Here’s a question which answer may surprise experts in international business: What kind of company is responsible for the majority of businesses in Latin America? Would be large multinationals from industrialized countries or Latin multinationals? Despite that traditional multinationals have more visibility than Latin ones, regional multinationals account for approximately 70% of total revenues of the firms with business in the region. According to Deloitte Consulting, which conducted a study on Latin American multinationals (link here), this information contradicts the popular myth that global multinationals are the dominant players in the Latin markets.
An important result of the analysis conducted by the consulting firm is the ecosystem in which they operate Latin American companies. This form of sorting organizations shows the ability of businesses expand over time in accordance with figure 1.
Figure 1 – Evolution of Latin multinationals.
Local Latinas are companies whose operations are restricted to a single Latin American country. Those that do not export or export little are called Local Latinas, while those with significant exports (in Latin America or beyond the region) are called Exporter Latinas.
Companies called Multilatinas are those working in several Latin American countries, but do not have significant operations outside the region. Those that do not export much beyond Latin America are designated Regional Multilatinas and those with large exports are called Exporter Multilatinas.
The Global Latinas are companies that operate in several countries – in Latin America and beyond the region – and generate significant revenues outside the region.
One of the conclusions of the consultancy is that the way to become a Global Latina is neither linear nor standard, i.e., companies seeking internationalization have several options to choose from.
Another conclusion of the report is that there are five factors and core competencies that are important for a Latin American company to expand from local to global leader. Such factors are:
1. Availability and retention of qualified senior executives to drive expansions and international operations;
2. Access to capital markets;
3. Market leadership position in the country of origin;
4. Ability to make international acquisitions and joint-ventures;
5. Use of the best practices of corporate governance.
According to Deloitte, these five factors are essential indicators for whether a Latin American company can compete effectively and maintain performance globally.
The first two factors are structural – meaning that they are largely inherent to the country where the company is based. More specifically, companies headquartered in Brazil have a definite advantage when seeking their global aspirations by the strong and active support of the National Government to international expansion. In this regard I tend to disagree with the report because our perception is that Brazilian multinationals do not enjoy “strong and active support of the country.” It does not seem correct to say that there is an aggressive strategy to support the growth of Brazilian companies globally .In contrast, the last three factors are competencies on which a company has direct control and therefore can only rely on themselves to better themselves on these questions.
Finally, other important information presented in the report is that the different types of Latin American companies operate in different segments of the economy. While the leading Global Latinas are mainly in the oil and gas and power sectors, and Multilatinas and Local Latinas dominate the sectors of retail trade and information. Figure 2 shows the distribution of various economic sectors by three types of Latin companies.
Figure 2 – Activity sectors of ectors of activity
In conclusion, Latin companies, besides their later internationalization compared with multinationals from other emerging countries, form a very heterogeneous group. This fact explains why the Latin American multinationals are the object of analysis of many academics, consultants and bloggers.