Current Issues
Latin America
February 28, 2007
The emergence of Latin
multinationals
The entire global corporate chessboard is changing rapidly. New
multinationals are emerging in countries such as India, China, South Africa and
Russia. This is also the case for companies in Latin America, the so-called
multilatinas, particularly in Mexico and Brazil.
Multilatinas have taken up a strategy of globalisation going beyond
the pure exporting phase. The examples of Embraer, Cemex and CVRD show
that boldness and innovation can lead to world leadership in sectors as different as
jets, cement or raw materials.
OECD multinationals are no longer the sole bidders in acquisitions. In
the future, we will see more companies from Brazil and Mexico and also from
other emerging markets taking over OECD-based firms. Thanks to cheaper
access to capital, successful business models and sizeable assets, emerging
multinationals will increasingly challenge large OECD-based companies.
What we used to call the Centre (OECD countries) is becoming less
and less the core of global trade and capital flows, while the Periphery
(emerging countries) is becoming less and less peripheral. Over the next few
decades emerging giants will contribute to the new corporate mapping. Part of
them will certainly be multilatinas.
Author
Javier Santiso
[email protected]
Editors
Markus Jaeger
Maria Laura Lanzeni
Technical Assistant
Bettina Giesel
Deutsche Bank Research
Frankfurt am Main
Germany
Internet: www.dbresearch.com
E-mail: [email protected]
Fax: +49 69 910-31877
Managing Director
Norbert Walter
Javier Santiso is the Chief Economist and Deputy Director of the OECD Development Centre.
Previously he was the Chief Economist for Latin America and Emerging Markets at BBVA (Banco
Bilbao Vizcaya Argentaria). He is the author of "Latin America's Political Economy of the Possible:
Beyond Good Revolutionaries and Free Marketeers", Cambridge, Mass., MIT Pres, 2006. The
reasoning, opinions and possible errors stated here are naturally the author’s exclusive responsibility.
Current Issues
The emergence of Latin multinationals1
South-South FDI on the rise
%
180
160
140
120
100
80
60
40
20
0
1995 1999 2000 2001 2002 2003
Total FDI inflows
South-south FDI
Source: UN Comtrade datababase, World Bank
staff estimates, Global Development Finance, 2006
1
Stock of outward FDI
from emerging countries
USD bn
2005
Hong Kong, China
470.5
British Virgin Islands
123.2
Russian Federation
120.4
Singapore
110.9
Taiwan
97.3
Brazil
71.6
China
46.3
Malaysia
44.5
South Africa
38.5
Korea, Republic of
36.5
Cayman Islands
33.7
Mexico
28.0
Argentina
22.6
Chile
21.3
Indonesia
13.7
All developing and transition
economies*
*Equals emerging countries in our definition.
2
Number of global 500
companies per selected
country
US
170
70
Japan
France
38
38
UK
Germany
35
20
China
South Korea
Italy
9
6
Russia
Mexico
5
5
Brazil
4
0
Amid the remarkable growth of emerging multinational corporations,
there is, as already mentioned, the noteworthy eruption of Latin
1
50
100
150
200
Source: Based on Fortune 500, 2006
2
Emerging Asian players dominate, accounting for more than 60% of
the FDI stock from emerging countries in 2005, but Latin American
players are also actively involved in this new trend. The number of
companies from emerging countries now included in worldwide
rankings is increasing along with their overseas investments: in
1990 only a happy few multinationals from emerging countries were
listed in the Fortune 500 rankings; by 2006, the number had risen to
52 (see chart 3). Other rankings such as Forbes 2000 also show an
increasing presence of companies from emerging countries
(chart 4).
Brazil and Mexico: a new generation of
multilatinas
12
10
Spain
India
In some sectors, such as steel or cement, the global leaders are no
longer corporations from developed countries. For example, in 2006,
the Indian-owned company Mittal took control of its European rival
Arcelor and became the leader in the steel sector while the Mexican
company Cemex is in the same league as Lafarge (French) and
Holcim (Swiss). With the takeover of Canada-based company Inco
the Brazilian producer of minerals, CVRD, is now topping
international rankings along with the Anglo-Australians BHP Billiton
and Rio Tinto. The list of emerging multinationals competing neck to
neck with their OECD counterparts is increasing fast, including also
Chile-based ENAP, PDVSA from Venezuela and Petrobras from
Brazil. From South Korea, Samsung, LG or Posco are worldwide
competitors while Russian giants like Gazprom are increasingly
willing to invest outside their home countries, following the examples
of Chinese companies like Lenovo or Indian conglomerates like
Tata.
Along the same lines, foreign direct investment (FDI) in emerging
countries by enterprises from other emerging countries (the socalled “South-South” FDI) has increased threefold, from USD 15 bn
in 1995 to more than USD 45 bn in 2003 (see chart 1). During the
same period, investment by these enterprises in OECD countries
rose from USD 1 to USD 16 bn. In 2005, according to UNCTAD
(2006), FDI from emerging countries reached a record of USD 133
bn, representing 17% of the world’s outward flows, the highest level
ever recorded. The total value of the outward FDI stock from
emerging economies also jumped to the impressive amount of USD
1.4 trillion in 2005 (see chart 2), 13% of the world total. The number
of emerging countries now playing in the international FDI arena has
also increased, jumping from 5 countries in 1990 to 25 in 2005.
1400.0
Source: UNCTAD
The corporate world has changed remarkably in the past ten years.
New multinationals are emerging in countries such as Brazil, India,
China, South Africa and Mexico.
3
This report focuses exclusively on non-financial corporations. For the documents,
comments and suggestions the author would like to thank Felipe Aldunate,
Rolando Avendaño, Susana García, Jesús González Nieto-Márquez, Mauro
Guillén, David Martínez Turégano, Patrizia Labella, Elizabeth Nash, Marina Urquidi
and Juan Antonio Rodríguez.
February 28, 2007
The Emergence of Latin Multinationals
Number of firms in
Forbes 2000
35
30
25
20
15
10
5
Chile
Mexico
Brazil
China
India
0
4
Source: Forbes Top 2000 Companies, 2006
Overseas investments
by Brazil and Mexico
USD m
12,000
10,000
8,000
6,000
4,000
2,000
0
-2,000
-4,000
Brazil
Mexico
90 92 94 96 98 00 02 04
5
Source: Based on UNCTAD and OECD, 2006
Export orientation of
leading Latin firms*
Exports as percentage of total sales,
% (2005)
80
60
40
20
Colombia
Brazil
Mexico
Argentina
Venezuela
Chile
Peru
0
*Major 100 Latin American companies.
Source: Based on América Economía, 2006
February 28, 2007
6
multinationals, multilatinas. In Argentina, for instance, Arcor, a
leading global sweets manufacturer and the No. 1 confectionery
exporter in Argentina, Brazil and Chile, is present in 117 countries in
five continents; in another example, the pipe manufacturing
company Tenaris is present in Argentina, Brazil, Mexico and
Venezuela, as well as in Canada, Italy and Japan, and, in 2005, it
made more than 85 per cent of its sales outside of Latin America.
However, the biggest multilatinas jumping into the global markets
are Mexican and Brazilian. 85 of the 100 leading enterprises on the
continent and 35 of the 50 most profitable ones are located in these
two countries.
The emergence of multilatinas has taken place in two stages. During
the “trade expansion phase” (phase I) these companies dramatically
increased their sales abroad. During the “investment phase” (phase
II) they started acquiring strategic assets abroad. Combined, these
two phases helped to transform Latin American corporations into
multilatinas, transnational Latin America-based corporations.
In 2004, Latin American enterprises as a whole invested USD 22 bn
outside of their respective borders, which amounted to a 500 per
cent jump from the previous year. The most spectacular rise was
logged by Brazil. According to UNCTAD data, Brazilian enterprises
invested nearly USD 10 bn outside of their country in 2004,
compared to barely USD 250 million the previous year (chart 5). In
2005, the total stock of Brazilian FDI abroad topped more than USD
71 bn, surpassing by far the USD 28 bn of Mexico or the USD 22 bn
of Argentina (and almost the same amount for Chile). Brazil
concentrates 40% of all the outward FDI stock from the region.
Multilatinas’ trade and investment strategies have been stimulated
by industrial and financial goals, i.e. the quest to expand their
markets, to reduce their cost of capital and to improve their risk
profiles. Some of them are quoted on international stock markets,
such as that of New York. Madrid has also attracted some
companies, with many of the multilatinas listed in Latibex, a stock
market instituted in 1999 and now featuring more than 30 quoting
enterprises.
Multilatinas have also increased dramatically their overseas sales.
Based on América Economía rankings of the top 100 major Latin
American companies, we calculated their ratios of sales abroad as a
percentage of total sales. For Peruvian and Chilean companies in
the list, overseas sales represented no less than 70% of their total
sales in 2005 (chart 6). But even for countries like Brazil and
Mexico, which have many more companies on the list, the figures
are impressive: 47% of total sales are made abroad for Mexican
companies (mostly directed to the US market) and 39% for their
Brazilian counterparts. The bulk of those exports (75%) is related to
oil, gas and minerals exports (chart 7), which is not surprising as
more than one-third of all Latin American exports are commodityrelated.
To understand how multilatinas surged, it should be kept in mind
that the enterprises’ immediate environment was transformed with
the massive entrance of foreign competitors over the past decade.
As a consequence, between 1991 and 2001 the profile of the 500
most important enterprises established in Latin America changed
drastically. The number of enterprises under state control decreased
enormously, from 20% in 1991 to less than 9% ten years later.
During the same period, foreign transnational enterprises staked out
significant territory in the region: In 1991 they represented 27% of
3
Current Issues
the continent’s 500 most important enterprises; by 2001 they had
risen to 39%. This growing competition put pressure on the local
companies, which traditionally provided products and services for
their home market. The most dynamic ones turned to external
markets and became multilatinas. Some of them directed their
globalisation towards the region, concentrating on the Mercosur or
the Andean zone. Others undertook a pan-regional strategy and yet
others invested in emerging markets in other continents – Africa and
Asia – or in the OECD countries, the United States in particular.
Sectoral breakdown of
exports
Major 100 Latin American companies,
exports by sector in 2005
3%
4%
7% 3%
4%
5%
8%
53%
Therefore, over the past years Latin American companies multiplied
acquisitions, both in home markets and abroad. Total acquisitions in
Latin America by Latin American firms reached nearly USD 110 bn
since the beginning of the decade (chart 8). Of this amount, more
than USD 23 bn were directed at other countries of the region that
were not the firms’ home market. Brazilian and Mexican companies
have been the most active in that process.
13%
Food
Petrochemicals
Agrobusiness
Holding
Iron and steel industry
Automobiles/autoparts
Mining
Oil/gas
Others
Mexico: Leading the internationalisation drive
Source: Based on América Economía, 2006
7
Acquisitions in LatAm by
LatAm companies from
2000-2006
USD m
Including
internal
Excluding
market internal market
Brazil
62.8
5.6
Mexico
21.7
10.2
Chile
10.8
2.3
Argentina
5.4
3.5
Colombia
4.3
1.2
Others
Total
3.2
0.5
108.3
23.2
Source: Based on BBVA Corporate Finance, 2006
8
Major Mexican companies have reached a significant level of
internationalisation, measured by exports as percentage of sales.
For example, for groups like Nemak or Mabe international sales
represented 82% and 69%, respectively, of their total sales in 2005
(chart 9). But not only does Mexico present one of the highest tradeopenness rates among the emerging countries, a significant number
of its enterprises have also entered the second phase of
internationalisation seeking a direct presence abroad.
Cement giant Cemex has led the way. Between 1990 and 2006,
Cemex became a world leader among emerging multinationals in
terms of overseas acquisitions, with no less than 40 operations
completed during that period. As of 2006, Cemex had branches not
only in Latin America but also in the United States, UK, Spain,
Egypt, Indonesia and the Philippines. Present in four continents and
with more than USD 15 bn invested abroad, the Mexican cement
manufacturer is spearheading the globalisation of Latin American
multinationals. In 2005, it performed one of the most important
transactions ever carried out by a Latin American enterprise with its
acquisition of Britain’s RMC for close to USD 6 bn. With this
acquisition, Cemex’s sales in Mexico decreased to 21% of total
sales, behind sales to the United States (27%) and even further
behind those to Europe, which in 2005 was Cemex’s largest market,
amounting to nearly 40% of its total sales (Spain and the UK
accounting for 10% each). The year after the RMC acquisition,
Cemex repeated its international bet offering USD 13 bn for Rinker,
the Australian building materials group. If successful, the bid will
transform Cemex into the leading company worldwide in its sector. It
will also be the largest acquisition in the building materials industry
to date.
Another major example is the telecommunications giant Telmex. It
has become one of the biggest competitors in telephony in Latin
America. Along with its spin-off América Móvil, it has multiplied
acquisitions in the region, completing franchising plans in just a
couple of years. América Móvil today has subsidiaries and joint
investments in the telecommunications sector of Guatemala,
Ecuador, Argentina, Brazil, Colombia, Venezuela, the United States,
Puerto Rico, Mexico and Spain. A number of enterprises in other
sectors also stand out for their international activity, like for instance
the brewer Grupo Modelo, present in more than 150 countries, or
4
February 28, 2007
The Emergence of Latin Multinationals
the Bimbo group in the agro-industrial sector, which has made a
large number of acquisitions in the United States in recent years.
Top Mexico-based
exporters
Before the year 2000, there was practically no overseas investment
by Mexican companies, but since 2000, Mexican outstand FDI has
averaged USD 3 bn per year. In 2005 it reached a record of nearly
USD 6.2 bn, according to official Mexican figures. In 2006 and 2007,
this amount will be greatly exceeded: with the sole Cemex/Rinker
deal (USD 13 bn), Mexican FDI abroad more than doubled.
Exports as % of total sales, 2005
Pemex
Refining
Nemak
Grupo Mabe
Daimler
Chrysler
Gr. Maseca
Brazil: Aggressively pushing into phase II
These past few years, there has been a significant increase in
Brazilian exports. Similar to Mexico, some of the biggest Brazilbased exporters are foreign companies like Volvo from Sweden,
which sells abroad nearly 50% of its Brazil-based production,
General Motors, Cargill and Caterpillar from the US, Fiat and Pirelli
from Italy, Renault from France or Bosch and Volkswagen from
Germany (chart 10). But, more importantly, Brazilian-owned groups
have increased their share of sales abroad.
Corp. S. Luis
Desc Autom.
Grupo Saltillo
Grupo Simec
Ind. Penoles
Verzatex
Industria CH
In 2005, the aeronautical group Embraer conducted 84% of its sales
abroad, while Aracruz Celulose, another of the country’s export
champions, with more than 60% of its production sold outside of
Latin America, made sales in Europe, North America and Asia. In
the steel sector, Gerdau carried out 31% of its total sales outside of
Brazil and the leading enterprise in the mining sector, CVRD, 33%.
Even Petrobrás, the state-owned oil company, has become a major
exporter, achieving 11% of its total sales abroad and starting
exploration and production operations in the United States, Mexico,
Venezuela, Colombia, Ecuador, Peru, Bolivia, Nigeria and Angola.
The agro-industrial sector, one of the most dynamic in the country,
features a number of outstanding groups such as Sadia, which
exports to more than 65 different countries, including Russia, Japan
and countries in the Middle East, invoicing nearly half of their sales
abroad. Like Sadia, other groups are succeeding in increasing and
diversifying the markets for their exports. This is also the case for
the petrochemical enterprise Braskem: 50% of its exports go to
North America and 20% each to Latin America and Europe.
Grupo Imsa
Imsa Acero
Grupo Cintra
Desc
Pemex
Grupo Alfa
Desc
Químico
Alpek
Siemens
Mex.
Grupo Bimbo
Pemex
Gas&Petr.
Gr. Modelo
Vitro Vid.
Plano
Grupo Vitro
Pemex
Petroquímica
Gr. Televisa
Femsa
0
20
40
60
80
100
Source: Based on América Economía, 2006
9
Nonetheless, all of these groups are moving beyond the mercantile
phase and on to significant investment operations abroad. Foreign
direct investment (FDI) by Brazilian companies has increased
sharply. In 2006, for the first time ever, overseas investment by
Brazilian companies was larger than FDI into Brazil. Brazilian firms
invested USD 26 bn abroad (including the USD 17.6 bn acquisition
by CVRD of Canada’s Inco), compared with USD 18 bn invested by
foreign companies in Brazil.This “phase II” of the internationalisation
strategy reflects two broad purposes. Like the pioneering Cemex in
Mexico, the groups are seeking on the one hand to enlarge their
markets by staking out positions in other emerging, mainly Latin
American countries. On the other hand, they are also seeking to
penetrate in OECD countries and to improve their industrial and
financial profile as well as reduce their capital costs.
For example, in 2005, the steel producer Gerdau purchased 40 per
cent of Spain’s Sidenor. A century-old enterprise, Gerdau has been
able to establish important positions not only in Latin America
(Brazil, Chile, Argentina, Colombia and Uruguay) but also in North
America (the United States and Canada). In the transport-equipment
sector, Marco Polo, the leading bus enterprise in Brazil, has also
started down the road of global expansion. With international
February 28, 2007
5
Current Issues
operations accounting for half of its total revenues, the enterprise
now owns manufacturing units not only in Brazil, but also in
Argentina, Colombia, Mexico, Portugal and South Africa, exporting
to more than 60 countries, among them France, UK, Germany,
Spain, Portugal, the Netherlands, Mexico and Saudi Arabia.
Top Brazil-based exporters
Exports as % of total sales, 2005
Samarco
Min.
Albrás
Other prominent examples are Brazilian conglomerates such as
Votorantim, Odebrecht or CVRD. Votorantim, one of the major
companies in Latin America, has diversified towards the OECD
countries through its acquisitions in the cement sector in the United
States and Canada. The engineering group Odebrecht, present in
four continents and with sales spread across 50 countries, now gets
more than one-third of its income from abroad. CVRD, the fourth
company worldwide in the mining sector, obtained 70% of its income
from abroad in 2005 (30% from Europe and another 30% from Asia,
China and Japan in particular). In the past few years, it has made
acquisitions and established itself in the United States, Canada,
France, Bahrain and Norway. It has also started an ambitious plan to
develop a global portfolio of exploration projects embracing three
continents (Peru, Argentina, Gabon, Mozambique and Australia are
the main countries so far). Otherwise, Asia (China especially) has
become one of the group’s main target regions for expansion. In
2006, as mentioned above, the company undertook a major
development with the acquisition of the Canadian based company,
Inco, for a record USD 17.6 bn.
Embraer
Alunorte
MBR
Seará Alim.
Aracruz
Celul.
ADM
CST
Volvo
Caraiba
Bunge
Cargill
Sadia
R. Bosch
Perdigao
Odebrecht
Embraco
Suzano
Aeronautics is another sector featuring a Brazilian enterprise with
extensive international presence, the multilatina Embraer. Embraer
is the second most important Brazilian exporter. Founded in 1969 by
the Brazilian government then seeking international prestige, the
enterprise was privatised in 1994 (a conglomerate of European
enterprises led by Dassault Aviation and EADS has a 20% share in
it). Today it employs 15,000 staff. The company, the world's No. 4
commercial aircraft maker, is significantly increasing its ties with
Asia. In 2006 it signed a deal with the Chinese airline HNA Group for
100 jets valued at USD 2.7 bn, its biggest order to date in China. It
has also said it would significantly boost its technical support
network in the Asian-Pacific region, creating a parts/logistics centre
and installing a full flight simulator for its jets starting from the
second half of 2007.
Caterpillar
CBA
Renault
Copersucar
CVRD
Daimler
Chrysler
Acesita
Coamo
Pirelli
Pneus
Volkswagen
Gerdau
WEG
Gral.
Motors
Votorantim
What are the drivers of the recent overseas expansion?
Latin America is not unique
Souza Cruz
Before answering this question it is important to stress that the Latin
American trend described above is not unique. We are witnessing
the rise of new multinationals with home in emerging markets.
Investments by these emerging multinationals into other emerging
markets, the so-called “South-South” flows, are on the rise. SouthSouth flows represented more than 30% of all FDI flows that went to
developing countries in 2005 (see chart 11).
CSN
Siemens
Brasil
Braskem
Fiat Auto.
Copesul
Petrobras
Shell
Petrobras
Dist.
0
20
40
60
80
100
Source: Based on América Economia, 2006
10
The recent string of high-profile, cross-border mergers and
acquisitions involving Chinese or Indian companies as acquirers is
symbolic of this new global trend. According to The Boston
Consulting Group, who identified the top 100 emerging
2
multinationals , China accounted for 44 firms in this ranking,
followed by India (21), Brazil (11) and Mexico (6). Latin America has
a total of 18 companies on the list, far behind Asia (70) but ahead of
2
6
See Boston Consulting Group, May 2006a.
February 28, 2007
The Emergence of Latin Multinationals
other regions (12 other companies are located in countries like
Egypt, Russia, South Africa or Turkey).
Global capital flows
by type
USD, 2005
100
80
60
40
20
South-South
FDI
Syndicated
loans
Remittances
Export
revenues
0
North-South
Source: UN Comtrade datababase, World Bank
staff estimates, Global Development Finance, 2006
11
FDI from China by region
USD m, 2005
3000
2500
2000
1500
The case of India’s investment abroad is even more spectacular.
Some Indian companies had already for some time been heavily
oriented towards overseas markets. Indian software groups like
Infosys, Tata Consultancy Services (TCS) and Wipro already
generate 98%, 90% and 80% respectively of their revenues from
markets outside India. Latin America has attracted over 40% of
4
Indian FDI in 2006 , basically in commodity-related sectors, oil,
minerals and gas, with Brazil, Colombia and Bolivia being the major
recipients. The connection with Latin America is also related to the
fact that some of these Indian companies are setting up
development centres in time zones close to their major markets.
TCS, for example, has 1,100 employees in Brazil and 250 in
Uruguay.
500
Main drivers of outward FDI flows
0
Emerging multinationals have some elements in common that
explain their rise. They all greet from large markets that have been
able to support large domestic companies. They all have access to
low-cost resources such as labour force or primary products. They
all have been able to flourish in difficult local environments, often
characterised by shortages of skilled management, volatile legal and
financial frameworks, and deficient logistical and infrastructure
systems. All these obstacles helped to transform the “survivors” into
highly capable firms, able to innovate and make quick decisions in
order to capture new opportunities. Risk diversification goals have
also been behind a large share of both market- and natural
resource-seeking investments. In particular, Latin American
multinationals have often sought to hedge against exchange rate
risks and commodity price fluctuations and diversify the location of
assets in order to improve access to capital.
Oceania
Europe
North America
Africa
Latin America
Asia
1000
For India and China, energy needs and domestic competition have
been key drivers of their overseas expansion. In the case of China,
the aim to create national champions is also acting as an
accelerator. As stressed in a previous report by Deutsche Bank
Research, Chinese global champions are in the making, with the
flow of overseas investments from these companies increasing year
3
after year . According to Boston Consulting Group, Chinese firms
have carried out more than 220 overseas investment transactions
since 1986, with a total value of about USD 18 bn. Interestingly,
Latin America is on the radar screens of Chinese companies: in
2005 the region was the second recipient of Chinese FDI (see
chart 12).
Source: Based on China's official data, 2006
12
The strategies these companies have chosen to “go global” can be
classified in districtive patterns, as identified by the Boston
5
Consulting Group (BCG) : some are seeking to become global
brands; others are turning their engineering assets into global
innovation tools; another group is pursuing a strategy seeking to
“monetise” natural resources or to acquire commodities based in
other countries; a last group – including early movers like Cemex –
is seeking to roll out new business models in multiple markets. The
way to expand abroad, until recently, has been above all through
organic growth, according to the study by the BCG (only 20% has
3
4
5
February 28, 2007
See Deutsche Bank Research, August 2006.
Indian FDI figures exclude the recent acquisition by Tata of Corus, amounting to
GBP 6.7 bn.
Boston Consulting Group, 2006b.
7
Current Issues
been done through M&A). However, as financial engineering
develops and the cost of capital falls, mergers and acquisitions are
becoming increasingly popular as they allow quick moves and the
building of sizeable market shares in a single operation. For
example, América Móvil, the Mexican telecommunications operator,
spent more than USD 5 bn from 2001 to 2005 to build a strong
presence all around Latin America and replicate its business model
in other countries. The recent wave of large deals from emerging
multinationals in 2006 confirms that M&A is becoming increasingly
popular and that such companies have now conquered the taboo of
making huge bids, even in developed countries.
Is the emerging multinational boom sustainable?
Some of the drivers explaining the boom of emerging multinationals
are structural ones, such as globalisation forces like the dramatic
surge in low-cost telecommunications technologies as well as
macroeconomic reforms in emerging countries that improved their
economic stability.
But there are also important cyclical drivers that are helping
emerging multinationals to expand abroad. Since the beginning of
this decade we have been witnessing a large excess of liquidity in
international financial markets, explained by the low levels of
interest rates in OECD countries. Such an environment has been
very favourable for emerging markets and has driven debt spreads
down, lowering the cost of capital for a lot of companies, including
emerging multinationals. At the same time, domestic financial
markets have deepened and become more sophisticated, while new
investors have entered into the asset class, investing in bonds and
equities all around the emerging world. Finally, strong exchange
rates and high commodity prices have also facilitated Latin American
companies’ overseas expansion. Therefore, while there is ground for
optimism regarding the continuation of robust outward FDI from
Latin America (and other emerging markets), the reversion of
favourable cyclical factors may lead to a (temporary) slowdown in
the pace of investment abroad.
Summary and conclusions
In Mexico and Brazil, multilatinas have taken up a strategy of
globalisation going beyond the mercantile exporting phase. The
examples of Cemex, CVRD and Embraer show that boldness and
innovation can generate world leaders in a given sector. Some of
these multinational corporations could also explore new strategies,
such as taking advantage of markets like those of the Hispanic
communities in the United States or in sectors such as agro-industry.
But beyond these achievements, what really stands out is the
broader context in which these enterprises thrived. In just one
decade, Mexico became a leading exporter of manufactured goods.
In 2005, Brazil raked in more than USD 100 bn in exports. The
pragmatism of local entrepreneurs has mirrored the pragmatism of
the economic policies implemented in the past decades in Mexico
6
and Brazil. The moorings of monetary and fiscal policies have
provided moorings for corporate strategies.
The good news from Latin America may be that more good news is
on its way. So far multilatinas have been the exception. Few
6
8
See on this point Santiso, 2006; and more generally Feenstra and Hamilton, 2006.
February 28, 2007
The Emergence of Latin Multinationals
enterprises of the region have become global leaders in their
respective sectors. However, the global corporate map, just like the
economic map of the nations, is being swiftly redrawn. Multinational
groups are arising from China, India, Korea, Turkey and South
Africa, staking out one after the other important positions not only at
home but also in foreign markets. Latin America also appears to
have some excellent cards in its hand. In the future, the success of
its multinational corporations could equal that achieved by Asian
emerging markets and bring about further successful multilatinas.
According to the United Nations, transnational firms from emerging
markets already account for one-fourth of the total number of major
multinationals in the world. Most of these firms are still relatively
small compared to their OECD peers, with a limited geographical
reach. But the lowering of the cost of capital over the last years and
the increasing appetite of these companies for overseas expansion
is rapidly changing the map. Clearly, OECD multinationals are no
longer the sole players in the global FDI game.
Another important trend is the increasing South-South connection.
Chinese companies are investing in Asia but also now in Africa.
Latin America is not only on the radar screens of Chinese firms but
is now also of interest to Indian companies. This illustrates one of
the major changes underway in the global economy: What we used
to call the “Centre” is becoming less and less the nucleus of global
trade and capital flows, while the “Periphery” is becoming less and
7
less peripheral. The borderline between poor and rich countries is
also becoming more complex to define.
Over the next few decades new emerging giants will contribute to
redesigning these frontiers. Part of this story will be written by
emerging multinationals and some of them will certainly be
multilatinas.
Javier Santiso ([email protected])
7
February 28, 2007
For the original Centre/Periphery thesis, see Prebisch (1950).
9
Current Issues
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February 28, 2007