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Rise of Global Latinas
Friday, 16 December 2011 05:31

This week's invited contributor is Lourdes Casanova, a Lecturer in the Strategy Department at INSEAD, one of the world’s leading graduate business schools. She shares her optimism about Latin American economies and the rise of “Multilatinas”, or “Global Latinas”, Latin America’s emerging multinational companies. For Casanova, the challenge facing Latin America’s emerging business giants is two-fold: going global, while at the same time increasing their level of engagement with their home societies. 

This article was originally published by ABConomics, one of our knowledge partners (http://abconomics.com/)  

“Brazil is today a bigger economy than India”, Casanova likes to remind her business students at INSEAD. With a nominal GDP of around 2,000 billion USD, Brazil is the second largest emerging economy of the world, after China (around 5,500 billion USD) and before India (around 1,500 billion USD).  “Very few people realize that, even among the Brazilians”, adds Casanova.

One visible aspect of Brazil and Latin America’s growing economic role is the rise of global industry players originating from Latin American countries. Ten “Multilatinas” have already made it to the Fortune Global 500 ranking of the world’s largest corporations by revenues: 7 are from Brazil, 2 are from Mexico, and 1 is from Venezuela. Many more are jumping on the bandwagon.

“Multilatinas” can be defined as companies headquarted in a Latin American country which have significant investments outside their home countries and, increasingly, outside Latin America. To name just a few:

Oil and gas: Petrobras (Brazil, largest corporation in Latin America by market capitalization and by revenues, present in 29 countries);
Mining: Vale (Brazil, global leader in iron ore and the second biggest nickel producer, present in 38 countries), Quiñenco (Chile, conglomerate, majority owner of Antofagasta Minerals, a leading producer of copper);
Heavy industry & construction: Techint Group (Argentina, conglomerate, largest steel making company in Latin America and the world’s largest manufacturer of seamless steel tubes), Cemex (Mexico, global building materials company, world’s leading supplier of ready-mix concrete, present in more than 50 countries), Oderbrecht (Brazil, conglomerate, present on five continents);
Food: JBS Friboi (Brazil, world’s largest beef producer), Marfrig (Brazil, global leader in fresh and processed foods), Bimbo (Mexico,  world’s largest bread manufacturing company), Arcor (Argentina, the world’s largest producer of candies), Concha y Toro (Chile, the world’s second most important wine brand);
Aviation: LATAM (Chile and Brazil, the world’s 11th largest air carrier by passengers), Embraer (Brazil, aerospace conglomerate, world’s 4th largest commercial aircraft manufacturer);
Telecommunications: América Móvil (Mexico, the world’s third largest wireless service providers in terms of suscribers).

Latin America has been the traditional playing ground of “Multilatinas”. A number of them have now become “Global Latinas” as they pursued aggressive strategies to expand their activities to the US, Europe and other emerging markets in Asia and Africa. Vale, Brazil’s leading mining company, has subsidiaries in Gabon, Mozambique, Angola and South Africa. Marfrig, Brazil’s second largest beef producer, acquired the US firm Keystone Foods and became McDonald’s leading supplier of meat and chicken in 13 countries, including the US and France.

For Casanova, the global expansion of Latin American multinationals is not only good economic news for the region, it is a requirement for the medium and long-term growth of Latin American business. “Latin American companies must go international if they want to stay competitive and innovate”, says Casanova. She takes the example of the mobile telecommunications sector, usually regarded as a  success story in Latin America with very high rates of mobile penetration (mucher higher than in China and India) and the stellar rise of Carlos Slim’s telecom giant América Movil. However, due to lack of internationalization and innovation on the part of domestic IT and telecom companies, Latin America now lags behind in the lucrative business of mobile applications.

Casanova higlights three immediate difficulties for Latin American companies wanting to go global. The first one is branding. “You need brand recognition to succeed in international markets”, says Casanova, pointing out the success of India’s IT firms in strategically positioning their brands and collective know-how. A second difficulty is financing. “There is a mismatch between the financing capabilities of Latin American companies and those of US and European firms”. Brazilian companies routinely face 12% to 20% borrowing rates. Brazil’s Bank for Social and Economic Development (Banco de Desenvolvimento Economica e Social, BNDES) may come to the rescue for large infrastructure projects. But with 6% interest rates, the cost of financing  offered by BNDES remains high by global standards.  The third challenge for Latin American companies is to attract talents. In a recent poll conducted by IBM, 71% of Brazilian’s CEOs cited the “apagão de talentos” (shortage of qualified professionals) as one of their highest business concern.

Ironically, the key to  global success for Latin American companies begins at home. As Casanova explains, Latin American countries must significantly scale their investments in education and infrastructure and seek to strengthen their domestic economies by taking measures that will boost private consumption, especially among the poorest. “For this, Latin American companies and business executives need to pay more taxes”, says Casanova, referring to a recent study by the OECD which shows that high income earners in Latin America, with the exception of Brazil, pay less direct taxes than their counterparts in Europe and North America.

The excuse for low direct tax levels in Latin America has long been that business owners made a better job at spending money than politicians, who are widely perceived as corrupt. For Casanova, the high level of mistrust between the public and the private sector in many Latin American countries, and which has reached record heights in Argentina, “is not helping anyone”. When Brazil’s former president Lula da Silva came to power in 2002, she recalls, Brazil was on the verge of bankruptcy. Hardly anybody believed in Lula’s capacity to rescue the country’s economy. Support from investors was scarce. But Lula, a former labour leader, was able to reach out to  a progressive segment of the Brazilian business community, led by Luiz Fernando Furlan, which paved the way to Brazil’s much admired model of public and private sector cooperation.

Ten years later, Brazil is the region’s undisputed economic leader and is getting prepared to host the 2014 Olympic Games and 2016 FIFA World Cup. “An opportunity which Brazil, and Latin America at large, should not miss to further brand the region and showcase its successes” says Casanova.

In 2009, Lourdes Casanova authored “Global Latinas”, in which she analyzes the global business strategy of leading Latin American multinationals, the potential that they represent, and the challenges they face as they learn to navigate international markets. In a study she recently conducted for InnovaLatino, a joint project between INSEAD, the OECD and the Spanish telecommunications group Telefónica, Casanova highlights 55 examples of public and private initiatives which contributed to foster innovation, i.e. in the form of new products, new business models and new marketing methods. 

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