s e u s s I t n e r

r The emergence of Latin u C February 28, 2007 multinationals

a The entire global corporate chessboard is changing rapidly. New c i

r multinationals are emerging in countries such as India, China, South Africa and e Russia. This is also the case for companies in , the so -called m multilatinas , par ticularly in and Braz il . A

n i Multilatinas have taken up a strategy of globalisation going beyond t

a the pure exporting phase. The examples of , and CVRD show L that boldness and innovation can lead to world leadership in sectors as different as jets, cement or raw material s.

OECD multinationals are no longer the sole bidders in acquisitions. In the future , we will see more companies from and Mexico and also from other emerging markets taking over OECD -based firms. Thanks to cheaper access to capital, successful busin ess models and sizeable assets, emerging multinationals will increasingly challeng e 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 (emer ging 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

Techni cal Assistant Bettina Giesel

Deutsche Bank Research Frankfurt am Main Germany Internet: www.dbresearch.com E-mail : [email protected] Fax: +49 69 910 -31877 Javier Santiso is the Chief Economist and Deputy Director of the OECD Development Centre. Managing Director Previously he was the Chief Economist for Latin America and Emerging Markets at BBVA (Banco Norbert Walter 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

South-South FDI on the rise The emergence of Latin multinationals1 % 180 160 The corporate world has changed remarkably in the past ten years. 140 New multinationals are emerging in countries such as Brazil, India, 120 China, South Africa and Mexico. 100 80 In some sectors, such as steel or cement, t he global leaders are no 60 longer corporations from developed countries. For example, in 2006, 40 the Indian -owned company Mitt al took control of its European rival 20 0 Arcelor and became the leader in the steel sector while the Mexican 1995 1999 2000 2001 2002 2003 company Cemex is in the same league as Lafarge (French) and Holcim (Swiss). With the takeover of Canad a-based company Inco Total FDI inflows South-south FDI the Brazilian producer of minerals, CVRD, is now topping Source: UN Comtrade datababase, World Bank international rankings along with the Anglo -Australians BHP Billiton staff estimates, Global Development Finance, 2006 1 and Rio Tinto. The list of emerging multinationals competing neck to neck with their OECD counterparts is inc reasing fast, including also Stock of outward FDI Chile -based ENAP, PDVSA from and from from emerging countries Brazil. From South Korea, Samsung, LG or Posco are worldwide USD bn 2005 competitors while Russian giants l ike Gazprom are increasingly Hong Kong, China 470.5 willing to invest outside their home cou ntries , following the examples British Virgin Islands 123.2 of Chinese companies like Lenovo or Indian conglomerates like Russian Federation 120.4 Tata. Singapore 110.9 Along the same lines, foreign direct investment (FDI) in emerging Taiwan 97.3 countries by enterpris es from other emerging countries (the so - Brazil 71.6 called “South -South” FDI) has increased threefold, from USD 15 bn China 46.3 in 1995 to more than USD 45 bn in 2003 (see chart 1) . During the Malaysia 44.5 same period, investment by these enterprises in OECD countries South Africa 38.5 rose from USD 1 to US D 16 bn . In 2005, according to UNCTAD Korea, Republic of 36.5 (2006) , FDI from emerging countries reached a record of USD 133 Cayman Islands 33.7 bn , representing 17% of the world’s outward flows, the highest level Mexico 28.0 ever recorded. The total value of the outward FDI stock from 22.6 emerging economies also jumped to the impressive amount of USD Chile 21.3 1.4 trillion in 2005 (see chart 2) , 13% of the world total. The number Indonesia 13.7 of emerging countries now playing in the international FDI arena has All developing and transition also increased, jumping from 5 countries in 1990 to 25 in 2005. economies* 1400.0 Emerging As ian players dominate , account ing for more than 60% of *Equals emerging countries in our definition. the FDI stock from emerging countries in 2005 , but Latin American Source: UNCTAD players are also actively involved in this new trend. The number of 2 companies from emerging countries now included in worldwide Number of global 500 rankings is increasing along with their overseas investments: in companies per selected 1990 only a happy few multinationals from emerging countries were country listed in the Fortune 500 r ankings; by 2006 , the number had risen to US 170 52 (see chart 3 ). Other rankings such as Forbes 2000 also show a n Japan 70 increasing presence of companies from emerging countries France 38 (chart 4). UK 38 Germany 35 China 20 Brazil and Mexico: a new generation of South Korea 12 multilatinas Italy 10 Spain 9 Amid the remarkable growth of emerging multinational corporations, India 6 there is, as alre ady mentioned, the noteworthy e ru ption of Latin Russia 5 Mexico 5 1 This report focus es exclusively on non -financial corporations. For the documents, Brazil 4 comments and suggestions the author would like to thank Felipe Ald unate, 0 50 100 150 200 Rolando Avendaño, Susana García, Jesús Gonz ález Nieto -Márquez, Mauro Guillén, David Martínez Turégano, Patrizia Labella, Elizabeth Nash, Marina Urquidi Source: Based on Fortune 500, 2006 3 and Juan Antonio Rodríguez. 2 February 28, 2007 The Emergence of Latin Multinationals

multinationals , multilatinas . In Argentina, for instance, Arcor, a Number of firms in leading global sweets manufacturer and the No. 1 confectionery Forbes 2000 exporter in Argentina, Brazil and Chile, is present in 117 countries in 35 five continents; in another example, the pipe manufact uring 30 company Tenaris is present in Argentina, Brazil, Mexico and 25 Venezuela, as well as in Canada, Italy and Japan, and, in 2005, it 20 made more than 85 per cent of its sales outside of Latin America. 15 However, the biggest multilatinas jumping into the glo bal markets 10 are Mexican and Brazilian. 85 of the 100 lea ding enterprises on the 5 continent and 35 of the 50 most profi table ones are located in these 0 two countries. l i o e a a l i z i c n i i d a h x r h n The emergence of multilatinas has taken place in two stages. During I C e B C

M the “trade expansion ph ase ” (phase I) these companies dramatically Source: Forbes Top 2000 Companies, 2006 4 increase d their sales abroad. During the “investment phase ” (phase II) they start ed a cquiring strategic assets abroad. Combined , these two phases help ed to transform Latin American corporations into multilatinas , transnational Latin America -based corporations. In 2004, Latin American enterprises as a whole invested USD 22 bn Overseas investments outside of their respective bo rders, which amounted to a 500 per by Brazil and Mexico USD m cent jump from the previous year. The most spectacular rise was 12,000 logged by B razil. According to UNCTAD data, Brazilian enterprises Brazil 10,000 invested nearly USD 10 bn outside of their country in 2004, Mexico 8,000 compared to barely USD 250 million the previous year (chart 5 ). In 6,000 2005, the total stock of Brazi lian FDI abroad topped more than USD 4,000 71 bn , surpas sing by far the USD 28 bn of Mexico or the USD 22 bn 2,000 of A rgentina (and almost the same amount for Chile ). Brazil 0 concentrates 40% of all the outward FDI stock from the region. -2,000 Multilatinas ’ trade and investment strategies have been stimulated -4,000 by indu strial and financial goals , i.e. the quest to expand their 90 92 94 96 98 00 02 04 markets , to reduce the ir cost of capital and to improve the ir risk profiles . Some of them are quoted o n inte rnational stock markets, Source: Based on UNCTAD and OECD, 2006 5 such as that of New York. Madrid has also attracted some compani es , with many of the mult ilatinas listed in Latibex, a stock market instituted in 1999 and now feat uring more than 30 quoting enterprises. Multilatinas have also increased dramat ically their overseas sales. Export orientation of Based on América Economía rankings of the top 1 00 major Latin leading Latin firms* American companies, we calculated their ratios of sales abroad as a Exports as percentage of total sales, percentage of total sales. For Peruvian and Chilean companies in % (2005) 80 the list , overseas sales represented no less than 70% of their total sales in 2005 (chart 6 ). But even for c ountries like Brazil and 60 Mexico, which have many more companies on the list, the figures are impressive: 47% of total sales are made abr oad for Mexican 40 companies (mostly directed to the US market) and 39% for their 20 Brazilian cou nterparts. The bulk of those exports (75%) is related to oil, gas and minerals e xports ( chart 7 ), which is not surprising as 0

l more than one -third of all Latin American exports are commodity - i o a u e a a l l i r z i c n i e i b e a h t x

r related. u P n m C e z B e o e l M g n o r To understand how multilatinas surged, it should be kept in mind e C A V that the ente rprises’ immediate environment was transformed with

*Major 100 Latin American companies. the massive entrance of foreign competitors over the past decade. Source: Based on América Economía, 2006 6 As a cons equence, between 1991 and 2001 the profile of the 500 most impo rtant enterprises establi shed in Latin America changed drastically. The nu mber of enterprises under state control decreased enormou sly, from 20% in 1991 to less than 9% ten years later. During the same period, f oreign transnational enterprises staked out signif icant territory in the region: I n 1991 they represented 27% of

February 28, 2007 3 Current Issues

the co ntinent’s 500 most important enterprise s; by 2001 they had Sectoral breakdown of risen to 39% . This growing competition put pressure on the l ocal exports companies , which traditionally provided products and services for Major 100 Latin American companies, exports by sector in 2005 their home market . The most d ynamic ones turned to external market s and became multilatinas . Some of them directed their 3% 4% globalisation towards the region , concentrating on the Mercosur or 7% 3% the Andean zone. Others undertook a pan -regional strategy and yet 4% others invested in emerging markets in other cont inents – Africa and 5% Asia – or in the OECD countries, the United St ates in particular. 8% Therefore, over the past years Latin American comp anies multiplied acquisitions, both in home markets and abroad . Total acquisitions in 53% 13% Latin America by Latin American firms reached nearl y USD 110 bn since the beginning of the decade (chart 8). Of this amount, more Food than USD 23 bn were directed at other countries of the region that Petrochemicals were not the firms’ home market. Brazilian and Mexican companies Agrobusiness Holding have been the mos t active in that process . Iron and steel industry Automobiles/autoparts Mexico: Leading the international isation drive Mining Oil/gas Major Mexican companies have reached a significant level of Others internationalisation, measured by exports as percentage of sales. Source: Based on América Economía, 2006 7 For example, for groups like Nemak or Mabe international sales re presented 82 % and 69%, respectively , of their total sales in 2005 (chart 9 ). But n ot only does Mexico present one of the highest trade - openness rates among the emerging coun tries, a si gnificant number Acquisitions in LatAm by of its enterprises have also entered the second phase of LatAm companies from internationalisa tion seeking a d irect presence abroad . 2000-2006 Cement giant Cemex has led the way. Between 1990 and 2006, USD m Cemex became a world leader among emerging multinationals in Including terms of overseas acquisitions , with no less than 40 operations internal Excluding completed during that period. As of 2006, Cemex ha d branches not market internal market only in Latin America but also in the , UK , Spain, Brazil 62.8 5.6 Egypt, Indonesia and the . Present i n four cont inents and Mexico 21.7 10.2 with more than USD 15 bn invested abroad, the Mexican cement Chile 10.8 2.3 manufacturer is spearheading the globalisation of Latin American Argentina 5.4 3.5 multinationals. In 2005, it performed one of the most impo rtant 4.3 1.2 tra nsactions ever carried out by a Latin American enterprise with its Others 3.2 0.5 acquisition of Britain’s RMC for close to USD 6 bn . With this Total 108.3 23.2 acquisition, Cemex’s sal es in M exico decreased to 21% of total sales, behind sales to the United States (27%) and even further Source: Based on BBVA Corporate Finance, 2006 8 behind those to Europe, which in 2005 was Cemex’s largest market, amoun ting to nearly 40 % of its total sales (Spain and the UK account ing 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 succes sful, the bid will transform Cemex into the lea ding company worldwide in its sector. It will also be t he largest acquisition in the building mater ials industry to date . Another major example is t he telecommunications giant Telmex . It has become one of the bi ggest competitors in telephony in Latin America. Along with its spin -off América Móvil, it has multi plied acquisitions in the region, comple ting franchising plan s in just a couple of years. América Móvil today has subsidiaries and joint investments in the telecommunic ations sector of , Ecuador, Argentina, Br azil, Colombia, Venezuela, the United States, Puerto Rico, Mexico and Spain. A number of enterpr ises in other sectors also stand out for their inte rnational 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 Top Mexico-based large number of acquisitions in the United States in recent years . exporters Before the year 2000, there was practically no overseas investment Exports as % of total sales, 2005 by Mexican companies, but since 2000, Mexican outstand FDI has Pemex averaged USD 3 bn per year. In 2005 it reached a record of nearly Refining Nemak USD 6.2 bn, according to official Mexican figures. In 2006 and 2007, this amount will be greatly exceeded: with the sole Cemex/ Rinker Grupo Mabe Daimler deal (USD 13 bn), Mexican FDI abroad more than double d. Chrysler Gr. Maseca Brazil: Aggressively pushing into phase II

Corp. S. Luis These past few years, there has been a significant increase in Brazilian exports . Similar to Mexico , some of the biggest Brazil - Desc Autom. based exporters are f oreign companies like Volvo from Sweden, Grupo Saltillo which sells ab road nearly 50% of its Brazil -based production, Grupo Simec General Motors, Cargill and Caterpillar from the US, Fiat and Pirelli Ind. Penoles from Italy, Renault from France or Bosch and Volkswagen from

Verzatex Germany ( chart 10 ). But , more importantly , Brazilian -owned groups have increased their share of sales abroad. Industria CH In 2005, the a eronautical group Embraer conducted 84 % of its sales Grupo Imsa abroad, while Aracruz Cel ulose, another of the country’s e xport Imsa Acero champions , with more than 60% of its production sold outside of Grupo Cintra Latin America, made sales in Europe, North America and Asia. In Desc the steel s ector, carried out 31 % of its total sales outside of

Pemex Brazil and the leading ente rprise in the mining sector, CVRD, 33 %. Even Petrobrás , the state -owned oil company, has become a major Grupo Alfa exporter, achieving 11% of its total sales abroad and starting Desc Químico ex ploration and production oper ations in the United States, Mexico, Venezuela, Colombia, E cuador, Peru, Bolivia, Nigeria and Angola. Siemens The agro -industrial sector, one of the most dynamic in the country, Mex. features a number of outstanding groups such as Sadia, wh ich Pemex exports to more than 65 different countries, including Russia, Japan Gas&Petr. and countries in the Middle East, invoicing nearly half of their sales Gr. Modelo abroad. Like Sadia, other groups are succeeding in increasing and Vitro Vid. diversifying the markets for their exports. Th is is also the case for Plano Grupo Vitro the petrochemical enterprise Braskem: 50% of its exports go to Pemex North America and 20% each to Latin America and Europe . Petroquímica Nonetheless, all of these groups are moving beyond the me rcantile Gr. phase and on to significant investment operatio ns abroad. Foreign Femsa direct investment (FDI) by Brazilian companies has increased 0 20 40 60 80 100 sharply. In 2006, for the first time ever, oversea s investment by Brazilian companies was larger than FDI into Brazil. Brazilian firms Source: Based on América Economía, 2006 9 invested USD 26 bn abroad (including the USD 17.6 bn acquisition by CVRD of Canada’s I nco ), compared with USD 18 bn invested by foreign companies in Brazil.This “phase II” of the international isation strategy reflects two broad purposes. Like the pioneering C emex in Mexico , the groups are seeking on the one hand to enlarge their ma rket s by staking out pos itions 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 , i n 2005, the steel producer Gerdau purchas ed 40 per cent of Spain’s Sidenor. A ce ntury -old enterprise, Gerdau h as been able to establish important positions not only in Latin America (Brazil, Chile, Argentina, Colo mbia and Uruguay) but also in North America (the United States and Canada). In the tran sport -equipment se ctor, 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 enterpr ise Top Brazil-based exporters now owns manufacturing units not only in Brazil, but also in Exports as % of total sales, 2005 Argentina, Colombia, Mexico, Portugal and South Africa, e xporting Samarco to more than 60 countries, among them France, UK , Germ any, Min. Spain, Portuga l, t he Neth erlands, Mexico and Saudi Arabia. Albrás Other prominent examples are Brazilian conglomerates such as Embraer Votorantim , Odebrecht or CVRD. Votorantim, one of the major Alunorte comp anies in Latin America , has diversified towards the OECD MBR countries through its acquisitions in the cement sector in the United Seará Alim. States and Canada. The engineering group Odebrecht, present in Aracruz four continents and with sales spread across 50 countries, now gets Celul. ADM more than one -third of its income from abroad. CVRD, the fourth company worldwide in the mini ng sector, obtained 70% of its income CST from abroad in 2005 (30 % from Europe and another 30 % from Asia, Volvo China and Japan in particular). In the past few years, it has made Caraiba acquis itions and established itself in the United States, Canada, Bunge France, Bahrain and N orway. It has also started an ambitious plan to Cargill develop a global portfolio of exploration projects embracing three

Sadia continents (Peru, Argentina, Gabon, M ozambique and Australia are the main countries so far ). Otherwise, Asia (China especially ) has R. Bosch become on e of the group’s main target regions for expansion. In Perdigao 2006, as mentioned above, the company unde rtook a major Odebrecht development with the acquisition of the Canadian b ased company, Embraco Inco, for a record USD 17 .6 bn . Suzano Aeronautics is another sector featuring a Brazili an e nterprise with Caterpillar extensive international presence, the multilatina Embraer. Embrae r CBA is the second most important Brazilian exporter. Founded in 1969 by

Renault the Br azilian government then seeking international prestige, the enterprise was privatised in 1994 (a conglomerate of European Copersucar enterprises led by Dass ault Aviation and EADS has a 20% share in CVRD it). Today it employs 15,000 staff . The company , the world's No. 4 Daimler Chrysler commercial aircraft maker, is signi ficantly increasing its ties wi th Acesita Asia. In 2006 it signed a dea l with the Ch inese airline HNA Group for Coamo 100 jets valued at USD 2.7 bn , its bi ggest order to date in China. It Pirelli has also said it would significantly boost its techn ical support Pneus network in the Asian -Pacific region, creating a parts/ logistics centre Volkswagen and insta lling a full flight simulator for its jets starting from the Gerdau second half of 2007. WEG Gral. What are the drivers of the recent overseas expansion ? Motors Votorantim Latin America is not unique Souza Cruz Before answering this question it is important to stress that the Latin CSN American trend desc ribed above is not unique. We are witne ssing Siemens the rise of new multin ationals with home in emerging markets. Brasil Braskem Investments by these emerging multinationals into other emerging markets, the so -called “South -South” flows, are on the rise. South - Fiat Auto. South flows repre sented more than 30% of all FDI flows that went to Copesul developing coun tries in 2005 (see chart 11 ). Petrobras The recent string of high -profile, cross -border mergers and Shell acquis itions involving Chinese or Indian companies as acquirers is Petrobras Dist. symb olic of this new global trend . According to The Boston 0 20 40 60 80 100 Consu lting Group, who identified the top 100 emerging multinationals 2, Ch ina accounted for 44 firms in this ranking, Source: Based on América Economia, 2006 10 followed by India (21), Brazil (11) and Mexico (6). Latin America has a total of 18 comp anies o n the list, far be hind Asia (70) but ahead of

2 See Boston Consulting Group, May 2006 a.

6 February 28, 2007 The Emergence of Latin Multinationals

other regions (12 other comp anies are located in countries like Global capital flows Egypt, Russia, South Africa or Turkey). by type USD, 2005 For India and China, energy needs and domestic compet ition have 100 been key drivers of their overseas expansion. In the case o f China, 80 the aim to create national champions is also acting as an 60 accelerator. As stressed in a previous report by Deutsche Bank Research, Chinese global champions are in the making, with the 40 flow of overseas i nvestments from these companies increasing ye ar 20 after year 3. According to Boston Consulting Group, Chinese firms 0 have carried out more than 220 overseas investment transactions I s s d t D e e e since 1986 , with a total value of about USD 18 bn . Interestingly , r t c u F o s a n n p n c Latin America is on the radar screens of Chinese companies : in i a e x a t d v t o i E l n e

r 2005 the region was the second recipient of Chinese FDI (see y m e S

R chart 12 ). South-South North-South The case of India ’s investment abroad is even more spectacular. Source: UN Comtrade datababase, World Bank Some I ndian companies had already for some time been heavily staff estimates, Global Development Finance, 2006 11 oriented towards overseas markets. Indian software gr oups like Infosys , Tata Consultancy Services (TCS) and Wipro already generate 98%, 90% and 80% respectively of their revenu es from markets outside India . Latin America has attracted over 40 % of Indian FDI in 2006 4, basically in commodity -related sectors, o il, FDI from China by region USD m, 2005 mine rals and gas, with Brazil, Colombia and Bolivia being the major recipients. The connection with Latin America is also related to the 3000 fact that some of these Indian companies are setting up 2500 development centres in time zones close to their major mark ets . 2000 TCS , for e xample , has 1, 100 employees in Brazil and 250 in 1500 Uruguay . 1000 N L 500 Main drivers of outward FDI flows o a r t t i h n 0

Emerging multinationals have some elements in common that O A A E m m c A u e explain their rise. They all greet from la rge markets that have been e e r A f a o r r r n i i i s p c c c able to support large domest ic companies. They all have access to i i a a a e a a low -cost resources such as labour force or primary pro ducts. They all have been able to flourish in difficult local environments , often characterised by shortages of skilled management, volatile legal and Source: Based on China's official data, 2006 12 financi al frameworks, and deficient logistical and infrastructure systems. All these obstacles helped to transform the “survivors ” into highly capable firms , able to inn ovate and make quick decisions in order to capture new oppo rtunities. Risk diversific ation goa ls have also been behi nd a large share of both market - and natural resource -seeking investments. In particular, Latin American multinatio nals have often sought to hedge against exchange rate risks and co mmodity price fluctuations and diversify the location of assets in order to improve access to capital. The strategies these companies have chose n to “go global” can be classified in districtive patterns, as ident ified by the Boston Consulting Group (BCG) 5: 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 cou ntries; a last group – including early movers like Cemex – is seeking t o roll out new business models in multiple markets. The way to expand abroad, until recently, has been above all through org anic growth, according to the study by the BCG (only 20% has

3 See Deutsche Bank Research, August 2006. 4 Indian FDI figures exclude the recent acquisition by Tata of Corus, amounting to GBP 6.7 bn. 5 Boston Consulting Group, 2 006b.

February 28, 2007 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 oper ation. For example, América Móvil, the Mexican telecommunications oper ator, spent mor e 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 popula r and that such comp anies have now conquered the taboo of making huge bids, even in d eveloped countries. Is the emerging multinational boom sustainable? Some of the drivers explaining the boom of emerging multinationals are stru ctural ones, such as globali sation forces like the dramatic surge in low -cost telecommunications technologies as well as macroeconomic reforms in emerging countries that improved the ir economic stability . But there are also important cyclical drivers that are helping emerging multina tionals 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 favourab le 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 beco me more sophisticated , while new investors have entered into the asset class, investing in bonds and equities all a round the emerging world. Finally, s trong exchange rate s 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 Mexi co and Brazil, multilatinas have taken up a strategy of globalisation going beyond the mercantile exporting phase. The exa mples of Ce mex, CVRD and Embraer show that boldness and innovation can generate world leaders in a given se ctor. Some of these multina tional corporations could also explore new strategies, such as taking advantage of markets like those of the Hispanic co mmunities in the United States or i n sectors such as agro -industry . But beyond these achievements, what really stands out is the broader context in which these ente rprises thrived . In just one decade, Mexico became a lea ding 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 econ omic policies implemented in the past decades in Mexico and Brazil. 6 The moorings of monetary and fiscal policies have provided mo orings for corporate strategies. The good news from Latin America may be that more good news is on its way. So far multilatin as have been the exception. Few

6 See on this point Santiso, 2006; and more generally Feenstra and Hamilton, 2006.

8 February 28, 2007 The Emergence of Latin Multinationals

enterprises of the region have become global leaders in their respective sector s. However, t he 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 multinati onal corporations could equal that achieved by Asian emerging markets and bring about further successful multi latinas . Acco rding to the United Nations, transnational firms from e merging markets already account for one -fourth of the total number of m ajor 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 capit al over the last years and the i ncreasing appetite of these companies for overs eas expansion is rapidly changing the map. Clearly, OECD multinationals are no longer the sole players in the global FDI game . Another imp ortant trend is the increasing S outh -South conne ct ion. Chinese companies are investing in Asia but also now in Africa. Latin America is not only on the radar screens of Ch inese firms but is now also of interest to Indian companies. This illustrates one of the major changes u nderway in the global economy: W hat we used to call the “Centre ” is becoming less and less the nucl eus of global trade and capital flows, while the “Periph ery ” is beco ming less and less peripheral .7 The borderline between poor and rich countries is also beco ming more complex to define. Over the next few decades new emerging giants will contribute to redesig ning 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 For the original Centre/Periphery thesis, see Prebisch (1950).

February 28, 2007 9 Current Issues

Bibliography

Beausang, Francesca (2003), Third World multinationals: E ngine of competitiveness or new form of dependency?, Pa lgrave, London. Blázquez, Jorge, Rodríguez, Javier, and Javier Santiso (June 2006), “Angel or Devil? China’s Trade Impact on Latin American Emerging Markets”, OECD Development Centre Working Paper, No 252. Boston Consulting Group (May 2006a), China’s global cha llenges. The strategic implications of Chinese outbound M&A, BCG Report, Boston. Boston Consulting Group (May 2006b), The new global challenges.How 100 top companies from rapidly developing economies a re chaing the world, BCG Report, Boston. Deutsche Bank Research (August 2006), Global champions in waiting: Perspectives on China’s overseas direct investment, Deutsche Bank Research, Frankfurt am Main. ECLAC (Economic Commission for Latin America and the Caribbean) (2006), Foreign Investment in Latin America and the Caribbean, 2005, ECLAC, Santiago, Chile. Feenstra, Robert, and Gary Hamilton (2006), Emergent Economies, Divergent Paths , Cambridge University Press, Cambridge, Mass. Guillén, Mauro (2005), The Rise of Spanish Multinationals: European business in the Global Economy, Cambridge University Press, Cambridge, Mass. Jensen, Nathan M. (2006), Nation -States and the Multinational Corporation: A Political Economy of Foreign Direct Investment, Princeton Un iversity Press, Princeton. Khanna, Tarun and Yishay Yafeh (2005), “Business Groups in Emerging Markets: Paragons or Parasites?”, European Corporate Governance Institute (ECGI) - Finance Research Paper Series, Working Paper 92. Prebisch, Ra úl (1950), The Ec onomic Development of Latin America and its Principal Problems , New York: United Nations. UNCTAD (2006), World investment report 2006. FDI from developing and transition economies: implications for development, United Nations, Geneva. Santiso, Javier (2006 ), Latin America's Political Economy of the Possible : Beyond Good Revolutionaries and Free Marketeers, MIT Press, Cambridge, Mass.

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