Corporate Competitiveness in Latin America and the Caribbean

1. Corporate Competitiveness in Latin America and the Caribbean Michael Mortimore and Wilson Peres CEPAL Review, 74, August 2001

2. Contents 1. Latin America and the Caribbean in the world markets in the 1990s 2. The transnationalization of the Latin American economies 3. Corporate strategies - Transnational corporations - Large domestic conglomerates 4. Conclusions and policies

3. Latin America and the Caribbean in the world markets in the 1990sThe regional dimension

4. Is it a result of efficiency-seeking strategies in the context of globalization?

5. The great opportunity in the world market

6. Who caught the opportunity?

8. Latin America and the Caribbean in the world markets in the 1990sThe country dimension

9. 25 competitors, only 8 winners

10. Pattern I: Manufacturing exports from Mexico and the Caribbean Basin Trade and financial liberalization. Export promotion through maquila and export processing zones. U.S. trade facilitation mechanisms: shared production (CBI), market access and NAFTA rules of origin. Main advantages: production costs (GPC) and geography. Greenfield investment in export platforms : automobiles, electronics and garments. The leading firms: U. S based corporations.

11. A stark structural transformation of northern LAC’s integration into the international market

12. Pattern II: Natural resources and services in South America Investment and trade liberalization fostered investment in oil, natural gas and mining. Natural resource-intensive manufacturing sectors; static comparative advantages. Investment in telecommunications, energy, banking and commerce. Acquisition of local firms: privatization and take-overs. The leaders: European corporations, mainly from Spain.

13. The flip side: in South America, weak links, no specialization

14. Two “worlds” • 1. Efficiency seeking:Mexico & Caribbean Basin • - Automobiles, electronics, garments - FDI from the U.S. • - New production facilities, besides M&A. • - Improvement in competitiveness - Poor linkages • 2. Market seeking :South America • - Telecomm, electricity, trade, banking • - European FDI (mainly from Spain) • - Acquisition of local firms • - Increase in systemic competitiveness; better adaptation to local conditions? • - Balance of payment deficits

15. The transnationalization of the Latin American economies

16. World Foreign Direct Investment (FDI) Inflows(billions of dollars)

17. Net Inflows of FDI to Developing Regions, 1990-2000(millions of dollars)

18. Net FDI Inflows to Latin America and the Caribbean, by Subregion, 1990-2000(millions of dollars) Data for 2000 estimated by Unit of Investment and Corporate Strategies

19. Net FDI Inflows to Latin America and the Caribbean, LAIA Countries, 1990-2000(millions of dollars)

20. Latin America: Sources of FDI inflows, 1990-1998(billions of dollars)

21. TNCs and globalization 1. Foreign direct investment = 75% of world total flows are by TNCs 25% 75% 2. International trade = 67% of total imports through TNCs 34% 33% 33%

24. TNC strategies

25. The 15 biggest TNCs in Latin America, according to consolidated sales, 1999 Corporation Country of origin Sector Sales 1 Telefónica de España S.A. Spain Telecoms 12 439 2 General Motors (GM) USA Automobiles 12 425 3 Volkswagen AG Germany Automobiles 11 902 4 DaimlerChrysler AG Germany Automobiles 9 746 5 Carrefour Group/ Promodés France Trade 9 561 6 Ford Motor Co. USA Automobiles 8 252 7 Repsol-YPF Spain Oil 7 980 8 Fiat Spa Italy Automobiles 7 659 9 Royal Dutch-Shell Group UK/Neth. Oil 6 449 10 Exxon Mobil Corp USA Oil 6 403 11 IBM USA Computers 5 479 12 Endesa España Spain Electricity 5 475 13 The AES Corp. USA Electricity 5 182 14 Wal Mart Stores USA Trade 4 816 15 Nestlé Swiss Foodstuff 4 766

26. TNC strategies in Latin America and the Caribbeanin the 1990s

27. Strategies of the domestic conglomerates

28. Sales of the 500 largest corporations in Latin America(billion dollars)

29. Sectoral specialization

30. The 20 biggest Latin American groups

31. Main corporate strategies • Retreat (sale of assets) • Defensive • Offensive - Specialization in the core - Moderate increase in diversification - Growth with extreme diversification (with specialization at the firm level) • Entrepreneurship, power and ego.

32. Conclusions and policy considerations

33. Fact IThe lost opportunity • Latin American international competitiveness did not increase in 1985-98. • The region did not use the window of opportunity in non natural resource-based manufacturing exports. • The competitiveness and technological specialization gaps vis-à-vis the Asian competitors increased. • Only 8 of 25 countries increased their market share in the world market (6 from NAFTA and CBI).

34. Fact IITwo different “worlds”regarding FDI and international trade • Efficiency seeking: Mexico and the Caribbean Basin • Market-access seeking: South America

35. Fact IIIThe challenges of the current specialization patterns • “North of Panama”: low-tech processes integrated into global production chains. • “South of Panama”: non-dynamic sectors in international trade, mature technologies. • Exceptions: “third-generation maquila” and cases like Embraer and Techint.

36. Fact IVThe new leadership • Booming FDI flows to the region. • 20 exporters do one fourth of total exports; 200, half. • The new leader: TNC subsidiaries. • Domestic conglomerates are still strong players; but, they are losing share.

37. Four policy lines • FDI attraction, according to national priorities. • Strengthening linkages to global production chains. • Creation of linkages to global knowledge networks. • Improvement of corporate governance, competition, and regulatory frameworks.