms of pension systems, and the
emission of public bonds to finance state deficits provided additional incentives.38 In 2002 Francisco Luzón, the chief executive of SCH, argued that
‘ the process of privatisation, concentration and liberalisation that we went
through in Spain in the last twenty or twenty-five years was a great learning
37
38
Edwards, Crisis and Reform in Latin America, pp. 200–8; Elizabeth McQuerry, ‘The Banking
Sector Rescue in Mexico ’, in Federal Reserve Bank of Atlanta, Economic Review, vol. 84, no. 3
(1999), pp. 14–29 ; Luiz de Paula, Banking Internationalisation and the Expansion Strategies of
European Banks to Brazil during the 1990s (Vienna, 2002) ; Barbara Stallings and Rogério
Studart, Financial Regulation and Supervision in Emerging Markets : The Experience of Latin America
since the Tequila Crisis (Santiago, 2001), pp. 23–4.
Matı́as Rodrı́guez, ‘La expansión de las empresas españolas en Iberoamérica : el caso de la
banca’, Economı́a Exterior, no. 7 (1998/99), pp. 29–33.
528
Pablo Toral
Table 3. BBVA’s Main Subsidiaries in Latin America, 2005
Country
Argentina
Bolivia
Brazil
Chile
Colombia
Ecuador
Mexico
Panama
Paraguay
Peru
Puerto Rico
Uruguay
Venezuela
Subsidiary
%
BBVA Banco Francés, S.A.
AFP Previsión BBV
Banco Uno-e Brasil S.A.
AFP Provida
BBVA Chile, S.A.
BBVA Colombia, S.A.
BBVA Horizonte
AFP Génesis
BBVA Bancomer S.A. de C.V.
BBVA Panamá
BBVA Paraguay, S.A.
AFP Horizonte S.A.
Banco Continental
BBVA Puerto Rico
BBVA Uruguay, S.A.
Banco Provincial S.A.-Banco Universal
76.10
85.00
100.00
64.32
66.62
95.37
99.95
100.00
100.00
98.92
99.99
100.00
92.08
100.00
100.00
55.60
Source : BBVA, Annual Report (2005), pp. 242–9.
experience for Banco Santander and facilitated our internationalisation in
Latin America’39 BBVA’s CEO also believed in 1999 that
‘ in Latin America, the strategy of our group is based on a long-term commitment to
consolidate a regional franchise, which already has great value, in which the entrepreneurial model, automation, and the systems platforms that our business units
have in Spain, are in an advanced stage of implementation ’.40
The banks taken over by BBVA and SCH in Latin America were very
different. Some had been wholly or partly state-owned, some were distressed
private local banks in which the government had intervened, some were still
solvent private banks formed by local capital, and others were subsidiaries
of foreign banks. BBVA’s normal strategy was to seek a strong local partner,
from which it purchased between 30 and 40 per cent of its stock and then
gradually increased its share of ownership. In contrast, SCH sought majority
ownership from the beginning. After taking over local institutions, both
Spanish banks began to transfer their know-how.
The first step involved the reorganisation of management structures
within the banks, selecting local managers for the top positions in order to
ease relations with key domestic actors, including the government and
business.41 Then they cleaned up the banks’ balance sheets. For example, to
39
41
Francisco Luzón, ‘La experiencia de Santander Central Hispano ’ (Paper delivered at the
seminar on ‘Iberoamérica y las empresas españolas’, Universidad Internacional Menéndez
40
Pelayo, Santander, Spain, 20 August 2002).
BBVA, Annual Report (1999), pp. 5–6.
BBVA, Annual Report (1997), pp. 14–15; Interview with Isabel Garcı́a, Head of the Office
of Relations with Investors, SCH, Madrid, 29 June 2001.
Foreign Direct Investments of Spanish Multinational Enterprises
529
Table 4. SCH’s Main Subsidiaries in Latin America, 2005
Country
Argentina
Bolivia
Brazil
Chile
Colombia
Mexico
Peru
Puerto Rico
Uruguay
Venezuela
Subsidiary
%
Banco Rı́o de la Plata S.A.
Orı́genes AFJP, S.A.
Banco Santa Cruz, S.A.
Banco do Estado de São Paulo, S.A.
Banco Santander Meridional
AFP Summa Bansander, S.A.
Banco Santander Chile
AFPC Santander, S.A.
Banco Santander Colombia, S.A.
Banco Santander Serfı́n, S.A.
Santander Mexicano S.A. de C.V. Afore
AFP Unión Vida, S.A.
Banco Santander Puerto Rico
Banco Santander Uruguay, S.A.
Riobank International (Uruguay) SAIFE
Banco de Venezuela, S.A., Banco Universal
99.30
59.20
96.33
98.15
98.18
100.00
84.14
100.00
97.64
100.00
100.00
99.94
100.00
100.00
100.00
98.42
Source: SCH, Annual Report (2005), pp. 278–81.
raise funds for its new Mexican subsidiary, BBVA undertook capital increases of $172 million in 1997 and $53 million in 1998. In order to finance
its development in Latin America, SCH closed down or reduced some of
its activities in other regions, including fixed income and equity activities
in New York and London, and investment banking in Asia in 1998.42 The
managers of BBVA and SCH believed that the low use of banking services in
Latin America was in part due to the poor reputation of the local banks as a
result of periodic banking crises, and in part to the underdevelopment of
banking and financial products and services. The third step of their strategy,
therefore, was to build trust. To achieve this, they used a uniform image
across Latin America under the BBVA or Santander brand, launched advertising campaigns that showed themselves as innovating and modern,
transferred technology and know-how from Spain, and followed a policy
of transparency and information disclosure, by issuing reports on their activities, strategies and financial results, by publicising reports conducted by
independent auditors, and by inviting the press to many activities.43 They
aimed to provide as many financial and banking services as customers might
need, so they would not go anywhere else.44
42
43
44
BBVA, Annual Report (1997), pp. 14–15, 133–4 ; SCH, Annual Report (1997), pp. 4, 63, 118,
131; (1998), p. 84.
BBVA, Annual Report (1997), pp. 133–4 ; (1998), pp. 108, 166–7 ; (1999), pp. 31–3; (2002),
pp. 227–37; SCH, Annual Report (1999), pp. 117–19, 129; (2000), p. 100; (2001), p. 20 ;
(2002), pp. 57–77, 131–7.
SCH, Annual Report (1997), p. 88; (1999), p. 126.
530
Pablo Toral
How did they achieve efficiency gains and improve the operating ratio ?
Growth in revenue relied heavily on their provision of pension fund and
mutual fund management services, taking advantage of the privatisation of
pension programmes in Latin America. In 2005, between them, the two
Spanish banks controlled 20 per cent of bank loans and bank deposits and
33 per cent of pension funds deposits in Latin America. Other strategies to
increase revenue included altering fees and commission payments, and crossselling products. Reduction of costs relied on four main programmes :
adoption of a single technological platform across subsidiaries; reduction of
the workforce ; promotion of labour-saving means of banking, such as cash
machines (ATMs), telephone banking and the internet; and the centralisation
of core functions. As a result, BBVA improved the efficiency ratio (the
proportion of revenue that gets lost as transaction costs) of its Latin
American subsidiaries from 55.5 per cent in 1998 to 42.9 per cent in 2005,
while in SCH it improved from 65.2 per cent in 1995 to 47.4 per cent in
2005.45
Both banks developed mechanisms to minimise risk. Some of these were
based on calculations of country risk (their subsidiaries adjusted their policies
periodically to perceived changes in risk levels) and others were based on a
system of ratings for businesses and scoring for individuals. As a result
BBVA reduced the default ratio (the proportion of non-performing loans) in
their Latin American subsidiaries dramatically – from 12.6 per cent in 1995
to 2.7 per cent in 2005 – while SCH moved from 3.3 per cent to 1.9 per cent
over the same period.46
Finally, both banks provided financial support for the expansion of
Spanish firms in Latin America. Cooperation was sealed in the 1990s when
BBVA and SCH participated in the privatisation of formerly state-owned
firms in Spain by buying controlling stock. BBVA was part of the núcleo duro
of Repsol, Telefónica, Gas Natural, Iberdrola and Endesa, and BS and BCH
controlled Unión Fenosa’s stock (although after their merger they sold it).47
45
46
47
BBV, Annual Report (1997), pp. 20–1, 135–6 ; (1998) pp. 160–1, 168–71; (1999) pp. 32,
34–5; (2000) pp. 107–13 ; (2001) pp. 100, 122, 125, 130; (2005) datos relevantes ; SCH,
Annual Report (1996), pp. 79, 82, 137 ; (1997) pp. 41, 80 ; (1998) pp. 27, 73–5, 84, 168–9;
(1999) pp. 37, 113; (2000) pp. 108–9, 113; (2002) pp. 116; (2005) datos relevantes.
BBVA, Annual Report (2001), pp. 5, 25, 56, 61–3, 70–6 ; (2002) p. 59 ; (2005) datos relevantes ; SCH, Annual Report (2000), pp. 86, 136–61 ; (2005) datos relevantes.
Jordi Canals, Bancos universales y diversificación empresarial, p. 317; Juan José Durán, ‘BBV : una
empresa financiera multinacional con diversificación industrial ’, in Durán (ed.),
Multinacionales Españolas II, pp. 48–51 ; Francisco Javier Sáez and Manuel Martı́n, ‘ Las
participaciones empresariales de la banca y las cajas de ahorros españolas, 1992–1998 ’,
Papeles de economı́a española, nos. 84–85 (2000), pp. 222–36; Emilio Ybarra, ‘ Preveo una
nueva ola de fusiones y adquisiciones en nuestro paı́s’, Perspectivas del sistema financiero, no. 60
(1997), p. 147.
Foreign Direct Investments of Spanish Multinational Enterprises
531
The Energy Sector
In 1995 the World Bank estimated that additional generating capacity of
70,000 megawatts (MW) would be needed in Latin America and the
Caribbean between 1994 and 2000. Demand for electricity was expected to
grow by 5.5 per cent annually, compared with 1.9 per cent in the United
States, with returns on investment of 20–25 per cent (8–10 per cent in the
United States). Meeting this demand would require additional investments of
$20–25 billion.48 In the midst of adjustment and debt-reduction schemes,
Latin American governments realised that state-owned energy companies
would be unable to meet these requirements and decided to open these
industries to the private sector. Endesa, Iberdrola, and Unión Fenosa determined to take advantage of this opportunity. By 2005 they had 23,172 MW
of installed capacity in Latin America (14,905 MW, 5,544 MW and 2,723
MW, respectively), equivalent to the whole of Argentina’s consumption in
2001. Repsol-YPF, thanks mainly to the investments in oil and natural gas in
Latin America and the Caribbean that it undertook at the same time, had
become the eighth largest oil and gas firm in the world and the third main
producer of liquefied petroleum gas by 2003.49 Public utilities and oil and
natural gas are analysed together in this section, because Spanish firms in
these industries worked together to promote the use of natural gas for the
generation of electricity.50
Spanish public utilities began to operate in Latin America in the early
1990s as consultants. In the middle of the decade, they began investing in
earnest. Again they believed that the technology and know-how they had
developed in Spain since the 1980s, while modernising their infrastructure,
taking over smaller firms and increasing energy production to meet the
growing needs of the market, would be applicable in Latin America.
Moreover, they were concerned about the liberalisation schedule that the
European Union had set for the energy sector, which required member states
to open their borders to public utilities from other member countries by
2007.
The managers of the Spanish public utilities believed that they had developed competitive advantages in the second half of the 1980s and early
1990s. At that point they worked closely with the Spanish government to
solve the crisis that had affected the energy sector since the late 1960s, when
48
49
50
Saud Siddique, ‘Financing Private Power in Latin America and the Caribbean ’, Finance and
Development, vol. 32, no. 1 (1995), pp. 18–21.
Repsol became Repsol-YPF in 1999 after merging with Argentina’s Yacimientos
Petrolı́feros Fiscales, YPF.
Endesa, Annual Report (2005), pp. 2–5 ; Iberdrola, Annual Report (2005), pp. 91–3 ; Unión
Fenosa, Annual Report (2005), pp. 107–9; Interview with Enrique Waterhouse.
532
Pablo Toral
the government forced public utilities to build nuclear power plants to meet
growing demand.51 In the 1980s, the government allowed firms to raise
electricity charges well above production costs, encouraged them to exchange facilities to boost their generation capacity, created an electricity pool
(to which firms contributed their excess production), and eliminated the
requirement to build expensive nuclear power plants. To compensate for the
costs of the nuclear programme and to help firms modernise their infrastructure, the government gave them soft loans and cash handouts (including
one of $13.5 billion in 1997 alone) that allowed them to reduce their debts.
The government also took over the least profitable activities in the energy
sector, namely the distribution network and the central coordinating entity.
The elimination of regional monopolies in 1989 allowed firms to expand
throughout the country. A process of concentration followed. Whereas in
1980 only Endesa had a market share of energy generation of over 15 per
cent, by 1996 only four firms were left in the market. By then, Endesa and
Iberdrola controlled 80 per cent of generation and distribution, and Unión
Fenosa, 14 per cent. The Spanish public utilities used a diversified base of
energy sources (hydroelectric, coal, nuclear, natural gas and renewable), they
had modern infrastructure and sufficient installed capacity in Spain to meet
market demand, they were efficient, and they had the liquidity to undertake
new expansion projects outside Spain.52
The Spanish government played a more direct role in the creation of a
Spanish oil giant, Repsol-YPF. After the nationalisation of Spain’s oil industry in 1927, in order to guarantee a steady supply for the domestic market,
private firms were only allowed in a small number of activities, principally in
exploration during the 1960s and 1970s. To prepare for privatisation the
government brought all of the state-owned oil firms under a single umbrella,
Repsol, in 1987. With more than 5,000 service stations in 1990 (other Spanish
firms had only 180, and foreign firms just 7), Repsol had a firm grip over the
Spanish oil market, and it monopolised the market for butane. In 1991
Repsol refined more than 60 per cent of all crude oil in Spain and produced
half its output of petrochemicals. The partial liberalisation of the market and
full privatisation of Repsol came under pressure from the European Union
in the early and mid-1990s. The Spanish government also gave Repsol
51
52
Juan de la Cruz and Eva Pérez, La liberalización de los servicios públicos y el sector eléctrico : modelos y
análisis de la Ley 54/1997 (Madrid, 1999), pp. 284–5.
Gaspar Ariño, ‘El mercado eléctrico y los costes de transición a la competencia ’, Economı́a
Industrial, no. 316 (1997), pp. 93–108; Cruz and Pérez, La liberalización de los servicios públicos,
pp. 287–93, 302–4 ; Miguel Cuerdo, ‘La polı́tica energética española : de la planificación al
mercado (con arreglo al Protocolo)’, Economistas, no. 74 extra (1997), pp. 79–86 ; Pilar
Sánchez, ‘Los modelos de regulación de los sectores energéticos en España’, Economı́a
Industrial, no. 318 (1997), pp. 78–9.
Foreign Direct Investments of Spanish Multinational Enterprises
533
control over the Spanish gas market by transferring state-owned gas ventures
to its subsidiary, Gas Natural, and preventing foreign competition until the
late 1990s. Ironically, between 2003 and 2005, Spain became one of the first
countries in the European Union to eliminate all restrictions to foreign entry
into its hydrocarbons industry. By then, however, Repsol had secured a
leadership position.53
Repsol’s involvement in all of the stages of the oil and gas cycles, from
exploration and production, to distribution and marketing, and all other
intermediate activities, gave its managers and employees know-how.54
However, due to Spain’s lack of oil and gas deposits, Repsol’s revenue in
1996 came mainly from refining and marketing (30 per cent), gas (30 per
cent) and chemicals (30 per cent), with only 10 per cent from exploration and
production, making it dependent on other companies for its supply of crude
oil.55 Growth in upstream activities would lessen its dependence on
other firms for raw materials. Repsol’s managers, therefore, decided to gain
exploration and production rights in part through acquisitions of other
firms. Alberto Cortina, Repsol’s chief executive, stated in 1996 that ‘South
America is an emerging area on the world economic scenario, with a rapidly
expanding energy market, where we believe we have clear competitive
advantages _ The idea behind this strategic expansion is to place Repsol as
an integrated energy company in Latin America ’.56 In addition, RepsolYPF’s Finance and Project Manager in Buenos Aires, Enrique Waterhouse,
explained that Repsol’s takeover of Argentina’s YPF was also about obtaining know-how and technology in upstream activities, as well as gaining
connections with the Argentine government and business community.57
Reforms in the public utility sectors of Latin America began in Chile in the
1970s and 1980s, but then continued in the rest of the region following the
debt crisis and its aftermath. The reformers sought three main goals: the
introduction of competition in generation and distribution, the involvement
of the private sector (including foreign firms), and the introduction of new
management methods to increase energy production, to lower energy prices,
53
54
55
56
Jorge Basso, ‘La industria española del gas: del anonimato a la fama. Las nuevas circunstancias y las tendencias en el exterior ’, Economı́a Industrial, no. 302 (1995), pp. 113–15; José
Damián Bogas, ‘ La convergencia de gas y electricidad en el mercado energético global’,
Economı́a Industrial, no. 321 (1998), p. 112 ; Cı́rculo de Empresarios, ‘El sector de la energı́a:
una visión panorámica de su reforma regulatoria ’ (Documentos Cı́rculo, no. D 055197,
Madrid, 1999), pp. 30–7 ; Repsol-YPF, Annual Report, (2000), pp. 24–5; Sánchez, ‘ Los
modelos de regulación’, pp. 79–80.
Juan José Durán and Marı́a José Garcı́a, ‘ Repsol: polı́tica pública y eficiencia empresarial ’,
in Durán (ed.), Multinacionales Españolas I, pp. 243–4 ; José Luis Dı́az, ‘ Tendencias en la
investigación y explotación de hidrocarburos. Evolución de la legislación española ’,
Economı́a Industrial, no. 321 (1998), 26–7 ; Sánchez, ‘ Los modelos de regulación’, p. 78.
Repsol, Annual Report (1995), pp. sumario, 2 ; (1996), p. 2 ; (1998), p. 5.
57
Repsol, Annual Report (1996), p. 3.
Interview with Enrique Waterhouse.
534
Pablo Toral
and to improve the quality of service. Reforms in the oil and gas sectors
began when the fall in oil prices in the mid-1980s reduced income from
exports. Experts believed that Latin American oil and natural gas firms
needed $30 billion in investments to expand energy production in the 1990s
and the governments found themselves without the resources to undertake
these investments. Reforms in the oil and gas industries in Argentina, where
the government privatised its state-owned oil and gas firms, went the
furthest. Brazil, Mexico and Venezuela only permitted foreign firms in certain ventures, mainly in old oilfields where production was low or in new
areas where production was difficult for domestic firms. However, these
countries did not privatise their state-owned oil giants. With the growth in
demand for natural gas worldwide after the 1970s, natural gas also became
one of the gems of the Latin American hydrocarbon market in the late
1990s.58
Three Spanish public utility firms participated in the Latin American reforms, Endesa, Iberdrola and Unión Fenosa, together with one oil firm,
Repsol. They raised resources on the stock market through capital increases,
conversion of debt to equity, and the emission of bonds. Repsol’s takeover
of YPF in 1999, for example, the largest in Latin American history at that
time, totalling $14.9 billion, was financed through Eurobonds worth $7.7
billion and a capital increase of $5.7 billion. The Spanish firms also received
syndicated banking loans involving BBVA, SCH, and other large international institutions. The strong relationship among the Spanish firms became clearest in the energy sector. The use of natural gas to generate
electricity facilitated cooperation between Repsol and the public utilities,
especially with Endesa and, above all, Iberdrola. Cooperation was also
possible in part thanks to the participation of BBVA in the núcleo duro of both
these firms ; BBVA’s representatives called for cooperation between them.
Iberdrola offered bonds that were redeemable for the stock of Repsol-YPF
58
Paulina Beato and Carmen Fuente, ‘Liberalization of the Gas Sector in Argentina,
Colombia, and Mexico ’, in Federico Basañes and Robert Willig (eds.), Second-Generation
Reforms in Infrastructure Services (Washington DC, 2002), pp. 323, 326–32; Humberto
Campodónico, ‘The Natural Gas Industry and its Regulation in Latin America ’, Cepal
Review, no. 68 (1999), pp. 137, 141–3 ; Ronald D. Fischer and Pablo Serra, ‘ Regulating the
Electricity Sector in Latin America ’, Economı́a, vol. 1, no. 1 (2000), pp. 155–8; Kim Fuad,
‘ Oil and Natural Gas Privatisation ’, in Paul H. Boeker (ed.), Latin America’s Turnaround:
Privatisation, Foreign Investment, and Growth (San Francisco, 1993), pp. 153–5, 159–60 ; Ahmad
Ghamarian, Best Practices Guide: Electricity Regulation in Latin America (New York, 2002),
pp. 10–11; Stephen Randall, ‘Oil Industry Development and Trade Liberalisation in the
Western Hemisphere ’, The Energy Journal, vol. 14, no. 3 (1993), pp. 114–18; H. Rudnick and
J. Zolezzi, ‘Electricity Utility Deregulation and Restructuring : Electric Sector Deregulation
and Restructuring in Latin America. Lessons to be Learnt and Possible Ways Forward ’,
IEE Proceedings Online, No. 20010230, DOI: 10.1049/ip-gtd : 20010230, paper received
15 November 2000, p. 180.
Foreign Direct Investments of Spanish Multinational Enterprises
535
Table 5. Endesa’s Main Subsidiaries in Latin America, 2005
Country
Argentina
Brazil
Chile
Colombia
Peru
Subsidiary
%
Empresa Distribuidora Sur, S.A. (Edesur)
Ampla Energı́a e Serviços, S.A. (Ampla)
Companhı́a de Interconexão Energética, S.A. (Cien)
Companhı́a Energética do Ceará, S.A. (Coelce)
Chilectra, S.A.
Empresa Eléctrica Pehuenche, S.A.
Endesa Chile
Enersis
Central Hidroeléctrica de Betania, S.A.
Codensa, S.A.
Empresa Generadora de Energı́a Eléctrica, S.A. (Emgesa)
Edegel, S.A.
Empresa de Distribución Eléctrica de Lima Norte, S.A. (Edelnor)
99.45
91.93
100.00
58.86
98.25
92.65
59.98
60.62
85.62
48.48
48.48
63.56
60.00
Source: Endesa, Annual Report (2005), p. 79.
in 2001, and in 2002, Repsol-YPF’s subsidiary, Gas Natural, paid Iberdrola
$165 million for its Brazilian natural gas operations.59
The expansion strategy of the three public utilities followed three phases.
During the first half of the 1990s, Iberdrola and Unión Fenosa provided
consulting services to Latin American public utilities. As governments began
to privatise such operations, the Spanish firms made some small acquisitions.
In a second phase, after 1996, both firms accelerated their investments.
Iberdrola focused on Northeast Brazil and Mexico, Unión Fenosa on Central
America and the Caribbean, and Endesa, the latecomer, began making investments at this point in Argentina, Brazil, Colombia and Peru. The third
phase began in the late 1990s, after the three Spanish companies had completed most of their acquisitions. They then focused on improving efficiency
and infrastructure and increasing energy supply.60
To achieve these goals, they adopted six measures. First, they built new
facilities and/or upgraded older ones to increase generating capacity. Fifty
eight per cent of the increase came from combined cycle power plants
powered by natural gas and water (Repsol-YPF was the main supplier
59
60
Endesa, Annual Report (2000), pp. 37–8; (2002), pp. 58, 74 ; Iberdrola, Annual Report (2001),
pp. 21, 24–5, 54; Iberdrola, Annual Report (2002), pp. 53, 58; Repsol, Annual Report (1997),
pp. 5, 34 ; (1998), p. 13; Repsol-YPF, Annual Report (1999), p. 2; (2001), pp. 3, 11–13 ;
(2002), pp. 2–4.
Endesa, Annual Report (1996), p. 26 ; (1998), pp. 50–1 ; Iberdrola, Annual Report (1995),
pp. 48–9; (1996), pp. 10–11, 68 ; (1999), p. 43; (2000), p. 66 ; Victoriano Reinoso,
‘Oportunidades del nuevo entorno energético internacional. La experiencia de Unión
Fenosa en los mercados emergentes ’, Economistas, no. 76 (1998), pp. 64–6; Unión Fenosa,
Annual Report (1996), p. 65 ; (1997), pp. 56–7.
536
Pablo Toral
Table 6. Iberdrola’s Main Subsidiaries in Latin America, 2005
Country
Subsidiary
%
Bolivia
Electricidad de La Paz, S.A.
Empresa de Luz y Fuerza Electrica de Oruro, S.A.
Companhı́a de Eletricidade do Estado do Bahı́a, S.A.
Companhı́a de Eletricidade do Pernambuco, S.A.
Companhı́a Energética do Rı́o Grande do Norte, S.A.
Empresa de Servicios Sanitarios de Los Lagos, S.A.
Iberoamericana de Energı́a Ibener, S.A.
Comercializadora Eléctrica de Guatemala, S.A.
Distribuidora Eléctrica Centroamericana II, S.A.
Empresa Eléctrica de Guatemala, S.A.
Energica, S.A.
Transportista Eléctrica Centroamericana, S.A.
Electricidad de Veracruz, S.A. de C.V.
Electricidad de Veracruz II, S.A. de C.V.
Enertek, S.A. de C.V.
Iberdrola Energı́a Altamira, S.A. de C.V.
Iberdrola Energı́a del Golfo, S.A. de C.V.
Iberdrola Energı́a la Laguna, S.A. de C.V.
Iberdrola Energı́a Monterrey, S.A. de C.V.
Iberdrola Energı́a Tamazunchale, S.A. de C.V.
Energyworks Venezuela, S.A.
56.76
58.85
42.76
34.78
39.92
50.90
94.74
39.64
49.01
39.64
39.63
39.63
99.99
99.99
99.99
99.99
99.99
99.99
99.99
99.99
100.00
Brazil
Chile
Guatemala
Mexico
Venezuela
Source : Iberdrola Annual Report (2005), pp. 100–4.
Table 7. Unión Fenosa’s Main Subsidiaries in Latin America and the
Caribbean, 2005
Country
Colombia
Costa Rica
Dominican Republic
Guatemala
Mexico
Nicaragua
Panama
Subsidiary
%
Compañı́a de Electricidad de Tulúa, S.A.
Electrificadora de la Costa Atlántica, S.A. E.S.P.
Electrificadora del Caribe S.A., E.S.P.
Empresa de Energı́a del Pacı́fico, S.A. E.S.P.
Energı́a Empresarial de la Costa, S.A., E.S.P.
Unión Fenosa Generadora La Joya, S.A.
Generadora Palamara La Vega, S.A.
Distribuidora Eléctrica de Occidente, S.A.
Distribuidora Eléctrica de Oriente, S.A.
Fuerza y Energı́a de Hermosillo, S.A. de C.V.
Fuerza y Energı́a de Naco Nogales, S.A. de C.V.
Fuerza y Energı́a de Tuxpan, S.A. de C.V.
Generación Hermosillo, S.A. de C.V.
Generación Naco Nogales, S.A. de C.V.
Distribuidora de Electricidad del Norte, S.A.
Distribuidora de Electricidad del Sur, S.A.
Empresa Distribuidora de Electricidad Chiriquı́, S.A.
Empresa Distribuidora de Electricidad Metro Oeste, S.A.
55.07
70.51
71.56
63.82
71.03
65.00
100.00
90.83
92.84
100.00
100.00
100.00
100.00
100.00
79.56
79.56
51.00
51.00
Source : Union Fenosa, Annual Report (2005), pp. 69–72.
Foreign Direct Investments of Spanish Multinational Enterprises
537
of gas); the other main technologies used were wind farms (25 per cent),
hydroelectric power plants (11 per cent) and co-generation plants (less than 1
per cent). The three firms had almost 23 million customers in 2005, almost
half of them in Brazil.61 Second, they transferred know-how and management models in the generation and distribution of electricity, as well as in
non-traditional activities such as water management, natural gas distribution,
and telecommunications. Third, they increased efficiency in terms of power
losses, production per employee, number of customers per employee, and
operating costs.62 Fourth, they made investments in new areas such as telecommunications. Endesa and Iberdrola also operated water treatment facilities and Unión Fenosa moved into pollution abatement and engineering.63
Fifth, they built alliances that normally involved a financial partner (sometimes BBVA or SCH), and a local firm. Repsol-YPF provided natural gas for
their combined cycle power plants. Telefónica and Electricidade de Portugal
(EDP) were their partners in telecommunications.64 Sixth, to reduce risk, the
three firms incorporated local partners. They used credit from multilateral
financial institutions (mainly the Inter-American Development Bank, the
European Bank of Reconstruction and Development, and the IMF’s
International Financial Corporation), they concentrated their investments in
the markets with the highest growth potential (principally Brazil and
Mexico), they dollarised many of their transactions, and they converted debt
into hard currency, mainly euros.65
Repsol’s strategy comprised four points. The first was growth in exploration and production of oil and gas in Latin America and the Caribbean to
supply its downstream markets in Latin America and Spain. Seventy five
per cent of Repsol’s production in 2005 came from Argentina, Bolivia
and Brazil.66 Repsol invested heavily in natural gas, mainly in Argentina,
Bolivia, Brazil, and Trinidad and Tobago (where it shipped part of the gas to
the United States) ; gas is cleaner than other sources of energy and had
great growth potential. To stimulate demand, Repsol-YPF teamed up with
Iberdrola to build and operate combined cycle power plants in Argentina and
61
62
63
64
65
66
Data from several annual reports.
Endesa, Annual Report (1999), p. 50 ; (2000), pp. 12–82 ; (2001), pp. 92, 111; (2002), pp. 74, 78.
Endesa, Annual Report (2000), pp. 91–3, 96, 99–100; (2001), p. 104 ; (2002), p. 126;
Iberdrola, Annual Report (1998), pp. 16–17 ; (1999), p. 5; (2001), pp. 2, 20, 47, 51; Unión
Fenosa, Annual Report (1996), p. 62 ; (1999), p. 4.
Iberdrola, Annual Report (1997), p. 49 ; (1998), pp. 48, 56–7; (1999), p. 21; (2005), p. 51.
Endesa, Annual Report (1997), p. 23 ; (2000), pp. 37–8; (2002), pp. 24–8, 55–8, 74–5, 110–11 ;
Iberdrola, Annual Report (1996), p. 68 ; (1997), p. 19; (2001), pp. 45, 54 ; Unión Fenosa,
Annual Report (2001), p. 105; (2002), p. 66.
Repsol-YPF, Annual Report (1999), p. 18 ; (2005), p. 31.
538
Pablo Toral
Table 8. Repsol-YPF’s Main Subsidiaries in Latin America and
the Caribbean, 2005
Country
Argentina
Bolivia
Brazil
Chile
Colombia
Ecuador
Mexico
Peru
Puerto Rico
Subsidiary
% Held by
Repsol-YPF
Gas Austral, S.A.
Gas Natural Ban, S.A.
Mejorgás, S.A.
Metrogás, S.A.
Pluspetrol Energy, S.A.
Poligás Luján, S.A.
Profertil, S.A.
Refinerias del Norte, S.A.
Repsol YPF Gas, S.A.
YPF, S.A.
AESA Construcciones y Servicios Bolivia
Empresa Petrolera Andina, S.A.
Maxus Bolivia, Inc.
Pacific LNG Bolivia, S.R.L.
Respol YPF E&P de Bolivia, S.A.
Repsol YPF Gas de Bolivia
Repsol YPF GLP de Bolivia, S.A.
Transierra, S.A.
Gas Natural do Brasil, S.A.
Gas Natural São Paulo Sul, S.A.
Manguinhos Distribuidora, S.A.
Manguinhos Quı́mica, S.A.
Refinaria de Petróleos Manguinhos, S.A.
Repsol Gas Brasil, S.A.
Repsol YPF Brasil, S.A.
Transportadora Sul Brasileira do Gas, S.A.
Empresas Lipigás, S.A.
Oleoducto Trasandino Chile, S.A.
Operaciones y Servicios YPF, Ltda.
Petroleos Transadinos YPF, S.A.
Gas Natural, S.A. ESP
Gas Natural Cundiboyacense, S.A. ESP
Gases de Barrencabermeja, S.A. ESP
Gasoriente, S.A. ESP
Autogás, S.A.
Combustibles Industriales Oil Trader, S.A.
Duragás, S.A.
Repsol YPF Comercial del Ecuador, S.A.
Dynasol Elastómeros, S.A. de C.V.
Repsol Exploración México, S.A. de C.V.
Servicios Administrativos Cuenca de Burgos, S.A. de C.V.
Limagás, S.A.
Peru LNG Company, LLC.
Refinerı́a La Pampilla, S.A.
Repsol Comercial, S.A.C.
Repsol YPF Comercial de la Amazonı́a, S.A.C.
Repsol YPF Comercial del Perú, S.A.
Ecoeléctrica LP, Ltd.
50.00
70.00
75.73
70.00
45.00
50.49
50.00
50.00
85.00
99.04
100.00
50.00
100.00
37.50
100.00
51.00
100.00
44.50
99.99
100.00
100.00
100.00
30.71
100.00
100.00
15.00
45.00
100.00
100.00
100.00
59.06
77.45
99.99
54.50
100.00
100.00
100.00
100.00
50.01
100.00
100.00
29.97
20.00
51.03
100.00
100.00
99.61
100.00
Foreign Direct Investments of Spanish Multinational Enterprises
539
Table 8. (Cont.)
Country
Trinidad and
Tobago
Venezuela
Subsidiary
Atlantic LNG Company of Trinidad and Tobago
Repsol LNG T&T, Ltd.
Calio, LLC.
Repsol YPF Venezuela, S.A.
Respol YPF Venezuela Gas
Termobarrancas, C.A.
% Held by
Repsol-YPF
20.00
100.00
100.00
100.00
100.00
51.00
Source : Repsol-YPF (2005), Annual Report, pp. 166–77.
Brazil, and supplied Endesa with natural gas for its plants in both countries.67
The second point was to operate refineries in Argentina, Brazil and Peru in
order not to depend on other firms to process the output from its upstream
activities.68 The third was to strengthen its brand reputation in Latin America
by building a network of 2,732 petrol stations to sell its own products: 1,838
of these were in Argentina (where YPF had been dominant in the market
for fuel and oil products), 412 in Brazil, 211 in Chile, 121 in Ecuador, and 155
in Peru. Repsol-YPF also distributed bottled liquefied petroleum gas (LPG)
in Argentina, Bolivia, Ecuador and Peru, and natural gas through its network
of pipelines in Argentina, Brazil, Colombia and Mexico, as well as rubber
and fertilisers.69 The fourth point was to manage risk wisely. In spite of the
Argentine crisis of 2001, and the decision of the Bolivian government to
nationalise hydrocarbons in 2006, Repsol-YPF’s managers remained committed to Latin America. They stressed Repsol-YPF’s ability to respond
quickly to economic and political shocks and to negotiate with the governments on a regular basis.70
67
68
69
70
Repsol, Annual Report (1995), p. 23 ; (1996), pp. 3, 5, 30, 33 ; (1998), p. 34 ; (1999), pp. 31–4;
Repsol-YPF, Annual Report (2000), pp. 5, 26 ; (2002), pp. 29–30 ; (2005), p. 31.
Repsol, Annual Report (1996), p. 18; (1997), pp. 20–54; Repsol-YPF, Annual Report (2000),
p. 17.
Repsol, Annual Report (1995), pp. 23, 25 ; (1996), pp. 28–9; (1997), pp. 29–32 ; (1998), pp. 6,
32–4; Repsol-YPF, Annual Report (1999), pp. 7, 27–30 ; (2000), pp. 18–20, 23 ; (2001),
pp. 20–2; (2002), pp. 21, 25–6.
After this article was first drafted Repsol-YPF announced the sale of 14.9 per cent of YPF
to Argentina’s Grupo Petersen on 21 December 2007. At this point it is difficult to evaluate
whether Repsol’s managers are trying to find a local partner that will smooth relations with
the government (the administration of Néstor Kirchner placed serious restrictions on the
export of oil and natural gas) or whether Repsol is reducing its investments in Argentina.
Repsol, Annual Report (1997), pp. 5, 34; (1998), p. 13 ; Repsol-YPF, Annual Report (1999),
p. 2; (2001), pp. 3, 11–13 ; (2002), pp. 2–4 ; Interview with Enrique Waterhouse, RepsolYPF, ‘Repsol YPF y el grupo PETERSEN firman un acuerdo para la venta de hasta el
25 % de YPF ’, press release, 21 December 2007.
540
Pablo Toral
The Role of the Spanish Government
The role of the Spanish government in the creation of these large Spanish
MNEs was critical. Given the small size of Spanish firms compared with
large foreign MNEs, the government attempted from the 1980s to create a
few large companies that could compete successfully in Spain and in international markets. The firms included in this study are the result of this
strategy. Except for BBVA and SCH, they were formerly state-owned enterprises, and this provided the government with control over their management and facilitated the implementation of its plans. Endesa and Repsol
were both created by the government in the 1980s. In 1983 Endesa brought
together all of the state-owned public utilities, while also receiving some of
the less profitable activities of the Spanish private firms, such as their nuclear
power plants. Repsol brought together the state-owned firms in the oil and
gas industry in 1987. Telefónica was Spain’s single telecommunications firm
following its nationalisation in the 1940s. Iberdrola and Unión Fenosa were
partly owned by regional governments.
In addition to creating large companies, the government also assisted their
growth in Spain by promoting a process of concentration of the market and
protecting them from foreign competition. In the public utilities industries,
the government eliminated the regulations that gave firms a monopolistic
concession over a specific region of the country in the late 1980s. As a result,
they began to compete with one another ; by 1996, as already noted, Endesa,
Iberdrola and Unión Fenosa together controlled almost 95 per cent of the
Spanish market in generation and distribution. Repsol was sheltered from
significant foreign competition in its downstream oil operations until the
mid-1990s, and in natural gas distribution until the late 1990s. Telefónica did
not face significant competition in its domestic market until 1998.71
Even in the banking industry, where there were only a few small stateowned banks, the role of the government was critical. The government used
a carrot-and-stick policy, helping the banks to deal with the crisis of the
1980s through cash injections and concessions. In exchange, it pushed them
to accept a gradual process of liberalisation that resulted in mergers and
takeovers, as a result of which BBVA and SCH emerged as some of the
largest banks in Europe. In the 1990s the government even transferred the
assets of two of the largest banks to BBVA and SCH: Argentaria to BBV,
and Banesto to SCH.
The government also played an important role during the process of
privatisation of the state-owned firms. Commencing in the early 1980s,
the government reorganised them for privatisation by encouraging them to
71
Cruz and Pérez, La liberalización de los servicios públicos, pp. 287–9; Pilar Sánchez, ‘Los
modelos de regulación’, pp. 78–9.
Foreign Direct Investments of Spanish Multinational Enterprises
541
become more efficient and reducing their debt through soft loans and cash
handouts. It ensured that they would not fall under foreign control in the
1990s by reserving the right to veto core decisions some years after privatisation, even after selling its last remaining shares (‘ golden shares ’). After
that, it relied on the Spanish banks, especially BBVA, to protect the
‘ Spanishness’ of these firms by making sure that the banks became their
largest stockholders. By becoming part of what the government called the
‘ núcleo duro’ (hard core), BBVA and SCH had control over the management
decisions of other major companies.72
The government also resisted demands by the European Union to open
up the telephone and energy industries. The government did not commence
the liberalisation of the Spanish telecommunications industry until 1998,
when Telefónica was large, competitive, and had sizeable investments
abroad, mainly in Latin America. It sheltered Repsol from competition in the
domestic market, as noted already. In the case of the public utilities, it resisted until well into the 2000s. When Germany’s E.ON leading company
(with core activities in power and gas) tried to take over Endesa in 2006, the
government engineered an alternative bid by a consortium integrated by a
Spanish construction firm, Acciona, and an Italian utility, Enel. This led to a
compromise among the three, thus keeping a large Spanish firm in the ‘ núcleo
duro’ of stockholders.73
The Spanish government also played a direct role by encouraging these
‘ giants’ to make investments outside Spain. The managers of state-owned
firms were appointed by the government and they agreed that expansion in
Latin America was a wise growth strategy. The government also provided
cash to the firms to facilitate their takeovers in Latin America. Telefónica
received $1 billion in 1997, in time for its big acquisition of Telesp in Brazil,
and the public utilities received soft loans and cash handouts so that they
could finance their expansion, especially in Brazil and Mexico. In the case of
Telefónica the government justified these cash handouts to the European
Union by arguing that they were compensation for agreeing to open up the
Spanish telecommunications market before the deadline set by Brussels (the
EU had generously granted Spain a longer deadline because the Spanish
government argued that Telefónica was not ready to face competition). In
the case of the public utilities, Madrid argued that the payments were compensation for the costs of modernising their infrastructure for the single
European market. These cash handouts were the culmination of a long
process, that the government had begun in the 1980s, to bail Spanish utilities
72
Aparicio, La evolución de las telecomunicaciones españolas, pp. 60–5, 68, 76 ; Ariño, ‘El mercado
eléctrico ’, pp. 93–108; Francisco Javier Sáez and Manuel Martı́n, ‘ Las participaciones
empresariales de la banca y las cajas de ahorros españolas, 1992–1998 ’, Papeles de economı́a
73
española, no. 84–85 (2000), pp. 222–36.
El Mundo, 2 April, 2007.
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out of financial trouble. This strategy comprised negotiated electricity prices,
cash handouts, and transfer of the most inefficient facilities to the state (to
Endesa).74 Another financial incentive provided by the Spanish government
was a special law that allows companies to offset 30 per cent of the goodwill
costs of any foreign corporate purchase against tax (‘goodwill’ is defined as
the difference between the book value of assets and the actual price paid).
This hidden subsidy helped Spanish firms to outbid their competitors.
Finally, between 1990 and 1995, but especially in 1994 and 1995, the
Spanish government signed bilateral agreements for reciprocal promotion
and protection of investments with Latin American governments to pave the
way for the investments of Spanish MNEs. These bilateral agreements developed alongside the growth of Spanish diplomatic interest in the region.
Since the mid-1980s, Spanish diplomats have presented Spain as a ‘bridge
between Europe and Latin America ’ exploiting this depiction to increase its
bargaining power. One of the best manifestations of this diplomatic interest
in Latin America is the celebration, since 1991, of an annual ‘Cumbre
Iberoamericana’ that brings together Spain (with Portugal and Andorra) and
their former colonies in the Americas.75
Conclusions
This article contributes to the theoretical scholarship on MNEs by applying
rule-oriented social theory to the concept of advantage. It shifts the focus
away from a specific actor, focusing instead on the interactions among actors. By focusing on the firm alone, students of multinational enterprises
often fail to realise how the context (culture, politics, the stage of economic
development, for example) provides different incentives and constraints. By
looking at the context alone, all firms become black boxes that respond to
external stimuli. Companies are staffed by different employees who develop
different corporate competences to operate in a given context. These corporate competences embody the firm’s advantages, and evolve as the firms
74
75
Rafael Aparicio, La evolución de las telecomunicaciones españolas 1982–1983, pp. 60–65, 68, 76;
Gaspar Ariño, ‘El mercado eléctrico y los costes de transición a la competencia ’,
pp. 93–108 ; Juan Perea, ‘ El desarrollo internacional del Grupo Telefónica’, pp. 104–5.
The Economist, 10 February, 2007 ; Christian Freres and Antonio Sanz, ‘ La polı́tica exterior
hacia América Latina desde la transición’, in Javier Tusell, Juan Avilés and Rosa Pardo
(eds.), La polı́tica exterior de España en el siglo XX (Madrid, 2000), pp. 547–74; José Carlos
Garcı́a and Rosa Hontecillas, ‘Los acuerdos bilaterales de promoción y protección
recı́proca de inversiones ’, ICE, no. 735 (November 1994), p. 79 ; Pedro Pérez, ‘ Las relaciones de España con América Latina durante los siglos XIX y XX : discursos gubernamentales y realidades ’, in Juan Carlos Pereira (ed.), La polı́tica exterior de España (1800–2003)
(Madrid, 2003), pp. 319–40 ; United Nations, World Investment Report, 1996 : Investment, Trade
and International Policy Arrangements (New York, 1996), pp. 312–3.
Foreign Direct Investments of Spanish Multinational Enterprises
543
and the context in which they operate change. By contrast, the approach
taken here opens the ‘ black box’ and presents firms as dynamic actors in an
evolving relationship with the institutions around. This article concludes that
the managers of the Spanish multinational companies believed that the firms
had an advantage embodied in the set of corporate competences that they
possessed. The construction of the advantage resulted from several factors in
the home and host countries, the industry, and the firm. This paper also fills
a gap in the literature on structural reforms in Latin America. Although Spain
surpassed the United States as the main source of annual flows of foreign
direct investment in Latin America in 1998 and 1999, scholars of Latin
America have not fully considered the reasons behind this momentous rise in
Spanish FDI, or its consequences. The sectors included in this article are very
important, since telecommunications, banking and energy constitute part of
the backbone of a country’s economy and they accounted for three-quarters
of Spanish FDI in the region. For this reason, an analysis of Latin America’s
structural reforms needs to go beyond consideration of the astronomical
amounts that MNEs invested.
The process of modernisation undertaken by the seven Spanish firms in
these sectors was fundamental to the resumption of economic growth in
Latin America in the 1990s. Their activities touched the daily lives of the
average citizen, while at the same time they became critical for the competitiveness of Latin American firms, whose activities came to rely on the
availability of sources of finance, reliable energy supplies and good telecommunications which the Spanish firms provided. Their expansion in Latin
America in part reflected the nature of competition and cooperation
that existed among them in Spain. Competition was especially strong in the
energy sector (Endesa vs. Iberdrola vs. Unión Fenosa) and banking (BBV
vs. BS vs. BCH first, and BBVA vs. SCH after the mergers). Interestingly
however, Telefónica was given monopolistic control over each market in
Latin America at first, thereby operating under the same conditions as in
Spain.
By looking at the firms, it is possible to show how the managers of each
developed a strategy that allowed them to adjust to and shape the conditions
of operation at the level of the state and the business sector in which
they operated. The process of adjustment to the changing regulatory and
technological conditions in Spain resulted in the development of best practices, services, and goods, embodied in a set of specific managerial, technological and organisational assets (advantages) in banking and finance,
telecommunications and energy. During the 1980s, Spanish firms upgraded
the quality of infrastructure very quickly, developed know-how, technology
and organisational assets which they subsequently applied in Latin America
in the 1990s under very similar conditions.
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Co-operation among the Spanish firms manifested itself in the form
of cross-sector alliances. Two main alliances of Spanish firms emerged
around the major Spanish banks which owned controlling stock in them.
BBVA, with its large investments in Telefónica, Repsol, Iberdrola, and Gas
Natural, facilitated the development of joint ventures among these companies. The case of the development of combined cycle power plants by
Repsol-YPF and Iberdrola is a good example. The other group emerged
around BCH (SCH after the takeover), thanks to its investments in Endesa
and Unión Fenosa, but after the BS-BCH merger, SCH’s managers sold most
of their stock.
An industry-level analysis sheds some light on the specific conditions that
each firm faced and shows the different goals and processes of the reforms in
each sector. Because the firms included in this study operated in conditions
of monopoly or oligopoly, the analysis at the industry level involves analysis
at the level of the firm. At the country level, the changes in regulatory frameworks in Spain and Latin America were critical, because they precipitated
these investments. The imminent liberalisation of the Spanish market in
telecommunications, public utilities and hydrocarbons under the auspices of
the European Union made the managers decide to ‘take the plunge’ overseas
before European competitors could enter Spain. The right time for these
investments occurred when the governments of Latin America began to
privatise formerly state-owned firms, especially after 1989. Timing was an
important factor in telecommunications and energy (less so in banking),
because privatisation in Latin America preceded full liberalisation in Spain,
and the Spanish firms could use the resources generated in the protected
Spanish market for their Latin American investments. A country-level approach also allows us to see the strong relationship that existed between the
Spanish government and the firms. The government worked very hard from
the 1980s to shape a number of Spanish firms (many of them state-owned)
so that they could become world players. This involved the use of different
policies : a process of concentration of the domestic market to create a few
large firms in key industries; protection from foreign firms (by excluding
foreign companies from the Spanish market and the boards of Spanish
firms) ; financial incentives such as soft loans, cash handouts and subsidies
for foreign investments ; and agreements with Latin American governments
for the protection of their investments.