Both Brazilian and Mexican companies have made the vast majority of their foreign acquisitions outside of Latin America.
BY ADRIÁN BLANCO ESTÉVEZ
1990 to 2012, Latin America’s participation in global economic activity grew
from 5.1 to 7.8 percent; in global trade from 4.1 to 6.1 percent; and in
foreign direct investment (FDI) from 2.7 to 4.9 percent.
The region’s strong economic progress has also produced a marked improvement in
the well-being and quality of life of Latin Americans, lifted 70 million people
out of poverty, and enabled the middle class to reach
an all-time high of 30 percent of the population. (The increase in Latin America’s
global economic and commercial importance is unquestionable, even taking into
account the economic downturn experienced in 2013-14.)
It is in this context that we have seen the birth, development, and foreign expansion
of a large group of Latin American multinationals, known as “trans-Latins” or
The multilatina phenomenon comprises the growing number of companies—both
public and private—that gradually began to invest abroad in the 1990s, and even
earlier, but surged forward with a huge wave of investment starting in 2000. In
the 2000-2005 period, average annual investment doubled over the previous
five-year period, reaching levels of foreign investment outflows from
Latin America that had never been seen before.
In the 2006-2012 period, annual FDI nearly tripled from its 2000-2005 level,
and the last three years for which information is available (2010-2012) marked
the highest-ever levels of FDI outflows from Latin America (more than $350
billion over the three years).
The surge of multilatinas is supported by both internal and external factors.
The former include political and institutional stability, proper and prudent
management of economic policy (such as public debt of 30 percent of GDP,
compared to 108 percent in the United States or 93 percent in the Eurozone),
openness to the outside world and to liberalization and privatization, the push
toward regional integration, or the exhaustion of opportunities in the domestic
market. external factors
of note include favorable financial conditions (driven by the drop in Fed rates
from 6 percent in 2000 to 0.5 percent in 2013) as well as the boom in China
and the supercycle in prices of raw materials (which led to a rise in Brent
crude prices from $30 to $115 per barrel in that same period).
Despite the decades of privatization and economic opening, many multilatinas
continue to have state participation, particularly in the hydrocarbon sector
and other natural resources. These multilatinas channel the income derived from
commodities to the public treasury; thus the performance of companies such as
Petrobras, Pemex, PDVSA, or Codelco are essential to the fiscal stability of Brazil,
Mexico, Venezuela, or Chile, respectively.
Some Latin American countries have a clear-cut goal of providing financial
support for the international expansion of their companies, usually as part of
a broader strategy of having national champions that have an impact on the global
economy. This is the case with Brazil, whose companies finance their expansion
efforts through BNDES, the region’s leading lender, surpassing the IDB
or The World Bank.
The region’s foreign investment is highly concentrated in three countries—Brazil,
Mexico, and Chile—which together account for 83.3 percent of the foreign direct
investment made, although their investment patterns are very different. Argentina
(5.9 percent), Colombia (5.6 percent), and Venezuela (3.7 percent) also have a
significant volume of investment abroad.
Brazil has 25 multilatinas and 41.5 percent of FDI outflows from the region,
with total sales of $357 billion and an average of 20.3 percent of each
company’s workforce abroad, covering an average of 15 countries. Brazil has multilatinas
that are capable global firms with sufficient management capacity and financial
muscle to make acquisitions in advanced countries, such as the mining company Vale’s
acquisition of the Canadian firm Inco (the world’s second largest producer of
nickel) for $13 billion. These firms show a clear preference for investing in Europe
over the United States.
One distinguishing feature of the Brazilian multilatinas abroad is that they
are able to find financing on less onerous terms and avoid the high interest
rates in Brazil.
since 2010 we have seen a drop in Brazil’s FDI outflows, unlike in the rest of
has 18 multilatinas and 23 percent of total FDI outflows from Latin America.
Taken together, the companies América Móvil (telecommunications), Femsa
(bottling), Cemex (cement), Bimbo (food), Grupo México (mining), and Gruma
(food) account for 50 percent of foreign operations. The Mexican companies are
expanding mainly toward the United States, due to geographic proximity; the 12
million Mexican emigrants now living in the United States; or the North American
Free Trade agreement (NAFTA). The expansion of Mexican multilatinas could
significantly benefit from advances in the regional integration process through
the Pacific Alliance.
with 20 multilatinas, has the highest FDI growth from the region, and the total
volume of investments has quadrupled since 2005. Despite its smaller economy, Chile
has a significant number of multilatinas.
Chilean companies have benefited from the country’s long tradition of economic
openness and from a favorable business environment for investing abroad (top
Latin American economy in the “Doing business” rankings). Moreover,
Chilean firms have been forced to grow abroad so they can continue to be
competitive, due to the limited opportunities in a domestic economy of 17
The other Latin American countries have fewer multilatinas. Those worth
mentioning include Argentina, through the Tenchint group, though the country
has lost clout as a foreign investor in recent years; Colombia, with firms in clear expansion as a
result of the advantageous economic environment
and with the country’s three major state-owned multilatinas linked to the
electricity and energy sector (Ecopetrol, ISA, and Eléctricas de Medellín); and
Venezuela, with its foreign investments excessively concentrated in activity by
PDVSA and local companies falling back to fill in the gaps that foreign
companies have left in the domestic market
investment by Latin American companies in the United States is nearly $26
billion, a mere 1 percent of the total.
the Latin American countries, Mexico is the absolute leader in investment in
the United States, with 57 percent of the total—4 times that of Brazil and 35
times that of Chile.
Still, investment by Latin American companies is far above the $5 billion
invested by firms from China, the world’s second largest economy and one with a
Multilatinas are more important to the fabric of European business, where
together they make up close to 20 percent of total FDI received by the EU 27
from outside the EU 27 itself.
Brazilian and Mexican companies have made the vast majority of their foreign
acquisitions outside of Latin America (around 70 percent and 80 percent,
general terms, multilatinas do not have a strong presence in the main growth
areas worldwide, which means they do not seem to be taking advantage of
business and market opportunities inherent to fast-growing economies or
frontier markets. The presence of these firms in emerging Asia (including China)
or Sub-Saharan Africa is very modest.
Despite the considerable progress made by Latin American firms in size and
global impact, multilatinas still have a long way to go in terms of both volume
of assets abroad and brand recognition in the world of European, North American,
or Japanese firms. There is no Latin American company among the 100 companies
with the highest brand recognition in the world, and only 3 among the 100 with
the most assets abroad (Vale, América móvil, and Cemex) compared with
fast-growing companies in emerging Asia, multilatinas share certain traits,
such as total or partial state ownership or a common pattern of the state-owned
company as developer of natural resources. The differences are that the Asian
companies tend to be more innovative, operate in more technology-intensive
sectors, and channel a large portion of their investments abroad through
sovereign funds, such as the China Investment Corporation (CIC) or Temasek.
factors will determine the evolution of multilatinas in the medium term: the
economic environment (China’s growth rate and an eventual fall in prices of raw
materials, normalization of global financial conditions); advances in internal
structural reforms; the strengthening of regional integration processes (particularly
the course of the Pacific Alliance); modernization of state-owned enterprises;
and the capacity of companies to become part of global value chains and improve
the business and regulatory environment.
The birth of new multilatinas in the coming years will depend to a large extent
on investment in R&D and development of capacity, since new, fast-growing
business groups are rooted in innovation.
In this respect, Latin America has a considerable gap both with advanced
countries and with the economies of emerging Asia.
Moreover, the region’s industrial sector must improve its productivity and
accelerate its investment in R&D. Latin American companies invest $0.60 per
$100,000 in income in R&D, compared with $17 for companies in emerging Asia.
Adrián Blanco is a Spanish researcher. This
is the summary of a new report from the
Latin American Program at the Wilson Center, La explosión de la inversión exterior
Latinoamericana: tendencias y evolución reciente de las multilatinas (The Explosion of Latin American Foreign
Investment: Recent Trends and the Evolution of Multilatinas.) Republished with