Experts agree that persistent, widespread poverty, unequal distribution of wealth, and serious social problems are commonplace in Latin America. As such, foreign investments – especially those made by Spanish companies – will continue to be a key factor for sustaining economic growth in coming years. They will also generate more jobs and higher quality products, which are indispensable for the region’s development. In addition, the growth of investments requires a context of legal security. Investors will benefit from the desirable expansion of local markets, which also help growing efforts toward reducing poverty and inequality.


Spanish investments in Latin America have improved the quality of the basic services offered to people in the region. Experts agree that, when it comes to most cases involving the supply of basic services (such as banking, utilities and telecommunications), companies are especially careful about performing their jobs. As a result, it is especially important that the corporate image reflects true commitment to the people and their collective interests. Overcoming distrust and improving social prestige are key corporate goals. They offer additional reasons for making greater commitments, and for taking a deeper, direct responsibility in Latin American society.


Shared language and culture are other key reasons why Latin America has been a priority for Spanish companies outside their homeland. Another factor is reciprocal, massive immigration. In the past, Spaniards went to Latin America. Today, Latin Americans are landing in Spain. “Companies that choose to expand into Latin America have made that emerging market a target. Perhaps because they speak the same language and have the same culture, Spanish companies are more likely to approach that market than move into Eastern Europe, which is another very attractive market,” explains Meter Mills, regional manager for Latin America and the Caribbean at the Watson Wyatt consulting firm. Nevertheless, Juan Carlos Martínez-Lázaro, a professor at the Instituto de Empresa business school, says that the Latin American market does not become an extension of the Spanish market just because of shared language. “Companies should avoid the errors that were made during the 1990s. Now, Spaniards are not going to impose our business model on the region. We must learn to work from that location, rather than bring [to Latin America] the same demands we have [in Spain],” he explains. Actually, Josep Saveras, a professor at ESADE, argues that “[the common] language is a handicap.”



According to Carlos Martínez-Lázaro, there are very distinct cultural differences, social levels and income levels. The main reason for a multinational to move into Latin America is the chance to expand. “Its population of almost 500 million people is very appealing,” he notes. During the 1970s, manufacturers and auto companies led the way into America. “In the 1980s and 1990s, the service sector began to expand. Today, the most developed sectors are services and the exploitation of raw materials,” notes Martínez-Lázaro.


Experts agree that major Spanish firms in Latin America have been expanding their commitment to Latin America. Spanish firms have acquired profitable positions in many markets and Latin American countries, because they have made sizable investments in a legal and transparent way. And they are assuming the corresponding risks. Their presence in basic sectors that serve the population has led to modernization and distribution of those basic services to the entire population, and it has benefited the economies of the region.


According to Saveras, Latin America is a still developing region. He suggests that companies that want to move into this market to “take into account the same risks and benefits that they consider whenever they move into another market, whatever its size.” Spanish companies are in Latin America for the long haul. They are maintaining their commitment to those countries and populations. In that sense, they consider it extremely important to cooperate with the growth of democracy, as well as the modernization of government and politics. They are committed to creating wealth and human capital in order to combat poverty and social exclusion.


Fears of Infection of Nationalization


In the political realm, a series of elections – and resulting changes in government – have generated a high level of instability. Bolivia’s situation has made it clear that, from Tierra del Fuego to the Caribbean, this current of Latin American politics needs to be looked at carefully. Companies are expanding their economic commitments in an unstable legal and political environment. Do foreign companies fear a possible ‘domino effect’ following in the footsteps of the Bolivian government’s efforts to nationalize the energy sector? Saveras does not believe that a massive nationalization effort is beginning, in an effort to emulate Evo Morales. However, it is clear that in the short term, [Spanish] companies are uncertain about entering the Latin American market. “Investments have dropped, but in the medium term, the spending will return,” says Saveras.


Many experts argue that Latin America, formerly a money pit, has become a profitable investment today. Spanish companies have invested more than 84.250 billion euros in the region, according to the Bank of Spain. Spanish companies now provide a range of basic services to the people of Latin America, including banking and financial services; energy, water, telephony and telecommunications; basic infrastructure; agribusiness; and transportation… According to the 2004 Latinobarómetro [survey of public opinion], more than 35% of Latin Americans do not believe Spanish investments are beneficial for their country. Is that perception justified? Experts are certain that it is not, if you take into account that Spanish companies have bought businesses at high prices; have made an enormous volume of investments; have suffered millions of dollars in losses; and have modernized and democratized basic services that were unfamiliar to millions of Latin Americans until recently.


Which is the most attractive country for investment? Experts agree that companies must clearly define their business strategy and goals because “each country is a different world. When a multinational lands in a country, it has to work on the local level. Our company focuses on studying the market, helping companies carry out their strategy, and helping them learn how to fight for a given market,” explains Mills. He adds that a country will be more attractive than another country “depending on its size, the availability of educational resources, and the country’s economic growth.” Martínez-Lázaro agrees that a company’s goals are the decisive factor in deciding between one country and another. “I believe that Chile is the ideal country. It has an effective regulatory framework, although the population is very small – 15 million people. Two other countries that are very attractive are Brazil and Mexico; each has more than one hundred million people.” Saveras says, “Chile is a country that is growing a lot stronger. Mexico is a very attractive market because of its proximity to the United States. And Argentina and Brazil are also two Latin American diamonds.”


Investing in Human Capital


Efforts to upgrade human and social capital are fundamental for increasing competitiveness and fighting poverty. Social investments are achieved through education, relevant training, and research, all of which are necessary for competing in the global market. Beyond education, culture, professional training, Latin America’s human capital has the capacity to adapt, absorb the entrepreneurial mindset, and learn how to compete against any country in the world.


For its part, the Watson Wyatt consulting firm has put together a study of 25 countries around the world, analyzing 23 different factors to determine which Latin American country is most attractive. No single yardstick exists for measuring the benefits of one country, and the shortcomings of another. Everything depends on how much weight you give to various factors. “Brazil and Mexico are a lot like India. Venezuela and Colombia, among others, offer fewer opportunities,” says Mills. Martínez-Lázaro does not believe that things are that clear. “If a company is looking to develop raw materials, Colombia is the right country, despite the fact that violence continues to threaten the country.”


Does it make more sense to buy a family-owned business rather than a company that was privatized by the government? Mills says it is “extremely important to invest a great deal of effort in integration. We buy a challenge. It has been very difficult for some companies to bring the companies [they purchase] into their global business. A strong effort at integration is required. If a company disregards this component, it leads to a disaster,” Mills is certain.


Lately, managers have become aware that the most important thing is how their workers are organized. “Companies are beginning to think about how to get the best out of the intellectual and human capital. Some companies even incorporate their human capital strategy into their overall business strategy,” says Mills. The chief needs of his South American clients involve two focal points: “The way compensation is set up, and the transformation of the organization in order to create the greatest possible value.” This involves three questions: How to create value for their employees, for the organization and for its customers. “Beyond your system for compensating people, it is fundamental to make a sustained effort to work on these aspects. Most companies are not very good about communicating their overall strategy to their employees or communicating the role that employees will play in it,” he explains. “Neither multinational companies or developed countries has the key to the best way to manage the corporation’s human resources,” emphasizes Mills.


Competition from Southeast Asia


Experts agree that the strong demand for primary products and energy generated by China’s rapid growth provide an excellent opportunity for Latin America to attract investment from that country [China], and take advantage of the complementary of their economies to expand trade. Nevertheless, China is also a strong competitor when it comes to attracting foreign investments [from other countries] and exporting low-value added manufactured goods.


Saveras says that the difference between Latin America and Asia is in their domestic markets. “Companies manufacture in China because their costs are lower. In the medium term, they may also be able to sell those products in that domestic market. However, in Latin America, that possibility does not exist. The inequalities in the population mean that companies cannot recover their investment costs by selling in the domestic market.”


Companies need to rebuild the prestige and affection among the Latin American population. They need to overcome social distrust and disgust and become companies that are well-liked by Latin America society because they are committed and responsible. In much the same way, Norwegian companies have achieved a worldwide image for defending and respecting human rights. Likewise, Swedish companies have established a worldwide image for respecting the environment. For their part, Spanish companies in Latin America must build an image of social responsibility among the peoples of Latin America.