Latin 500: Latin America’s Top 500

The rise of the Holding company: Who they are, how they’ve arisen and why they’re important to regional growth.

Holding companies posted double-digit rate growth in revenues in 2012, and are one of the most dynamic sectors among the Top Latin 500. Industries in traditional activities such as energy, food, beverage and retail, lead the ranking.

They come from every economic direction, they are distributed in the five largest Latin American countries, and reported a 45.9 percent income growth in 2012. This is a new trend in business organization that will most likely be adopted by all the major players in the region over the coming years, if they really want to become global. Meet the Latin Holdcos, the holding companies of Latin American groups.

Last year, there were 11 holding companies on the Top-500 list, which posted $122.1 billion in sales, 4.6 percent of the roughly $2.7 trillion total revenue of the largest non-financial companies in the region. In 2011, there were eight, which sold $83.7 billion, 3.4 percent of the total revenue of the Latin Trade 500.

But the Holdcos’ vertiginous growth does not seem to be a one-year phenomenon but rather a trend, because they are the perfect tool for conglomerates to coordinate their strategies, facilitate company buying/selling decisions, and to preserve corporate culture. They are the next step for family businesses that want to become global players.

The largest holding company is the Brazilian construction giant Odebrecht. This one has already made its way to the top 10 in the general ranking, where it occupies the ninth place thanks to revenues that exceeded $37.4 billion in 2012. It was founded in 1981 to unify a growth strategy for the 16 businesses that are part of the group, and to maintain what they call their “philosophical unity,” which was set forth in Tecnología Empresarial Odebrecht, a compilation of principles envisioned 65 years ago by the founder, Norberto Odebrecht.

This holding’s revenues increased 12.2 percent in 2012, thanks to its participation in the areas of engineering and construction, infrastructure, energy, the assembly of industrial facilities, and what the company calls auxiliary institutions, which are firms created to protect the organization’s capital and to ensure economic stability for its employees. The holding has very strong international representation: 35 countries in four continents.

The second Latin Holdco heavyweight is Argentinean Techint. It controls six firms with global reach, all of them world or regional leaders in their fields. Two of them are ranked among the top 100 of the Latin 500: Tenaris (ranked 55), a global leader in steel pipes production; and Ternium (ranked 68), the number one provider of steel products in Latin America. Other branches of the group are Techint Engineering & Construction; Tenova, which provides advanced technology for the iron, steel and mining industries; Tecpetrol, oil producers; and Humanitas, the head of their health business, which has a pretty strong presence in Italy.

Individual companies in Techint have more freedom than in Odebrecht regarding strategy design and goal setting, but they are all bonded together by founder, Agostino Rocca’s original philosophy, which centers on the belief that corporate survival in the long run depends on being committed to local development. Techint holding posted $25.5 billion in revenues in 2012, making it the 13th biggest non-financial company in Latin America.

Two highly diversified companies complete the group of Latin Holdcos with yearly sales above $10 billion. One of them, Mexican Alfa, does business in petrochemicals, natural gas and hydrocarbons, aluminum car parts, telecommunications and food, reporting revenues of roughly $15.5 billion in 2012, which places it as number 33 in the ranking. The other is Brazilian Votorantim, a holding company that ranks 46 on the 500 list with $12.1 billion reported revenues that come from its activities in the cement, metal, energy, steel, paper, cellulose, agriculture and financial sectors, among others.

Three Latin Holdcos are among the biggest 100 companies in the region: EPM Group, number one electricity provider in Colombia (ranked 86); Brazilian construction and engineering Andrade Gutierrez (ranked 87); and Mexican group Carso (ranked 94), which controls companies in manufacture, retail, infrastructure and construction sectors.

This list of Latin Holdcos in the top 500 closes with Quiñenco (169), which controls companies in the financial and manufacturingsectors in Chile; Grupo OAS (170), with businesses in engineering and infrastructure in Brazil; Xignux (223), diversified in electrical transformers, automotive, petrochemical, lighting, foodstuff and cold meats in Mexico; and Grupo Algar (303), with investments in telecommunication, agribusinesses, insurance, aviation and tourism in Brazil.

The labyrinthian accounting of some conglomerates does not always allow the identification of other Latin Holdcos that have also grown explosively in the last few years. Nevertheless, what seems clear is that regional entrepreneurs are reorganizing their businesses around clearly set holding companies, which have proven to be a formidable way of unifying the direction of conglomerates. Certainly, many more will appear to foster growth and globalization of multilatinas. This will be a very important trend in the region.

Results from the 500

In Latin Trade’s 500 ranking, companies in the energy sector still prevail, notwithstanding the fact that their performance is showing signs of slowing down. They are 20 percent of the companies on the list, and they account for 33 percent of total sales. Retailers are also among the largest: 68 companies account for 13 percent of sales and their growth rate, as a group, is above 17 percent. Following retailers, 47 technology companies account for 10.5 percent of the 500’s total sales, and they grow at a 12.3 rate. Meanwhile, big groups in the food and beverage segments grow at 11 and 16 percent rates, respectively.

Brazil and Mexico undoubtedly take the lead in country participation in the ranking, while Chile and Colombia increased their presence. The number of Peruvian companies in the 500 list is also on the rise, while Argentina loses territory in Latin Trade’s 500 – a reflection of the differences between the economic models adopted by these countries in the past years.

Crude Reality

Only three companies in the region exceeded $100 billion in revenues. They are all oil extraction companies: Petrobras, Pemex and Pdvsa.

Pdvsa came in first place two years ago, and it lost one more position this year, placing 3rd in the ranking. Even so, the state-owned Venezuelan oil company more than doubles the sales of fourth-ranked America Movil, a telecommunications giant and the first privately owned company on the list, property of the wealthiest man in the world, Carlos Slim.

The fifth on the list is Brazilian mining company Vale, which is also one of the largest miners in the world. Overall, four out of the five biggest regional companies are in extractive activities, and make 88 percent of the top five’s total revenues.

In order to be able to understand the extent to which Latin American companies are concentrated around oil extraction, it is useful to point out that the combined revenues of Petrobras, Pemex and Pdvsa, add roughly to $400 billion, a larger figure than the revenues of all the 250 companies ranked at the bottom half of the list.

The preponderance of firms on primary activities is also evident among the first 10 entries of the ranking. BR Distribuidora, ranked 7th, is Petrobras’ distribution arm of ethanol and oil destilates. In 8th place is Colombian oil company Ecopetrol – a public enterprise opened to private investors in 2007. In all, five out of the 10 biggest companies in the region are in the oil business, and posted revenues for more than $466 billion in 2012. This figure is slightly smaller than the sales reported by Walmart, the largest company in the U.S. This concentration on oil is not common to other regions.

Nonetheless, Latin America is an important global player in the energy industry. Petrobras ranks 23rd and Pemex 24th in the world’s biggest companies ranking – the only Latin American companies that made it into the global top 100.

In general, one out of every five of the Latin Trade’s 500 companies fall under the energy category; 36 companies belong to the mining industry, 17 to the steel sector, three to the aluminum sector, and six are cement producers. This means one third of the 500 largest companies in Latin America currently concentrate their business in extraction and use of natural resources.

This situation offers significant benefits, but it also imposes major challenges. Among the benefits, the region has gained a diva status among investors in these activities, a fact that has fostered large foreign direct investments in practically every country. As for the challenges,
the combination of foreign investment flows and high commodity prices has brought about currency appreciations and other symptoms of the so-called Dutch disease, which must not be overlooked. The disease induces the concentration of economies in a small number of productive sectors, especially commodity producers.

The fact that this sector prevails among the top 500 Latin American companies is a trend shared by the rest of the world. The first and second biggest companies in the world, Shell and Exxon Mobil, fall within this category and seven of the 10 biggest belong to the oil sector – next to Shell and Exxon Mobile, we have BP (ranked number 4), Sinopec (5), China National Petroleum (6), Chevron (8), and ConocoPhillips (9).

But, there is a big difference between the major Latin American oil companies, and those from the rest of the world: Latin Americans are mainly focused on extraction and distribution of crude oil, while the other widen their profit margins adding value to crude oil, by means of very innovative, highly technical, in more complex stages of the industrial production.

Defying destiny

Besides energy, the Latin American productive sector is led by other traditional businesses in the food, beverage and retail industries.

Brazilian giant JBS, this year number 10 on the list of the Latin 500, is currently the largest animal-protein processing company in the world. It has offices in Brazil, Argentina, Italy, Australia, United States, Uruguay, Paraguay, Mexico, China and Russia, and 140 production units around the world, from where they deliver their products to households in all continents.

Among the Top 500, there are other 28 success stories in the food and beverage industry, of Latin American firms that have prospered along with world giants like Nestle, Kellogg’s and PepsiCo, which have a long-standing presence in the region. Brazil is the country of origin of many of these companies. One of them is Brasil Foods, ranked 38th, which is a heavyweight in fresh and processed foods. Another is Marfrig, specialized in processed foods of animal origin, which is ranked 50. It is not an overstatement to say that these three companies are the reason why Brazil has achieved worldwide prominence in the food sector.

The food sector accounted for 4.1 percent of the Latin 500 total sales, and it grew 11 percent year-on-year.

The beverage industry in Latin America has grown at the same speed as the food industry. Twenty out of the 500 largest Latin companies belong to this sector and Mexican company, Femsa, is the undeniable leader, with businesses like Femsa (ranked 24) and Coca-Cola Femsa (ranked 53).

However, beer breweries are probably the most interesting segment of the beverage industry in the region. Brazilian company, AmBev (ranked 31), has the leading role here. Home to traditional brands, Antartica and Brahma, AmBev gave up control of its business to the Belgian AB InBev, following the example set by other Latin American brewers like the Mexican Grupo Modelo (ranked 76), who in a sort of spin of fate, was sold recently to AB InBev. Similarly, South African brewer SABMiller took-over several businesses in countries other than Mexico and Brazil where its Belgian rival seems to have won the war for market dominance. Among them, SABMiller bought Colombian Bavaria (ranked 18).

In the smaller wine segment, the uncontested leader is Chilean Concha y Toro. It is the only company from this industry that made the 500 list, placing 456th. It is not the first time the 130 year-old winery makes it on the ranking, and it will not be the last if it manages to fulfill its plan to become one of the leading brands in the wine world. This goal may be achieved if it maintains its position as Latin America’s first wine exporter, and if it strengthens its marketing strategy, which already has allowed Concha y Toro to become one of the most renowned brands in the world and which has opened markets in 135 countries.

A third major industry in the region is retail. There are currently 68 retailers among the Latin 500, and all of them have achieved a good level of technological sophistication to deal with the operational complexities of this activity.

Brazilian CDB (ranked 15), owner of the Pão de Açúcar and the Viavarejo groups (ranked 54), stands out among the Latin Americans for its sheer size. Followed by Chilean company Cencosud (ranked 21), which, notwithstanding its smaller size, has managed to consolidate a strong international presence unprecedented in the region, only comparable to the one achieved by another Chilean retailer, Falabella (52). Mexican companies do not lag behind, with their Bodega Aurrerá (ranked 57), Soriana (72), Sam’s Club (84) and Oxxo (92). There are also major international chains with strong presence in the region, like Walmart, Casino and Carrefour.

Anticipating The Future

Ten years before the creation of American information technology giant, Cisco, Sonda was founded in Santiago de Chile. This company sought to enhance the efficiency of IT in Latin American companies. Sonda, ranked 376 with $1.4 billion annual sales, climbed 24 places in this year’s ranking. This makes it the second company that escalated the most positions on the list, after Claro’s subsidiary in Peru.

Genomma Lab Internacional doubled its sales between 2009 and 2012, making its way onto the ranking for the first time this year, where it occupies the position 500. This Mexican cosmetic and pharmaceutical company, who celebrated 15 years of existence some months ago, will probably maintain a double-digit growth rate in the following years, as it will deepen its international expansion strategy that has already taken the company to 14 countries – where Brazil, Colombia, Argentina and the U.S. stand out for its sales generation. The company’s management team estimates a 23 to 26 percent growth in sales in 2014 alone.

What do a young pharmaceutical company and a mature IT company, located on opposite ends of the Latin American geography, have in common? There are three elements that they share, and that make up a virtuous spiral: from their onset, they have placed innovation at the center of their operations and growth strategies; emphasis on innovation has fostered a model which allows them to constantly offer value to their clientele; value helps to improve the lives of Latin Americans.

Cases like these are becoming more frequent in Latin American countries, but their size is still modest compared to the largest companies in the region. The relative weakness of technology-based companies is a partial, but important explanation to underdevelopment. According to the World Economic Forum, Latin American economies are characterized by a fairly efficient use of their natural resources. That is a stage previous to advanced economies, which have innovation as the main driver for economic growth. There are no Latin nations in this advanced stage.

If Latin America is to step into the age of knowledge and gain the status of developed nations for its countries – a dream that only Chile is about to achieve – it will need to have companies that intensively deploy highly qualified human resources, in sectors of high technological complexity. These are the companies that are called upon to change the history of the Latin 500 in the following years.

 


 

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