Time to tune in Latin American companies turn up the volume on global growth - Growing Beyond
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Growing Beyond Time to tune in Latin American companies turn up the volume on global growth
About this report
Rapid-growth markets have largely been viewed and 13% each from Argentina, Chile and Colombia; and
studied from the perspective of inbound investment 10% from Peru. Among the companies surveyed, the
by companies based in the West. Time to tune in: Latin reported minimum annual revenues were: 25%, US$1
American companies turn up the volume on global billion or more; 20%, US$500 million to US$999 million;
growth, offers cutting-edge insights into the strategies 9%, US$250 million to US$500 million; and 46%, under
of outbound investment from companies based in Latin US$250 million.
America and thus provides new perspectives on decision-
making for companies from both mature and rapid-growth Time to tune in is also based on qualitative interviews
markets. conducted between January and March 2013 with
several Ernst & Young sector and country leaders, leading
Time to tune in draws upon a survey of 600 business economists, and senior executives of companies based
executives based in Argentina, Brazil, Chile, Colombia, in Latin America’s six most important markets. Oxford
Mexico and Peru. The survey was conducted by Oxford Economics provided analysis of current and predicted
Economics in November and December 2012. Among the ljY\]ÖgokZ]lo]]fDYlaf9e]ja[YfeYjc]lkYf\l`]j]kl
respondents, 29% were from Brazil; 24% from Mexico; of the world.
Forecasting methodology
The bilateral sector export forecasts for the Latin input/output tables to estimate the share of domestic
American countries in the survey are underpinned by ]ph]f\almj]kYlakÕ]\Zqaehgjlk&L`]^gj][Yklk^gjlglYd
Oxford Economics’ Global Macroeconomic and Industry ]phgjlÖgokYj]l`]f\akY__j]_Yl]\Zqk][lgj$mkaf_
Models. Oxford Economics’ industry forecasts to inform future
demand and production trends.
The Oxford Global Model covers 45 economies in detail,
with the rest of the world economy covered in six trading L`]`aklgja[Yd\YlYgfZadYl]jYdÖgokg^e]j[`Yf\ak]
blocs. Individual country models are fully linked through exports was sourced from the UNComtrade database,
global assumptions about internationally traded goods o`a[`[dYkkaÕ]kk][lgjkY[[gj\af_lgl`]KlYf\Yj\
and services, exchange rates, competitiveness, capital Afl]jfYlagfYdLjY\];dYkkaÕ[Ylagf KAL;!kqkl]e&@aklgja[Yd
markets, interest rates and commodity prices. The data on exports of services was sourced from the
^gj][Yklk^gjZadYl]jYd]phgjlÖgokYj][gfkljm[l]\ Afl]jfYlagfYdEgf]lYjq>mf\ AE>!&
YkY^mf[lagfg^ÕfYd\]eYf\af]Y[`[gmfljq$mkaf_
2 Growing Beyond
Introduction
I n their rush to succeed in booming Asian
markets such as China and India, investors
have been pushing Latin America backstage.
into other markets to become global players.
Several Mexican, Brazilian, Chilean and
Colombian multinationals are heading
But this fast-growing market is now moving especially quickly down that path. Companies
into the spotlight — and it’s not the Latin from rapid-growth markets are increasingly
America you used to know. Although acquiring stakes in developed-market
competition is heating up, both from regional companies, and Latin American businesses are
businesses and from companies in other among the leading buyers.
emerging markets, opportunities are plentiful
in a way they never were before. These trends pose both new challenges and
new opportunities for global companies. For
Ernst & Young’s latest Rapid-Growth Markets years, they have not perceived Latin America
Forecast predicts strong growth in the region, as a global player, but this is changing rapidly,
with bright prospects for Brazil, Mexico and and companies need to get ahead of the
Colombia, and a surprisingly robust outlook curve. Today, success in the fast-growing
for Peru. Latin American countries are also markets and promising underlying conditions
maturing in terms of their legal and regulatory of Latin America requires businesses
environment, providing even more support to navigate a dynamic new competitive
for local companies looking to make their landscape. At the same time, they must cope
way onto the global stage. Investing in the with the region’s long-standing challenges
region is particularly critical for companies in related to infrastructure, bureaucracy and
kh][aÕ[af\mklja]k$km[`YkgadYf\_Yk$eafaf_ social conditions. We see this report as an in-
and metals, retail and consumer products, depth exploration of a region of vast potential
infrastructure, and agribusiness. There’s never that will be an important source of new growth
been a better time than now for multinational as well as tough competition. Whether you
companies to join Latin America’s growth lead one of the new global Latin American
carnival. companies or you work for a developed-world
company investigating the market, we hope
What’s different about the region’s revival is qgmÕf\l`akj]hgjlmk]^md&
that this time around, its market growth is led
fglZqO]kl]jfemdlafYlagfYdk YkoYkegkldq
l`][Yk]afl`]hYkl!ZmlZql`]]e]j_]f[]g^ Sam H. Fouad
major national businesses, themselves often Americas Emerging Markets Leader
supported by revamped government policies. Ernst & Young
These businesses are increasingly expanding
Time to tune in: Latin American companies turn up the volume on global growth is part of
Growing Beyond, gmjÖY_k`ahhjg_jYel`Yl]phdgj]k`go[gehYfa]k[Yf_jgo^Ykl]jZq
]phYf\af_aflgf]oeYjc]lk$Õf\af_f]ooYqklgaffgnYl]Yf\aehd]e]flaf_f]oYhhjgY[`]k
to talent management.
Latin American companies turn up the volume on global growth 3
Executive summary
N ot so long ago, Latin America was con-
sidered mostly as a business opportunity
for outsiders, a treasure that could be un-
outside their borders, presenting both oppor-
tunities and challenges for global companies
based outside the region. The following are
J]Y[`af_f]o[mklge]jkYf\af[j]Ykaf_
kYd]k_jgol`Yj]l`]lghZ]f]Õlk]ph][l]\
from international expansion across all types
locked only with northern hemisphere capital gmjc]qÕf\af_k2 of new markets.
and northern hemisphere expertise. Even
today, the idea of a research project focused 9eYbgjalqg^gmjj]khgf\]flk]phgjlgjk]dd EY[jg][gfgea[klYZadalq$`a_`%imYdalq
on outward-bound investment caught many lgeYjc]lkoal`afDYlaf9e]ja[Y 0( !gj infrastructure and political stability are the
of the executives we interviewed by surprise. gmlka\]l`]j]_agf .. !$Zmlj]dYlan]dq^]o features of the business environment that
Often, they would start to talk instead about have brick-and-mortar operations through Latin American companies assess most care-
opportunities for foreign companies in their \aj][lafn]kle]flafDYlaf9e]ja[Y -. !gj fully in targeting an international market.
own country, or they would ask twice to make gmlka\]l`]j]_agf ++ !&
sure they had understood us correctly. A\]fla^qaf_j]daYZd]Zmkaf]kkhYjlf]jkak
>gj-, g^gmjj]khgf\]flk$l`]MKYf\ one of the top challenges when expanding
But this perspective is likely to become Canada are by far the top countries for internationally, according to 54% of execu-
much more familiar in the next few years. conducting international business, but they tives. But 62% consider themselves effective
Smart, innovative and nimble, the best of the will be less dominant in the next three years at forging relationships with local suppliers
companies some scholars are calling “Multila- as Latin American companies expand farther in new markets, which positions them well to
tinas” or “Global Latinas” are now world-class YÕ]d\& meet this challenge.
companies. They can be useful partners — or
major competitors. Over the next decade, the FglYZdq$;`afYjYfck^gmjl`^gjafl]jfYlagfYd LgZmad\Yfafl]jfYlagfYdeYfY_]e]fll]Ye$
strategists of most multinationals will come to business, ahead of several other Latin Ameri- 50% of our respondents expect to draw on
know them in both capacities. can countries and Western Europe; 32% of talent from within their companies, but as
Colombian respondents and 26% of Chilean many as 37% plan to recruit locally in their
The results of the Ernst & Young 2013 Latin j]khgf\]flk[mjj]fldq[gf\m[lYka_faÕ[Yfl target markets for overseas expansion. This
America Outbound Expansion Survey and our amount of business with China. is in line with respondents’ plans to make
qualitative research show that Latin American boards more representative of overseas
[gehYfa]kYj]hgak]\lg]phYf\ka_faÕ[Yfldq Af\aYakYegf_l`]lgh)(gn]jk]YkeYjc]lk eYjc]lk -- !Yf\eYc]l`]aj[gjhgjYl]
expected to hold the best growth opportuni- [mdlmj]egj]afl]jfYlagfYd ,1 !&
ties in the next three years.
9[[gj\af_lg,+ g^l`]]p][mlan]kkmjn]q]\$
rapid-growth markets beyond Latin America
currently account for more than 10% of total
international revenues, but 54% expect these
markets to account for more than 10% of
total international revenues in three years.
4 Growing Beyond
Business implications and recommendations
T hese opportunities and challenges
require several strategic responses Those companies that tune in quickly to the new Latin America
from global companies that wish to respond
klYf\lg_YafYka_faÕ[Yfl[geh]lalan]]\_]&
]^^][lan]dqlgYf\Z]f]Õl^jgeDYlaf9e]ja-
can business expansion. Those companies
that tune in quickly to the new Latin America
klYf\lg_YafYka_faÕ[Yfl[geh]lalan]]\_]&
By understanding where, how and why
companies from Latin America are expand- Õjek`Yn]dYmf[`]\Y^]on]flmj]kZ]- But in some countries and sectors, the rapid
ing, global companies can prepare to grab yond their borders rooted in strategic local growth may force global companies not based
opportunities rather than risk falling behind partnerships. For example, in February 2013, in Latin America to consider a merger sooner
potential new competitors. We recommend E]pa[g%ZYk]\h`YjeY[]mla[YdÕje?]fgeeY than they might have wanted to, as a defen-
the following actions: Lab announced a major deal with Wal-Mart to sive strategy to prevent local companies from
distribute Genomma’s products in the US, fol- becoming large enough at home to become
Seize strategic partnership opportunities. lowing a similar arrangement with Walgreens a threat to them. Jorge Menegassi, Country
A majority of the Latin American executives \jm_klgj]k$lYj_]laf_@akhYfa[[gfkme]jk Managing Partner at Ernst & Young in Brazil,
we surveyed say that beyond direct exports, in the US. Genomma also has distribution says that the banking sector, for instance,
forging partnerships will be their company’s arrangements in Spain, France and several is growing so quickly that it has been more
preferred mode of market entry. Not surpris- Latin American countries. Most recently and hjgÕlYZd]^gj:jYradaYfZYfcklg^g[mkgf
ingly, they see identifying reliable business famously, in March 2013 the Brazilian 3G the internal market than to invest time and
partners as their biggest challenge. On top investment group joined Warren Buffett in resources to go abroad. “Even though GDP
of this, many executives believe that their l`]Y[imakalagfg^@]afr$lgY\\lg+?Ìk_dgZYd grew at 1% to 2% last year, family consumption
companies lack the kind of international footprint of consumer products investments. has been growing at 4% to 5% each year. That
perspective needed to become global players. still leaves banks with a lot of opportunities
Non-Latin American global companies should It is clear that getting to know today’s Latin to explore.” And Cristián Lefevre, Country
be on the lookout for these partnership American business leaders is well worth do- Managing Partner at Ernst & Young in Chile,
opportunities; if they have a complementary ing for its own sake. In Mexico, for instance, says bluntly that an M&A strategy is the best
offering, a partnership could be a good managers are sophisticated and increasingly way for non-Latin American companies to get
opportunity not just in its own right but as a adept at operating in a global environment. into a large market like Brazil. “The best way
way to gain a foothold in the region and better “The management of Mexican companies has lgklYjlaf:jYradgjlg_jgoafYf]^Õ[a]floYq
understand Latin business culture without the become much more professional in the last 20 and quickly is inorganic growth,” he says.
risks of an acquisition. years,” says Alberto Tiburcio, Regional Manag-
ing Partner, Ernst & Young Mexico. “They are
Foreign companies will need to ask whether dealing with the real issues and learning how
l`]ajg^^]jaf_akkm^Õ[a]fldqmfaim]lg\a^- to grow.”
ferentiate them from Latin players who
might be competitors or whether they should
enter Latin markets as partners. Anecdotal
examples indicate that some Latin American
Latin American companies turn up the volume on global growth 5
Watch for a possible shift in methods of Real GDP growth in Latin America
sourcing talent. The ability to place the %
right managers in the right target market 10
or country will be a key challenge for Latin 9
American companies. At the same time, the Argentina
8
need to develop the right blend of skills at
7
home to manage the extended operation will Chile
6
also remain. Most of our respondents are fairly Brazil
[gfÕ\]fll`Yll`]qeYfY_]l`]ajlYd]fl 5
Mexico
effectively across all their markets and that 4
their senior managers have enough interna- 3
tional work experience. But they also empha- Colombia
2
size that in order to succeed internationally,
1
they will need corporate boards that are more
0
j]hj]k]flYlan]g^_dgZYdeYjc]lk -- !Yf\oadd
2011 2012 2013 2014 2015 2016
f]]\lgj][jmallYd]fldg[Yddq +/ !&L`ak[gmd\
hj]k]flka_faÕ[Yflghhgjlmfala]k^gj_dgZYd Source: Ernst & Young Rapid-Growth Markets Forecast,
Winter edition, January 2013
and mature-market companies to provide the
international outlook and diverse leadership
perspectives essential to take an international
expansion strategy forward. management team needs greater knowledge dictable and credible partners/competitors in
g^_dgZYdeYjc]lk .( !Yf\dg[Yd[mdlmj]Yf\ their own quest for international expansion. In
Still, they shouldn’t expect to do much poach- oYqkg^\gaf_Zmkaf]kk ,, !&>mjl`]j$l`] improving the ease of doing business in their
ing: in Mexico, for instance, executives tend cultural differences between Latin America markets, Chile has led the way, with Mexico,
to be very loyal to their company and to see and the mature markets should be under- ;gdgeZaYYf\H]jmYdkgeYcaf_ka_faÕ[Yfl
their own efforts as part of a larger national stood to effectively partner or do business recent improvements, while Brazil clearly
program to make their country strong, accord- with companies from these regions. Global f]]\klg\gegj]afl`akj]_Yj\&@go]n]j$
ing to Ernst & Young’s Tiburcio. businesses will need to familiarize themselves although policy-makers “get” business much
with the varying ways of doing business across more than they once did, political pressure
Understand the importance of corporate Latin America and understand how this relates and misconceptions about what constitutes
culture. Cultural compatibility is a key issue to their own corporate culture or the integra- the most productive ways to help a company
for many of the Latin multinationals, which tion of potential partnerships. Some foreign can still derail growth or “unbalance” the
tend to replicate their corporate culture in companies with far-ranging international hdYqaf_Õ]d\&LgYf]pl]fl$l`]`]Ynq%`Yf\]\
the markets into which they expand. Many gh]jYlagfkeYqÕf\ghhgjlmfala]kYk_g% hYl]jfYdakeg^l`]hYkleYc]kal\a^Õ[mdl^gj
executives we surveyed believe that their top betweens, acting as the cultural glue between foreign companies to play a productive role
two markets that might otherwise have a hard as Latin American policy advisors. Alliances
time understanding each other. with local stakeholders and NGOs may be a
egj]mk]^mdjgml]lgafÖm]f[]hgda[qYko]ddYk
Take advantage of newly progressive policy cement relationships that will be useful later
regimes. Many Latin American countries on when considering new investments and
have been updating their Western-style policy partnerships.
regimes, increasing their attractiveness for in-
bound investment and making them more pre-
6 Growing Beyond
“Due to the steady growth of the national economy in the
last two decades, and an expanding middle class, Peruvian
companies have been successful in expanding in the
local market, and after achieving that, the most mature
companies are now expanding to foreign markets.”
Jorge Medina, Peru Managing Partner, Ernst & Young
Countries that have not liberalized their policy
regimes are also worth keeping an eye on, to
be well-positioned if or when the markets do
reopen. For the Colombian companies that are
still in Venezuela, it is a risk due to currency
exchange restrictions, cautions Luz Maria
Jaramillo, Colombia Managing Partner at
Ernst & Young. “It is not worth making money
if you cannot bring it to the supplier or
investor,” she says.
Prepare for Latin America’s entrance into
several markets. There is no single destina-
tion for Latin American companies expanding
abroad. Eighty percent of the executives we
interviewed say their companies do business
outside of their home market. Most believe
they will be selling more abroad in three years.
The largest Latin global companies will forge
strong connections with Asia and Africa. Latin
American companies particularly favor China
and India as important economic and business
hYjlf]jkgmlka\]l`]9e]ja[Yk ]&_&$;`afYak
Ydj]Y\q;`ad]ÌkdYj_]klljY\]hYjlf]j!$]n]f
as developed-market companies are begin- but depending on the sector and the home
ning to rely less heavily on the Asian giants country of the business, the US and Canada
for growth. Africa also is on the radar for still offer great opportunities. Between 2011
Latin American companies. But they are not and 2021, Oxford Economics estimates,
underestimating North America: for absolute exports from Latin America to the US will grow
growth, Asia and Africa may be the best bets, by as much as all of Latin America’s exports to
gl`]j[gmflja]k ]p[dm\af_l`]j]_agf!
combined. Furthermore, North America has
some distinct advantages — it is culturally
more familiar than Europe, Africa or Asia, as
well as geographically more convenient and
home to one of the biggest and richest
hghmdYlagfkg^@akhYfa[kafl`]ogjd\&
Latin American companies turn up the volume on global growth 7Global companies with operations in one or Consider opportunities arising from tax and The reverse holds true as well: while most
more of these regions of the world will have regulatory challenges. For Latin American non-Latin American companies consider it
the most to lose or gain from the entrance of companies, going abroad, whether within risky to tread in some of the countries, other
Latin American companies. Many developed- Latin America or to a developed market, is Latin American companies have entered these
eYjc]l[gehYfa]kYj]km^Õ[a]fldq]flj]f[`]\ dac]dqlgd]Y\lgka_faÕ[Yflj]_mdYlgjqYf\lYp markets and might be valuable partners.
af9kaYYf\eYqÕf\hYjlf]jk`ahghhgjlmfa- complexity. Within Latin America, this is likely Ernesto San Gil, Argentina Managing Partner
ties with global Latin businesses looking to go to arise if the home country does not have at Ernst & Young, notes that Argentina is
o]kl&@go]n]j$af9^ja[Y$kgda\Yjalqoal`gl`]j a tax treaty with the target market. Outside “located in an up-and-coming neighborhood”
countries that endured colonial dominance, Latin America, the most common challenge is — next to two of Latin America’s most dynamic
along with an ability to improvise in markets managing much higher levels of complexity, markets: “It is clear, particularly as Argentina
with weak infrastructure, may make Latin says Rafael Sayagues, Tax Leader at and Brazil are both members of the Merco-
Õjeklgm_`[geh]lalgjk& Ernst & Young in Costa Rica. In the US, for sur common market, that some enterprising
instance, foreign companies must learn to 9j_]flaf][gehYfa]koaddhjgÕl\aj][ldqYf\
This competition may also come from unlikely navigate the local, regional, state and federal indirectly from that proximity. Indeed, they
quarters — not only from the leading enter- tax codes. At the same time, it’s important to already do.”
prises of the region’s two giants, Brazil and understand that not every jurisdiction is equal,
Mexico, but also from companies based in Sayagues adds: some states are trying to
the smaller Latin economies. Take Peru, for ]f[gmjY_]\]n]dghe]flg^kh][aÕ[af\mklja]k
example: “Due to the steady growth of the and may offer special tax incentives and
national economy in the last two decades, and grants to set up business there. Furthermore,
an expanding middle class, Peruvian compa- company executives and family shareholders
nies have been successful in expanding in the also need to worry about their exposure to US
local market, and after achieving that, the operations, as it is relatively easy to acciden-
most mature companies are now expanding to tally become liable for US income taxes. A
foreign markets,” explains Jorge Medina, Peru non-Latin global company with a strong grasp
Managing Partner at Ernst & Young. on the varying tax and regulatory rules of the
developed world may have a lot to gain by
partnering with a Latin company that is seek-
ing to enter new mature markets.
8 Growing BeyondBusiness environment and economic outlook
H
Ynaf_o]Yl`]j]\l`]ÕfYf[aYd[jakakZ]l-
ter than many other parts of the world, “Latin America has come roaring back into view as a
Latin America is coming into its own and
leading global growth market.”
showing solid GDP growth. According to the
International Monetary Fund, Latin America
and the Caribbean are expected to grow KYe@&>gmY\$9e]ja[Yk=e]j_af_EYjc]lkD]Y\]j$=jfkl Qgmf_
4.1% in 2013. And that’s just the beginning:
between 2011 and 2013, Oxford Economics
forecasts enormous growth for most of the
major Latin American economies. this round of development different, says roughly twice the GDP of Mexico, and Mexico
Fouad. First, an increasing number of Latin in turn could almost incorporate the next
With that kind of performance, global busi- American companies are able to pursue four largest — Argentina, Colombia, Chile and
nesses have been taking a much closer look these opportunities on their own, without the Peru. World Bank research shows that GDP
at Latin America. For a while, says Sam capital or expertise of a mature multinational. per capita ranges from Colombia’s US$9,048
Fouad, Americas Emerging Markets Leader Second, most Latin American governments to Chile’s US$16,019, and in terms of open-
at Ernst & Young, excitement over Asian and have evolved their policies to create a ness to trade, there are large variations
African growth had led Latin America to be pragmatic mix of state-led and free-market as well, with roughly 60% in merchandise
somewhat neglected, but no longer. Over growth. Among other factors propelling ljY\]YkYh]j[]flY_]g^?Where, why and how Latin American companies are expanding 10 Growing Beyond
Business is still heavily intraregional,
but Asia is a big attraction
D espite the global ambitions of such hard-
charging companies as Brazil’s metals
Overall, 21% of our respondents’ revenues
are generated outside the company’s home
Executives are optimistic that trade with India
and China will grow over the next three years.
and mining giant Vale or Mexico’s telecom country. But they expect that percentage Right now, 22% of respondents say their
multinational America Movil, the picture that to rise by three percentage points in three company deals with China. India, by contrast,
emerges from our survey is that most Latin years’ time, with some changes in the sources did not even reach the top 10 destinations.
[gehYfa]kYj]kladdlYcaf_l`]ajÕjklkl]hkgml g^l`gk]j]n]fm]k k]]>a_mj]*!&L`]qYdkg Three years from now, however, executives
of their home market. Eighty percent export to ]ph][l]pl]jfYdeYjc]lhjgÕlklg^gddgoY hj]\a[ll`YlkYd]koadd_jgoaf;`afY *( !
or sell within Latin America, but only 66% do similarly slight upward trajectory, from 20% Yf\afAf\aY 1 !&L`]hj]\a[lagfg^_jgol`^gj
kggmlka\]l`]j]_agf&=n]f^]o]j ,. !`Yn] to 22% of total revenue — a suggestion that India is interesting in that it suggests that the
ÕfYf[aYdafn]kle]flkgmlka\]DYlaf9e]ja[Y$ for the most part they don’t plan to invest market is already on the radar screen of some
and only a third have “brick and mortar” in driving more market share, in which case companies.
operations in one or more international hjgÕlkogmd\dac]dq_g\gofYf\l`]j]ogmd\
eYjc]lk k]]>a_mj])!& likely be a greater gap between revenue and
hjgÕl&9ll`]kYe]lae]$al[gmd\Ydkgkm__]kl
that few believe themselves in a situation
where they have any serious pricing power.
Figure 1: Latin American companies’ imports and exports are concentrated within the region
What business do you conduct with markets outside your home country? Select all that apply.
Br ina
a
bi
ico
nt
m
il
ile
ge
ru
az
lo
ex
Ch
Co
Pe
Ar
M
We export or sell into international markets 92 75 88 87 65 90
80
within the Latin American region
We import from international markets 68 49 61 67 85 87 53
We export or sell into international markets 53 71 61 60 76 56
66
outside the Latin American region
O]`Yn]ÕfYf[aYdafn]kle]flkafafl]jfYlagfYd 69 57 65 37 50 85
58
markets within the Latin American region
We have brick-and-mortar operations through
direct investment in one or more international 56 74 50 70 52 40 75
markets within Latin America
O]`Yn]ÕfYf[aYdafn]kle]flkafafl]jfYlagfYd 37 49 42 36 53 44
46
markets outside the Latin American region
We have brick-and-mortar operations
through direct investment in one or more 33 24 35 34 20 41 29
international markets outside Latin America
Source: Ernst & Young 2013 Latin America Outbound Expansion Survey
:Yk]2DYlaf9e]ja[Y5.(( :jYrad$)/)$E]pa[g$),)$9j_]flafY$/0$;`ad]$/.$;gdgeZaY$/-$H]jm$-1!3k`gof5h]j[]flY_]g^j]khgf\]flk
Latin American companies turn up the volume on global growth 11Most Latin companies are looking for the same
qualities in an international market for sales or
investment macroeconomic stabilty.
@go]n]j$j]khgf\]flkYj]egj]ghlaeakla[ Figure 2: Most revenues come from the home country, but some international growth is likely
about prospects in Latin America and more What percentage of your revenues is currently generated outside your company’s home
bullish still about landing more deals in the [gmfljq79f\o`Ylh]j[]flY_]\gqgm]ph][llgZ]_]f]jYl]\gmlka\]qgmjÕjeÌk`ge]
US and Canada or Latin America. Oxford country in three years?
Economics’ trade forecasts suggest that this
scenario is likely to play out. Between 2011 % of revenue generated outside % of revenue generated outside
company’s home country for Latin company’s home country for Latin
and 2021, the analysts expect overall growth American companies American companies
in Mexican exports to the US of US$381 Now (average) In three years (average)
billion, a 7.6% average annual gain, followed
17 Argentina 19
by US$258 billion from Brazil to the US, a
7.2% average annual gain, much more than is 21 19 Brazil 24 24
expected of China or India.
20 Chile 22
Reaching new customers and increasing
24 Colombia 25
sales are top reasons for expansion
26 Mexico 27
Across the board, our respondents cite
reaching new customers/sales growth as 21 Peru 24
the main reason for expanding into new
markets of all types, but variations exist by Source: Ernst & Young 2013 Latin America Outbound Expansion Survey
:Yk]2DYlaf9e]ja[Y5.(( :jYrad$)/)$E]pa[g$),)$9j_]flafY$/0$;`ad]$/.$;gdgeZaY$/-$H]jm$-1!3k`gof5h]j[]flY_]g^j]khgf\]flk
country and industrial sector. For example, a
`a_`]jhjghgjlagfg^;gdgeZaYfÕjek /- !
l`Yfl`gk]ZYk]\afl`]gl`]jÕn][gmflja]k
YfYn]jY_]g^.* ![gfka\]jj]Y[`af_f]o offer international markets: 52% of our Latin
[mklge]jkYfaehgjlYfl]ph][l]\Z]f]Õl& 9e]ja[Yfj]khgf\]flk [gehYj]\oal`+) af
Reaching new customers is particularly l`]9kaY%HY[aÕ[j]_agf!Z]da]n]l`Yll`]imYdalq
aehgjlYfllg^gg\hjg\m[]jk 0) !Yf\Õjek of their workforce is their greatest strength,
gh]jYlaf_afl][`fgdg_q /+ !$Z]n]jY_]k followed by the quality of products and
/) !Yf\eYfm^Y[lmjaf_ /) !& k]jna[]k ,- !Yf\l`][gkl[geh]lalan]f]kkg^
l`]ajogjc^gj[] +- nk&*+ ^gj9kaY%HY[aÕ[
Most Latin companies are looking for the j]khgf\]flk! k]]>a_mj]+!&
same qualities in an international market for
sales or investment: macroeconomic stability,
high-quality infrastructure and political
stability. By contrast, executives’ responses
to our survey suggest that access to low-cost
labor, natural resources and assets, and the
level of fraud and corruption, matter very little
to them. And they believe they have a lot to
12 Growing BeyondExpansion will occur mostly through direct To reach developed markets, our respondents
exports, local sales and partnerships k]]\aj][l]phgjl *+ !Yf\hYjlf]jk`ahk
*) !YkaehgjlYfl$Zmll`]q\gfÌl`Yn]l`]
Within Latin America, most executives kYe]\]_j]]g^`gh]^gjdg[YdkYd]k )+ !&
hj]\a[ll`Yl\aj][l]phgjl -) !$dg[YdkYd]k Afkl]Y\$l`]qYj]egj][gfÕ\]flafhYl]flYf\
\akljaZmlagf -( !Yf\hYjlf]jk`ahk +1 ! l][`fgdg_qda[]fkaf_ )0 !ÈYj][g_falagf$
will be the way ahead over the next three perhaps, that it will take more than scale or a
years. Some companies have taken other cost advantage to win a lasting place in those
approaches: Chile-based wood products `a_`%]f\eYjc]lk k]]>a_mj],!&
manufacturer Masisa, for example, underwent
Yka_faÕ[YflkljYl]_a[k`a^lk]n]jYdq]Yjk
ago, moving away from its export model and
relocating its activities overseas by planting
forests and building factories in major markets
outside Chile, including several Latin American
countries and the US.
Figure 3: Latin American executives view workforce quality as their greatest strength
What are your company’s most relevant strengths and advantages as it targets international markets for sales
through exports or for a physical presence via direct investment? Select up to three.
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Quality of workforce 52 62 57 50 48 38 61 31
Quality of our products or services 45 32 49 37 56 48 44 43
Cost competitiveness of our workforce 35 14 37 30 48 46 20 23
Ability to leverage technology 29 18 40 25 28 29 19 n/a
Ability to innovate 26 22 23 36 31 23 24 29
Brand strength and reputation 23 28 21 24 25 18 27 25
Global supply chain 23 30 20 24 16 14 49 33
NYdm]g^afl]dd][lmYdhjgh]jlq AH! 12 21 10 17 5 7 17 21
Speed of execution 11 14 12 11 13 8 12 29
Low-cost business model 11 21 15 9 4 10 5 7
Access to low-cost capital/funding 10 21 8 7 4 11 7 7
Source: Ernst & Young 2013 Latin America Outbound Expansion Survey
:Yk]2DYlaf9e]ja[Y5.(( :jYrad$)/)$E]pa[g$),)$9j_]flafY$/0$;`ad]$/.$;gdgeZaY$/-$H]jm$-1!3k`gof5h]j[]flY_]g^j]khgf\]flk
Latin American companies turn up the volume on global growth 13A notably higher percentage of Latin Figure 4: Direct exports will be the most important expansion method in the next three years
9e]ja[Yf]p][mlan]kl`Yf9kaY%HY[aÕ[ As you consider strategies for expansion, which methods will become more important in the
j]khgf\]flk -- nk&+/ !kYql`Yllgkm[[]]\ next three years? Select all that apply.
abroad, they need boards that are more In Latin America In developed markets
representative of global markets. But like their
9kaY%HY[aÕ[[gmfl]jhYjlk$DYlaf9e]ja[Yf Direct exporting 51 Direct exporting 23
executives wish to create a more international
Local sales/distribution/ 50 Partnership/alliance with a local 21
[gjhgjYl][mdlmj] ,1 !Yf\]fl]jf]oeYjc]l sourcing desk Õjeafl`]kYe]Zmkaf]kk
k]_e]flk +- ! k]]>a_mj]-!&
Partnership/alliance with a local 39 18
Patent and technology licensing
Õjeafl`]kYe]Zmkaf]kk
@go]n]j$egklg^gmjDYlaf9e]ja[Yf Partnership/alliance with local
39 Minority equity investment 16
j]khgf\]flkYj]^Yajdq[gfÕ\]flYZgmll`]aj suppliers
colleagues. A solid majority believe that their Mergers and acquisitions 33
Partnership/alliance with local
15
suppliers
company manages its talent effectively across
all its markets, that their senior managers Minority equity investment 32 Joint venture agreement 15
have an international outlook when they
need to make a decision, and that their Joint venture agreement 31 Mergers and acquisitions 13
senior managers have enough foreign work
Outsourcing agreement 30 Outsourcing agreement 13
experience. They report that the next set of
managers they need will be drawn from within 27 Local sales/distribution/ 13
Patent and technology licensing
sourcing desk
l`][gehYfq -( !Yf\eYqf]]\lg`Yn]
afl]jfYlagfYd]ph]ja]f[] ,( !gjZ]j][jmal]\ Franchising 25 Franchising 12
locally in the case of an international market
Partnership with government-
+/ !& ?j]]fÕ]d\afn]kle]fl 25
owned enterprises
8
Partnership with government- 23 8
?j]]fÕ]d\afn]kle]fl
owned enterprises
Source: Ernst & Young 2013 Latin America Outbound Expansion Survey
:Yk]2DYlaf9e]ja[Y5.(( :jYrad$)/)$E]pa[g$),)$9j_]flafY$/0$;`ad]$/.$;gdgeZaY$/-$H]jm$-1!3k`gof5h]j[]flY_]g^j]khgf\]flk
14 Growing BeyondFigure 5: It’s essential to make boards more representative of global markets
Which of the following changes will be most important for your business to succeed with its international
expansion plans? Select up to three.
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Making our board more representative 55 67 66 63 35 35 68 37
of global markets
Making our corporate culture more 49 21 55 49 63 55 34 42
international
Entering new market segments 35 33 33 42 45 31 29 33
Decentralizing decision-making 30 24 36 18 35 35 17 26
Developing new distribution channels 28 31 22 20 27 28 54 31
Getting the right local partners 25 22 30 20 29 23 15 50
Altering the value proposition for 22 21 17 26 21 22 31 39
customers
Strengthening corporate governance 17 31 21 17 7 9 17 11
Changing our organizational structure 13 28 13 9 5 11 15 7
Source: Ernst & Young 2013 Latin America Outbound Expansion Survey
:Yk]2DYlaf9e]ja[Y5.(( :jYrad$)/)$E]pa[g$),)$9j_]flafY$/0$;`ad]$/.$;gdgeZaY$/-$H]jm$-1!3k`gof5h]j[]flY_]g^j]khgf\]flk
Our respondents also say they need to revamp “Global Latinas”: what sets them apart America Movil’s acquisition of minority stakes
their sales and marketing organization in Dutch and Austrian companies. In the 2011
-( [gehYj]\oal`+. ^gj9kaY%HY[aÕ[ Although most Latin American companies Fortune Global 500 ranking of the world’s
j]khgf\]flk!$Z]]^mhl`]ajAL ,+ !Yf\ are still regional, many that have expanded largest corporations by revenue, seven were
aehjgn]l`]ajkljYl]_a[hdYffaf_ +1 !& beyond their borders have become major from Brazil and three from Mexico, but other
Interestingly, given the increasing challenges multinationals. Large global companies Latin American countries also boast global
g^_dgZYd[gehdaYf[]Yf\ÕfYf[aYdj]hgjlaf_$ based in Brazil include oil and gas producer companies. Argentina’s Techint Group, for
few see this as important. In fact, their lowest Petrobras, mining company Vale, aircraft example, is the world’s largest maker of
hjagjala]kYj]]na\]fldqÕfYf[aYdj]hgjlaf_ manufacturer Embraer, and food producer seamless steel tubes, and Arcor, also based
)) !$j]_mdYlgjq[gehdaYf[] 0 !$gj_dgZYd Marfrig; Mexican multinationals include Bimbo, in Argentina, is the world’s leading producer
lYp[gehdaYf[]Yf\j]hgjlaf_ k]]>a_mj].!& the world’s largest bread manufacturer; of candies. Chile’s emerging MNCs include
building materials manufacturer CEMEX; retail and consumer products companies
and telecom giant America Movil. Recent such as Falabella and Cencosud, and business
transactions in developed markets include conglomerates such as Quiñenco.
:jYradaYfÕje;YeYj_g;gjjYÌkZmqgml
of Portuguese cement-maker Cimpor and
Latin American companies turn up the volume on global growth 15“Relationships, especially with the governments and
marketplaces in these markets, are still very important.”
KYe@&>gmY\$9e]ja[Yk=e]j_af_EYjc]lkD]Y\]j$=jfkl Qgmf_
Smaller Latin American companies are also 1990s. “I started studying them in 1996 and and a weakness. “On one level it’s helpful
moving up fast: in October 2012, Cerveceria immediately I saw that they were different in a because relationships, especially with the
Costa Rica struck a deal to buy North number of dimensions,” she says. “They were governments and marketplaces in these
American Breweries, the brewer of Genesee very agile, much less bureaucratic, and being markets, are still very important,”
and Labatt in the United States, for US$388 family-owned seemed to make them extremely Ernst & Young’s Sam Fouad says. “On the
million in cash. “Not just monster players but resilient.” other, it can also slow the company down if
also smaller companies are expanding their the company is unwilling to welcome outside
global reach,” says Rafael Sayagues, Ernst & The fact that these companies had to cope talent.”
Young’s Tax Leader in Costa Rica. with so many economic crises gave them a
chance to exercise that resilience and develop The Global Latinas are also frequently very
Some scholars argue that the emerging Latin vision, according to Casanova. “The Latin active in their communities, Casanova says.
American multinationals have some special American companies had no choice but to Operating in countries with massive social
qualities of their own. Lourdes Casanova, a work for the medium term, as the short term problems, the Global Latinas tend to consider
senior lecturer in management at the Johnson was often too hard,” she says. philanthropic work part of their mission. “In
School of Business at Cornell University, has the past, most companies in Latin America
been studying the companies she and other Many of the Global Latinas continue to be have had to compromise with society,” she
academics call “Global Latinas” since the family owned, which could be both a strength says.
>a_mj].2KYd]kYf\eYjc]laf_oaddj]imaj]l`]egklka_faÕ[Yfl[`Yf_]k
O`a[`g^l`]^gddgoaf_^mf[lagfYdYj]Ykoaddj]imaj]l`]egklka_faÕ[Yfl[`Yf_]kafgj\]jlg]fkmj]l`]km[[]kk
of your company’s international expansion plans? Select up to three.
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Sales and marketing 50 41 61 41 60 50 27 36
Information technology 43 39 49 47 44 31 51 20
Strategic planning 39 40 37 26 49 39 42 44
Kmhhdq[`Yaf af[dm\af_\]eYf\ 29 32 17 32 27 32 56 22
hdYffaf_Yf\\akljaZmlagf!
Risk management/enterprise risk 24 9 43 22 19 15 15 29
eYfY_]e]fl =JE!
Financial management 22 22 22 32 20 18 25 37
Tax planning 18 39 23 9 7 9 22 1
Public relations 11 14 11 5 13 10 12 20
Internal communications 11 5 11 18 13 11 3 31
Financial reporting 11 19 9 13 5 11 8 27
Regulatory compliance 8 12 6 12 5 6 10 11
Global tax compliance and reporting 7 13 4 8 1 6 10 4
Source: Ernst & Young 2013 Latin America Outbound Expansion Survey
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16 Growing BeyondAs they continue to grow, however, the But the rise won’t be all good news for Global Latinas may face pressure to mature-market MNCs. The new Global change. Casanova, author of a book called Latinas are likely to be a source of ferocious Global Latinas: Latin America’s Emerging competition as well, particularly for US EmdlafYlagfYdk AFK=9
The arrival of a new generation of Latin American multinationals
presents a different dynamic. It offers non-Latin global companies
a large variety of business opportunities.
Yet the opportunities are tremendous. The Although we tend to think of rapid-growth and literature of the 20th century — may
arrival of a new generation of Latin American markets in terms of teams and scores, the astonish us even more in the 21st century
multinationals presents a different dynamic. truth is that the success of the rapid-growth as well by allowing businesses from different
It offers non-Latin global companies a large markets of Latin America will not be a eYjc]lklgÖgmjak`&
variety of business opportunities, including zero-sum game. Instead, it means that the
potential partnerships, a chance to offer talent genius of a region that gave the world the
and technological expertise to Latin American Õjkl]pl]jfYd`]YjlhY[]eYc]j$l`]Õjkl[gdgj
companies planning to expand, and access to television and some important advances in
f]oeYjc]lk ]&_&$af9kaY!l`YleYq`Yn]Z]]f medicine — not to mention the salsa, the
\a^Õ[mdllg]fl]jgl`]joak]& lYf_g$Yf\kge]g^l`]egklafÖm]flaYdYjl
Latin American companies face tangles of red tape overseas
One of the biggest issues Latin American companies will confront when countries have a multi-tier system, says Rafael Sayagues,
they leave home is tax and regulatory complexity, particularly if they Ernst & Young Tax Leader in Costa Rica. For another, professional
expand to the US or another developed market. While some countries fees can soar: Sayagues says that the costs of high-level legal and
— such as Mexico, Chile and Colombia — have rapidly expanded their accounting help can triple the average hourly rate in Latin America.
bilateral and multilateral trade, investment and tax agreements, other
countries, such as Brazil, remain slow to move in this direction, and Structurally, too, there can be multiple levels of complexity. What
hence there is an absence of meaningful regional agreements. works in one country may not work in another. A Panamanian holding
company, for example, may be perfectly legal in Panama but not be
Between Latin American countries, companies sometimes face recognized in France.
\a^Õ[mdla]kj]hYljaYlaf_]Yjfaf_ka^l`][gmflja]kdY[cYj][ahjg[YdlYp
treaty. In Peru, for example, Ernst & Young Tax Leader David de la Torre Latin American companies looking to expand beyond their borders
says that the lack of a deduction has led many companies to delay should ask themselves these four basic questions:
j]hYljaYlaf_l`]]Yjfaf_kg^kge]eYjc]lk$Yf\l`Yll`]\a^Õ[mdlq`Yk
grown even worse after the Peruvian Government’s recent decision to Related Ernst & Young thought leadership
Ernst & Young offers in-depth reports for each of six major Latin American markets.
Growing Beyond Growing Beyond Growing Beyond
Time to tune in: Latin American companies
turn up the volume on global growth
Argentina highlights
Time to tune in: Latin American companies
Time to tune in: Latin American companies turn up the volume on global growth
turn up the volume on global growth
Chile highlights
Brazil highlights
Time to tune in: Time to tune in: Time to tune in:
Argentina highlights Brazil highlights Chile highlights
Growing Beyond Growing Beyond
Growing Beyond
Time to tune in: Latin American companies
Time to tune in: Latin American companies turn up the volume on global growth
turn up the volume on global growth
Mexico highlights Peru highlights
Time to tune in: Latin American companies
turn up the volume on global growth
Colombia highlights
Time to tune in: Time to tune in: Time to tune in:
Colombia highlights Mexico highlights Peru highlights
Growing Beyond Growing Beyond
Beyond Asia: Beyond Asia
developed-markets perspectives New patterns of trade
Meeting the challenge of
changing global competition
Beyond Asia: developed- Beyond Asia: new patterns
markets perspectives of trade
This report examines This report examines how
how companies based in trade in and between
developed markets can the nine largest or most
explore the implications of rapidly growing economies
Asian overseas expansion, af9kaY%HY[aÕ[oaddY^^][l
coping with changing global global business. It presents a
competition and maximizing variety of scenarios.
new opportunities.
Latin American companies turn up the volume on global growth 19Ernst & Young
Assurance | Tax | Transactions | Advisory
About Ernst & Young
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© 2013 EYGM Limited.
All Rights Reserved.
EYG no. EX0222 Contacts
This publication contains information in summary form and is Sam H. Fouad www.ey.com/latinamerica
therefore intended for general guidance only. It is not intended
to be a substitute for detailed research or the exercise of Americas Emerging Markets Leader,
professional judgment. Neither EYGM Limited nor any other SASA Market Leader
member of the global Ernst & Young organization can accept
any responsibility for loss occasioned to any person acting Tel: +1 212 773 3504
or refraining from action as a result of any material in this Email: sam.fouad@ey.com For more information on how
publication. On any specific matter, reference should be made to
the appropriate advisor.
Ernst & Young can help you in a
ED None Gerard Dalbosco globalized world, please visit us at:
EYjc]lkD]Y\]j$9kaY%HY[aÕ[ www.ey.com/growingbeyond.
Tel: +61 3 9288 8658
Email: gerard.dalbosco@au.ey.com
Jay Nibbe
Markets Leader, Europe, Middle East,
India & Africa
Tel: +44 0207 951 7503
Growing Beyond
Email: jnibbe@uk.ey.com
In these challenging economic
times, opportunities still exist for Naoki Matsumura
growth. In Growing Beyond, we’re Markets Leader, Japan
exploring how companies can best Tel: +81 3 3503 1334
exploit these opportunities — by Email: matsumura-nk@shinnihon.or.jp
]phYf\af_aflgf]oeYjc]lk$Õf\af_
new ways to innovate and taking Stephen Almassy
new approaches to talent. You’ll ?dgZYdNa[];`Yaj$G^Õ[]g^l`];`YajeYf
gain practical insights into what you Accounts and Industry
need to do to grow. Join the debate Tel: +44 020 7980 0075
at www.ey.com/growingbeyond. Email: stephen.almassy@uk.ey.com
Thomas P. McGrath
Markets Leader, Americas
Tel: +1 212 773 9550
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