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Author Javier Santiso javier.santiso@oecd.org

Editors Markus Jaeger Maria Laura Lanzeni

Technical Assistant Bettina Giesel

Deutsche Bank Research Frankfurt am Main Germany Internet: www.dbresearch.com E-mail: marketing.dbr@db.com Fax: +49 69 910-31877

Managing Director Norbert Walter

February 28, 2007

The entire global corporate chessboard is chanmultinationals are emerging in countries such as India,Russia. This is also the case for companies in Latin Ammultilatinas, particular

Multilatinas have tthe pure exportingthat boldness and innjets, cement or raw m

OECD multinationathe future, we will seeother emerging markeaccess to capital, sucmultinationals will incr

What we used to cand less the core o(emerging countries) decades emerging giathem will certainly be

Javier Santiso is the Chief Previously he was the ChieBilbao Vizcaya Argentaria).Beyond Good Revolutionarreasoning, opinions and po

The emergence of Latin multinationals

ly in Mexico and Brazil.

aken up a strategy of globalisation going beyond phase. The examples of Embraovation can lead to world leadersaterials.

ls are no longer the sole bid more companies from Brazil andts taking over OECD-based firms

cessful business models and sizeeasingly challenge large OECD-b

all the Centre (OECD countrif global trade and capital fl

is becoming less and less periphents will contribute to the new corp

multilatinas.

Economist and Deputy Director of the OEf Economist for Latin America and Emerg He is the author of "Latin America's Politiies and Free Marketeers", Cambridge, Massible errors stated here are naturally the

er, Cemex and CVRD show hip in sectors as different as

ders in acquisitions. In Mexico and also from . Thanks to cheaper able assets, emerging ased companies.

es) is becoming less ows, while the Periphery ral. Over the next few orate mapping. Part of

CD Development Centre. ing Markets at BBVA (Banco cal Economy of the Possible: ss., MIT Pres, 2006. The

author’s exclusive responsibility.

ging rapidly. New China, South Africa and erica, the so-called

Current Issues

2 February 28, 2007

The emergence of Latin multinationals1111

The corporate world has changed remarkably in the past ten years. New multinationals are emerging in countries such as Brazil, India, China, South Africa and Mexico.

In some sectors, such as steel or cement, the global leaders are no longer corporations from developed countries. For example, in 2006, the Indian-owned company Mittal took control of its European rival Arcelor and became the leader in the steel sector while the Mexican company Cemex is in the same league as Lafarge (French) and Holcim (Swiss). With the takeover of Canada-based company Inco the Brazilian producer of minerals, CVRD, is now topping international rankings along with the Anglo-Australians BHP Billiton and Rio Tinto. The list of emerging multinationals competing neck to neck with their OECD counterparts is increasing fast, including also Chile-based ENAP, PDVSA from Venezuela and Petrobras from Brazil. From South Korea, Samsung, LG or Posco are worldwide competitors while Russian giants like Gazprom are increasingly willing to invest outside their home countries, following the examples of Chinese companies like Lenovo or Indian conglomerates like Tata.

Along the same lines, foreign direct investment (FDI) in emerging countries by enterprises from other emerging countries (the so-called “South-South” FDI) has increased threefold, from USD 15 bn in 1995 to more than USD 45 bn in 2003 (see chart 1). During the same period, investment by these enterprises in OECD countries rose from USD 1 to USD 16 bn. In 2005, according to UNCTAD (2006), FDI from emerging countries reached a record of USD 133 bn, representing 17% of the world’s outward flows, the highest level ever recorded. The total value of the outward FDI stock from emerging economies also jumped to the impressive amount of USD 1.4 trillion in 2005 (see chart 2), 13% of the world total. The number of emerging countries now playing in the international FDI arena has also increased, jumping from 5 countries in 1990 to 25 in 2005.

Emerging Asian players dominate, accounting for more than 60% of the FDI stock from emerging countries in 2005, but Latin American players are also actively involved in this new trend. The number of companies from emerging countries now included in worldwide rankings is increasing along with their overseas investments: in 1990 only a happy few multinationals from emerging countries were listed in the Fortune 500 rankings; by 2006, the number had risen to 52 (see chart 3). Other rankings such as Forbes 2000 also show an increasing presence of companies from emerging countries (chart 4).

Brazil and Mexico: a new generation of multilatinas

Amid the remarkable growth of emerging multinational corporations, there is, as already mentioned, the noteworthy eruption of Latin

1 This report focuses exclusively on non-financial corporations. For the documents,

comments and suggestions the author would like to thank Felipe Aldunate, Rolando Avendaño, Susana García, Jesús González Nieto-Márquez, Mauro Guillén, David Martínez Turégano, Patrizia Labella, Elizabeth Nash, Marina Urquidi and Juan Antonio Rodríguez.

170

70

38

38

35

20

12

10

9

6

5

5

4

0 50 100 150 200

US

Japan

France

UK

Germany

China

South Korea

Italy

Spain

India

Russia

Mexico

Brazil

Number of global 500companies per selectedcountry

Source: Based on Fortune 500, 2006 3

020406080100120140160180

1995 1999 2000 2001 2002 2003

Total FDI inflows South-south FDI

South-South FDI on the rise

Source: UN Comtrade datababase, World Bankstaff estimates, Global Development Finance, 2006

%

1

Stock of outward FDIfrom emerging countriesUSD bn 2005

Hong Kong, China 470.5

British Virgin Islands 123.2

Russian Federation 120.4

Singapore 110.9

Taiwan 97.3

Brazil 71.6

China 46.3

Malaysia 44.5

South Africa 38.5

Korea, Republic of 36.5

Cayman Islands 33.7

Mexico 28.0

Argentina 22.6

Chile 21.3

Indonesia 13.7

All developing and transition economies* 1400.0

*Equals emerging countries in our definition.

Source: UNCTAD 2

The Emergence of Latin Multinationals

February 28, 2007 3

multinationals, multilatinas. In Argentina, for instance, Arcor, a leading global sweets manufacturer and the No. 1 confectionery exporter in Argentina, Brazil and Chile, is present in 117 countries in five continents; in another example, the pipe manufacturing company Tenaris is present in Argentina, Brazil, Mexico and Venezuela, as well as in Canada, Italy and Japan, and, in 2005, it made more than 85 per cent of its sales outside of Latin America.

However, the biggest multilatinas jumping into the global markets are Mexican and Brazilian. 85 of the 100 leading enterprises on the continent and 35 of the 50 most profitable ones are located in these two countries.

The emergence of multilatinas has taken place in two stages. During the “trade expansion phase” (phase I) these companies dramatically increased their sales abroad. During the “investment phase” (phase II) they started acquiring strategic assets abroad. Combined, these two phases helped to transform Latin American corporations into multilatinas, transnational Latin America-based corporations.

In 2004, Latin American enterprises as a whole invested USD 22 bn outside of their respective borders, which amounted to a 500 per cent jump from the previous year. The most spectacular rise was logged by Brazil. According to UNCTAD data, Brazilian enterprises invested nearly USD 10 bn outside of their country in 2004, compared to barely USD 250 million the previous year (chart 5). In 2005, the total stock of Brazilian FDI abroad topped more than USD 71 bn, surpassing by far the USD 28 bn of Mexico or the USD 22 bn of Argentina (and almost the same amount for Chile). Brazil concentrates 40% of all the outward FDI stock from the region.

Multilatinas’ trade and investment strategies have been stimulated by industrial and financial goals, i.e. the quest to expand their markets, to reduce their cost of capital and to improve their risk profiles. Some of them are quoted on international stock markets, such as that of New York. Madrid has also attracted some companies, with many of the multilatinas listed in Latibex, a stock market instituted in 1999 and now featuring more than 30 quoting enterprises.

Multilatinas have also increased dramatically their overseas sales. Based on América Economía rankings of the top 100 major Latin American companies, we calculated their ratios of sales abroad as a percentage of total sales. For Peruvian and Chilean companies in the list, overseas sales represented no less than 70% of their total sales in 2005 (chart 6). But even for countries like Brazil and Mexico, which have many more companies on the list, the figures are impressive: 47% of total sales are made abroad for Mexican companies (mostly directed to the US market) and 39% for their Brazilian counterparts. The bulk of those exports (75%) is related to oil, gas and minerals exports (chart 7), which is not surprising as more than one-third of all Latin American exports are commodity-related.

To understand how multilatinas surged, it should be kept in mind that the enterprises’ immediate environment was transformed with the massive entrance of foreign competitors over the past decade. As a consequence, between 1991 and 2001 the profile of the 500 most important enterprises established in Latin America changed drastically. The number of enterprises under state control decreased enormously, from 20% in 1991 to less than 9% ten years later. During the same period, foreign transnational enterprises staked out significant territory in the region: In 1991 they represented 27% of

-4,000

-2,000

0

2,000

4,000

6,000

8,000

10,000

12,000

90 92 94 96 98 00 02 04

BrazilMexico

Overseas investments by Brazil and MexicoUSD m

Source: Based on UNCTAD and OECD, 2006 5

0

5

10

15

20

25

30

35

Indi

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Bra

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Mex

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Chi

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Number of firms in Forbes 2000

Source: Forbes Top 2000 Companies, 2006 4

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Export orientation ofleading Latin firms*Exports as percentage of total sales, % (2005)

*Major 100 Latin American companies.Source: Based on América Economía, 2006 6

Current Issues

4 February 28, 2007

the continent’s 500 most important enterprises; by 2001 they had risen to 39%. This growing competition put pressure on the local companies, which traditionally provided products and services for their home market. The most dynamic ones turned to external markets and became multilatinas. Some of them directed their globalisation towards the region, concentrating on the Mercosur or the Andean zone. Others undertook a pan-regional strategy and yet others invested in emerging markets in other continents – Africa and Asia – or in the OECD countries, the United States in particular.

Therefore, over the past years Latin American companies multiplied acquisitions, both in home markets and abroad. Total acquisitions in Latin America by Latin American firms reached nearly USD 110 bn since the beginning of the decade (chart 8). Of this amount, more than USD 23 bn were directed at other countries of the region that were not the firms’ home market. Brazilian and Mexican companies have been the most active in that process.

Mexico: Leading the internationalisation drive Major Mexican companies have reached a significant level of internationalisation, measured by exports as percentage of sales. For example, for groups like Nemak or Mabe international sales represented 82% and 69%, respectively, of their total sales in 2005 (chart 9). But not only does Mexico present one of the highest trade-openness rates among the emerging countries, a significant number of its enterprises have also entered the second phase of internationalisation seeking a direct presence abroad.

Cement giant Cemex has led the way. Between 1990 and 2006, Cemex became a world leader among emerging multinationals in terms of overseas acquisitions, with no less than 40 operations completed during that period. As of 2006, Cemex had branches not only in Latin America but also in the United States, UK, Spain, Egypt, Indonesia and the Philippines. Present in four continents and with more than USD 15 bn invested abroad, the Mexican cement manufacturer is spearheading the globalisation of Latin American multinationals. In 2005, it performed one of the most important transactions ever carried out by a Latin American enterprise with its acquisition of Britain’s RMC for close to USD 6 bn. With this acquisition, Cemex’s sales in Mexico decreased to 21% of total sales, behind sales to the United States (27%) and even further behind those to Europe, which in 2005 was Cemex’s largest market, amounting to nearly 40% of its total sales (Spain and the UK accounting 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 successful, the bid will transform Cemex into the leading company worldwide in its sector. It will also be the largest acquisition in the building materials industry to date.

Another major example is the telecommunications giant Telmex. It has become one of the biggest competitors in telephony in Latin America. Along with its spin-off América Móvil, it has multiplied acquisitions in the region, completing franchising plans in just a couple of years. América Móvil today has subsidiaries and joint investments in the telecommunications sector of Guatemala, Ecuador, Argentina, Brazil, Colombia, Venezuela, the United States, Puerto Rico, Mexico and Spain. A number of enterprises in other sectors also stand out for their international activity, like for instance the brewer Grupo Modelo, present in more than 150 countries, or

Acquisitions in LatAm by LatAm companies from 2000-2006USD m

Including internal market

Excluding internal market

Brazil 62.8 5.6

Mexico 21.7 10.2

Chile 10.8 2.3

Argentina 5.4 3.5

Colombia 4.3 1.2

Others 3.2 0.5

Total 108.3 23.2

Source: Based on BBVA Corporate Finance, 2006 8

7% 3%

5%

4%

4%3%

8%

53% 13%

FoodPetrochemicalsAgrobusinessHoldingIron and steel industryAutomobiles/autopartsMiningOil/gasOthers

Sectoral breakdown ofexports

Source: Based on América Economía, 2006

Major 100 Latin American companies,exports by sector in 2005

7

The Emergence of Latin Multinationals

February 28, 2007 5

the Bimbo group in the agro-industrial sector, which has made a large number of acquisitions in the United States in recent years.

Before the year 2000, there was practically no overseas investment by Mexican companies, but since 2000, Mexican outstand FDI has averaged USD 3 bn per year. In 2005 it reached a record of nearly USD 6.2 bn, according to official Mexican figures. In 2006 and 2007, this amount will be greatly exceeded: with the sole Cemex/Rinker deal (USD 13 bn), Mexican FDI abroad more than doubled.

Brazil: Aggressively pushing into phase II These past few years, there has been a significant increase in Brazilian exports. Similar to Mexico, some of the biggest Brazil-based exporters are foreign companies like Volvo from Sweden, which sells abroad nearly 50% of its Brazil-based production, General Motors, Cargill and Caterpillar from the US, Fiat and Pirelli from Italy, Renault from France or Bosch and Volkswagen from Germany (chart 10). But, more importantly, Brazilian-owned groups have increased their share of sales abroad.

In 2005, the aeronautical group Embraer conducted 84% of its sales abroad, while Aracruz Celulose, another of the country’s export champions, with more than 60% of its production sold outside of Latin America, made sales in Europe, North America and Asia. In the steel sector, Gerdau carried out 31% of its total sales outside of Brazil and the leading enterprise in the mining sector, CVRD, 33%. Even Petrobrás, the state-owned oil company, has become a major exporter, achieving 11% of its total sales abroad and starting exploration and production operations in the United States, Mexico, Venezuela, Colombia, Ecuador, Peru, Bolivia, Nigeria and Angola. The agro-industrial sector, one of the most dynamic in the country, features a number of outstanding groups such as Sadia, which exports to more than 65 different countries, including Russia, Japan and countries in the Middle East, invoicing nearly half of their sales abroad. Like Sadia, other groups are succeeding in increasing and diversifying the markets for their exports. This is also the case for the petrochemical enterprise Braskem: 50% of its exports go to North America and 20% each to Latin America and Europe.

Nonetheless, all of these groups are moving beyond the mercantile phase and on to significant investment operations abroad. Foreign direct investment (FDI) by Brazilian companies has increased sharply. In 2006, for the first time ever, overseas investment by Brazilian companies was larger than FDI into Brazil. Brazilian firms invested USD 26 bn abroad (including the USD 17.6 bn acquisition by CVRD of Canada’s Inco), compared with USD 18 bn invested by foreign companies in Brazil.This “phase II” of the internationalisation strategy reflects two broad purposes. Like the pioneering Cemex in Mexico, the groups are seeking on the one hand to enlarge their markets by staking out positions 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, in 2005, the steel producer Gerdau purchased 40 per cent of Spain’s Sidenor. A century-old enterprise, Gerdau has been able to establish important positions not only in Latin America (Brazil, Chile, Argentina, Colombia and Uruguay) but also in North America (the United States and Canada). In the transport-equipment sector, Marco Polo, the leading bus enterprise in Brazil, has also started down the road of global expansion. With international

0 20 40 60 80 100

PemexRefining

Nemak

Grupo Mabe

DaimlerChrysler

Gr. Maseca

Corp. S. Luis

Desc Autom.

Grupo Saltillo

Grupo Simec

Ind. Penoles

Verzatex

Industria CH

Grupo Imsa

Imsa Acero

Grupo Cintra

Desc

Pemex

Grupo Alfa

DescQuímico

Alpek

SiemensMex.

Grupo Bimbo

PemexGas&Petr.

Gr. Modelo

Vitro Vid.Plano

Grupo Vitro

PemexPetroquímica

Gr. Televisa

Femsa

Top Mexico-based exportersExports as % of total sales, 2005

Source: Based on América Economía, 2006 9

Current Issues

6 February 28, 2007

operations accounting for half of its total revenues, the enterprise now owns manufacturing units not only in Brazil, but also in Argentina, Colombia, Mexico, Portugal and South Africa, exporting to more than 60 countries, among them France, UK, Germany, Spain, Portugal, the Netherlands, Mexico and Saudi Arabia.

Other prominent examples are Brazilian conglomerates such as Votorantim, Odebrecht or CVRD. Votorantim, one of the major companies in Latin America, has diversified towards the OECD countries through its acquisitions in the cement sector in the United States and Canada. The engineering group Odebrecht, present in four continents and with sales spread across 50 countries, now gets more than one-third of its income from abroad. CVRD, the fourth company worldwide in the mining sector, obtained 70% of its income from abroad in 2005 (30% from Europe and another 30% from Asia, China and Japan in particular). In the past few years, it has made acquisitions and established itself in the United States, Canada, France, Bahrain and Norway. It has also started an ambitious plan to develop a global portfolio of exploration projects embracing three continents (Peru, Argentina, Gabon, Mozambique and Australia are the main countries so far). Otherwise, Asia (China especially) has become one of the group’s main target regions for expansion. In 2006, as mentioned above, the company undertook a major development with the acquisition of the Canadian based company, Inco, for a record USD 17.6 bn.

Aeronautics is another sector featuring a Brazilian enterprise with extensive international presence, the multilatina Embraer. Embraer is the second most important Brazilian exporter. Founded in 1969 by the Brazilian government then seeking international prestige, the enterprise was privatised in 1994 (a conglomerate of European enterprises led by Dassault Aviation and EADS has a 20% share in it). Today it employs 15,000 staff. The company, the world's No. 4 commercial aircraft maker, is significantly increasing its ties with Asia. In 2006 it signed a deal with the Chinese airline HNA Group for 100 jets valued at USD 2.7 bn, its biggest order to date in China. It has also said it would significantly boost its technical support network in the Asian-Pacific region, creating a parts/logistics centre and installing a full flight simulator for its jets starting from the second half of 2007.

What are the drivers of the recent overseas expansion?

Latin America is not unique

Before answering this question it is important to stress that the Latin American trend described above is not unique. We are witnessing the rise of new multinationals with home in emerging markets. Investments by these emerging multinationals into other emerging markets, the so-called “South-South” flows, are on the rise. South-South flows represented more than 30% of all FDI flows that went to developing countries in 2005 (see chart 11).

The recent string of high-profile, cross-border mergers and acquisitions involving Chinese or Indian companies as acquirers is symbolic of this new global trend. According to The Boston Consulting Group, who identified the top 100 emerging multinationals2, China accounted for 44 firms in this ranking, followed by India (21), Brazil (11) and Mexico (6). Latin America has a total of 18 companies on the list, far behind Asia (70) but ahead of

2 See Boston Consulting Group, May 2006a.

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SamarcoMin.Albrás

Embraer

Alunorte

MBR

Seará Alim.AracruzCelul.

ADM

CST

Volvo

Caraiba

Bunge

Cargill

Sadia

R. Bosch

Perdigao

Odebrecht

Embraco

Suzano

Caterpillar

CBA

Renault

Copersucar

CVRDDaimlerChryslerAcesita

CoamoPirelliPneus

Volkswagen

Gerdau

WEGGral.

MotorsVotorantim

Souza Cruz

CSNSiemens

BrasilBraskem

Fiat Auto.

Copesul

Petrobras

ShellPetrobras

Dist.

Top Brazil-based exportersExports as % of total sales, 2005

Source: Based on América Economia, 2006 10

The Emergence of Latin Multinationals

February 28, 2007 7

other regions (12 other companies are located in countries like Egypt, Russia, South Africa or Turkey).

For India and China, energy needs and domestic competition have been key drivers of their overseas expansion. In the case of China, the aim to create national champions is also acting as an accelerator. As stressed in a previous report by Deutsche Bank Research, Chinese global champions are in the making, with the flow of overseas investments from these companies increasing year after year3. According to Boston Consulting Group, Chinese firms have carried out more than 220 overseas investment transactions since 1986, with a total value of about USD 18 bn. Interestingly, Latin America is on the radar screens of Chinese companies: in 2005 the region was the second recipient of Chinese FDI (see chart 12).

The case of India’s investment abroad is even more spectacular. Some Indian companies had already for some time been heavily oriented towards overseas markets. Indian software groups like Infosys, Tata Consultancy Services (TCS) and Wipro already generate 98%, 90% and 80% respectively of their revenues from markets outside India. Latin America has attracted over 40% of Indian FDI in 20064, basically in commodity-related sectors, oil, minerals and gas, with Brazil, Colombia and Bolivia being the major recipients. The connection with Latin America is also related to the fact that some of these Indian companies are setting up development centres in time zones close to their major markets. TCS, for example, has 1,100 employees in Brazil and 250 in Uruguay.

Main drivers of outward FDI flows

Emerging multinationals have some elements in common that explain their rise. They all greet from large markets that have been able to support large domestic companies. They all have access to low-cost resources such as labour force or primary products. They all have been able to flourish in difficult local environments, often characterised by shortages of skilled management, volatile legal and financial frameworks, and deficient logistical and infrastructure systems. All these obstacles helped to transform the “survivors” into highly capable firms, able to innovate and make quick decisions in order to capture new opportunities. Risk diversification goals have also been behind a large share of both market- and natural resource-seeking investments. In particular, Latin American multinationals have often sought to hedge against exchange rate risks and commodity price fluctuations and diversify the location of assets in order to improve access to capital.

The strategies these companies have chosen to “go global” can be classified in districtive patterns, as identified 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 countries; a last group – including early movers like Cemex – is seeking to roll out new business models in multiple markets. The way to expand abroad, until recently, has been above all through organic 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, 2006b.

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FDI from China by regionUSD m, 2005

Source: Based on China's official data, 2006 12

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Global capital flows

Source: UN Comtrade datababase, World Bankstaff estimates, Global Development Finance, 2006

USD, 2005by type

11

Current Issues

8 February 28, 2007

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 operation. For example, América Móvil, the Mexican telecommunications operator, spent more 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 popular and that such companies have now conquered the taboo of making huge bids, even in developed countries.

Is the emerging multinational boom sustainable?

Some of the drivers explaining the boom of emerging multinationals are structural ones, such as globalisation forces like the dramatic surge in low-cost telecommunications technologies as well as macroeconomic reforms in emerging countries that improved their economic stability.

But there are also important cyclical drivers that are helping emerging multinationals 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 favourable 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 become more sophisticated, while new investors have entered into the asset class, investing in bonds and equities all around the emerging world. Finally, strong exchange rates 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 Mexico and Brazil, multilatinas have taken up a strategy of globalisation going beyond the mercantile exporting phase. The examples of Cemex, CVRD and Embraer show that boldness and innovation can generate world leaders in a given sector. Some of these multinational corporations could also explore new strategies, such as taking advantage of markets like those of the Hispanic communities in the United States or in sectors such as agro-industry.

But beyond these achievements, what really stands out is the broader context in which these enterprises thrived. In just one decade, Mexico became a leading 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 economic policies implemented in the past decades in Mexico and Brazil.6 The moorings of monetary and fiscal policies have provided moorings for corporate strategies.

The good news from Latin America may be that more good news is on its way. So far multilatinas have been the exception. Few

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

The Emergence of Latin Multinationals

February 28, 2007 9

enterprises of the region have become global leaders in their respective sectors. However, the 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 multinational corporations could equal that achieved by Asian emerging markets and bring about further successful multilatinas.

According to the United Nations, transnational firms from emerging markets already account for one-fourth of the total number of major 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 capital over the last years and the increasing appetite of these companies for overseas expansion is rapidly changing the map. Clearly, OECD multinationals are no longer the sole players in the global FDI game.

Another important trend is the increasing South-South connection. Chinese companies are investing in Asia but also now in Africa. Latin America is not only on the radar screens of Chinese firms but is now also of interest to Indian companies. This illustrates one of the major changes underway in the global economy: What we used to call the “Centre” is becoming less and less the nucleus of global trade and capital flows, while the “Periphery” is becoming less and less peripheral.7 The borderline between poor and rich countries is also becoming more complex to define.

Over the next few decades new emerging giants will contribute to redesigning these frontiers. Part of this story will be written by emerging multinationals and some of them will certainly be multilatinas.

Javier Santiso (javier.santiso@oecd.org)

7 For the original Centre/Periphery thesis, see Prebisch (1950).

Current Issues

10 February 28, 2007

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