“Life takes many turns,” an old Spanish proverb assures us. This phrase illustrates perfectly the recent rise of the so-called “trans-Latin companies” — businesses that are not only expanding in neighboring countries, but also crossing regional borders in order to conquer the prosperous U.S. market. They are even trying their luck in Europe and Asia. No longer outdone by competitors from other continents, these companies have even undergone changes in their mentality.
The first trans-Latin company to attract significant attention was Mexico’s Cemex, which purchased Rinker, the Australian cement company, last July. That acquisition made Cemex the global leader in sales of construction materials. Cemex, which paid $14.6 billion for Rinker, now enjoys a sales volume that is 2% larger than France’s Lafarge, a total of more than $15 billion a year. But Cemex’s acquisition has not been the only such move undertaken by a Mexican company over the last two years.
In 2006, Banorte, a financial group, acquired 70% of Inter National Bank (INB), headquartered in the U.S. Early in 2007, Banorte paid $19 million to acquire total control of UniTeller, an American company active in the remittances sector. Meanwhile, America Móvil, owned by the Mexican magnate Carlos Slim, has continued to conquer Latin America. It now provides mobile phone service in Guatemala, El Salvador, Nicaragua, Honduras, Colombia, Peru, Brazil and Chile, among other countries. In the middle of 2006, America Móvil purchased Verizon’s assets in Venezuela, the Dominican Republic and Puerto Rico, in a deal valued at $3.7 billion. In addition, Slim’s company is waging a fierce battle with Spain’s Telefónica for domination of the telecommunications market in the region.
Mexican food companies Bimbo and Gruma, which had already strengthened their positions in Latin America, the U.S., and Europe, have begun to make investments in Asia (especially China and Japan) as well as in Australia.
Brazilian companies have not been left behind. Last year Vale do Rio Doce (CVRD) purchased Canada’s INCO for a price of $16.7 billion, making CVRD the second-largest mining company in the world. This year, CVRD paid $662 million for AMCI, the Australian coal producer. Embraer, one of the largest airplane manufacturers in the world, along with oil producer Petrobras and Itaú Bank — which bought the assets of BankBoston in several Latin American countries — are just a few of the most active Brazilian companies when it comes to this process of globalization.
Chilean retailers Falabella and Ripley are already opening up their doors in other countries of Latin America. Last year, Colombia’s Nacional de Chocolates group acquired food companies in Costa Rica, Panama and Peru. In addition, Colombia’s Cementos Argos, the country’s largest cement producer and the fifth-largest cement producer in Latin America, has been making purchases in the United States for several years.
These are only some examples of the new phenomenon of trans-Latin companies that are globalizing their operations. They are pursuing three different approaches: They are conquering markets in neighboring countries; they are moving directly into the U.S. (because of its size and cultural characteristics) without moving into other Latin American markets; and, in exceptional cases, they are moving ahead in Europe and Asia. According to Juan Carlos Martínez Lázaro, a professor at the IE business school in Spain, apart from two or three trans-Latin firms that are already giants — such as Cemex, Vale do Rio Doce and Embraer — there are some “small, more embryonic companies that jump around from country to country, expanding throughout the region. The surprising thing is that this has not occurred until now,” he says.
A Change in Mindset
These developments have been produced by a change in mindset that “results from many years of accumulating skills and learning how to compete,” says Mauro Guillén, director of the Lauder Institute at the Wharton School. Latin American companies, he adds, “are in the vanguard of their respective sectors, as shown in the cases of Cemex, Vitro (glass), Modelo (beverages), Cisneros (communication), Embraer, Concha y Toro (wine), and Techint (steel) among many others.” In reality, this phenomenon “has been developing over the course of the last 10 years but it is attracting more attention now because these companies have managed to position themselves correctly in international markets,” he adds.
According to Carlos Ronderos Torres, a Colombian economist who was once that country’s minister of foreign trade, the key is that these companies “have overcome fears about the scarcity of foreign currency that affected Latin American economies until the beginning of the 1990s. Countries and companies have figured out that it is important for them, not only to attract investments, but to make investments. They aren’t losing foreign currency [as a result of these investments]; instead, the investments have become a source of additional foreign currency.” Ronderos believes that this earlier mindset was caused “by fear, isolation and parochialism …. Now, [Latin American] companies need to expand beyond their own markets [in the region].”
Martínez Lázaro suggests that the process of economic deregulation has made it just as easy for foreign companies to set up operations in Latin America as it has for Latin American companies to expand into foreign markets. From now on, companies will be taking that sort of leap more frequently because many of them “are aware that they operate in small markets, and they have no other way to grow because they are competing with other multinationals from the U.S., Asia and Europe. If they want to grow, they need to expand into foreign markets. This phenomenon occurred in Spain 10 or 12 years ago, and it is gaining strength now in Latin America.”
He believes there are three requirements for successfully undertaking this expansion. First, you need significant human and financial resources. Second, you need managerial skills, which are currently becoming professionalized in Latin America. Third, you need a concept, product and brand that are not necessarily linked to your country’s natural resources, as they were in the past. “In earlier times, we had large Latin American companies but they always focused on the mining of energy and minerals, such as Mexico’s PEMEX (oil and gas), Venezuela’s PDVSA (oil and gas), and Chile’s Codelco (copper mining). What’s new today is that private companies are expanding beyond these limitations and pursuing various other concepts.” Martínez Lázaro cites, for example, such restaurant chains as Guatemala’s Pollo Campero, which is moving into the U.S. and also wants to go to Asia. He also notes that Colombian coffee producers are moving up the value chain to create coffee shops such as Juan Valdez, where they sell their own coffee.
Most experts agree that there is no way to stop the ascent of trans-Latin companies. However, Ronderos takes a less optimistic view. He warns that “when they grow, they become more attractive for the big multinationals, which go on to absorb them. For example, Bavaria, a Colombian brewery, was acquired by South Africa’s SABMiller.” For such companies, “the biggest challenge is to compete with truly large companies and survive any monopolistic and protectionist plans made by some of those big conglomerates. The Latin American market continues to be very protected (by tariffs, state monopolies, and concessions),” he says.
Nevertheless, the possibility that these companies may be absorbed does not represent a problem for Martínez Lázaro. On the contrary, he says, “Bavaria was a very appealing company that has been acquired for a high price. It is all part of the game: Mexican companies buy Australian companies; Brazilian companies buy Canadian companies and vice versa. I believe it is a positive development. If they come and buy something you own, and they pay you a lot for it, that’s because you have created something important.”
He emphasizes that “while it used to be only about Spanish or U.S. multinationals buying Latin American companies — a road that ran in one direction — Latin American companies are now beginning to buy companies in developed countries.” The big trans-Latin firms will have to confront the same challenges as other companies face, whether they are Mexican companies or from somewhere else. Small companies, in turn, will find themselves limited when it comes to obtaining financing. “Financial systems in Latin America are not as well developed as in Europe and the U.S. Often, getting financing is a more complicated process, so some firms are financed in Spain through Latib (the Latin American stock market in euros),” he says.
On the other hand, companies need to “professionalize their managerial processes and they are already working along those lines,” he adds. “These days, Latin Americans are being trained both in their own universities as well as in Europe and the U.S…. Companies are creating a breeding ground that, at any moment, will provide the benefits that are needed. I believe that this process has already begun. Because they have become professionals, Spanish companies now have the desire and skills to globalize,” he says, noting the parallels with Spain.
In addition, Martínez Lázaro notes that Latin American products and services suffer from the absence of a strong image, at least in certain industrial sectors and services. “When we think about Cuban rum, we think of it as a quality product. But if we look at high-tech products from Latin America, it is probably harder to make such an assumption. We will have to break those barriers.”
The pending issue of Europe
For his part, Guillén believes that these companies will have to face the challenge of “continuing to grow, and riding out possible financial and economic crises, as well as making plans if they want to have a presence in Asia.” When it comes to choosing markets to focus on, Ronderos suggests that “these sorts of companies will be interested in making investments in countries with which their country has a free trade pact or bilateral investment treaty.” Some Mexican companies are quite likely to target the U.S., says Martínez Lazaro, because this approach mixes one regional market with another market that is local.
Another challenge for trans-Latin companies, he adds, is to strengthen their presence in Europe. From the viewpoint of direct investments, these companies rarely have a presence in Europe. Nevertheless, companies such as America Mόvil “are going after the European telecom market and, at any moment, they could jump into Europe while also continuing to grow in their usual markets.”
For all that, Martínez Lázaro says that many trans-Latin companies are using Spain as an entry point and operational base for their European businesses “thanks to its linguistic and cultural affinities [with Latin America]; its excellent communications networks, and the existence of Latibex.” However, Spain should take greater advantage of this trend.
Jobs and Profits for the Population
The million dollar question is whether this wave of expansion will provide significant benefits for the people of Latin America. Guillén has no doubts that it will. “History shows that multinationals provide benefits for their countries of origin because it is there that they usually create the most sophisticated jobs.” Ronderos has a more cautious view. “To the extent that their growth comes from preferential conditions, there will be fewer benefits. The benefits will be greater when these companies compete openly in the Latin American market,” he says.
Ronderos believes that companies will ask for “executives who are world-class, regardless of their nationality. Although they might prefer people who come from their own country of origin, companies are clearly paying less and less attention to issues of nationality.” Adds Guillén: “These companies are going to hire managers who have a global perspective and global experience,” no matter what their country of origin.