“Multilatinas have unique capabilities to adjust to new environments and to thrive through volatility, but they will have to work to strengthen all of them to overcome new protectionist challenges.”
I have written about the unique capabilities of multilatinas to flexibly adjust to new environments, their ability to thrive through volatility and their resilience to survive major crises. These capabilities are being put to the test because of the paradigm change that we are experiencing. On one hand, the U.S. administration is challenging the NAFTA agreement and being protective of its economic interests. On the other hand, the status quo is being shaken up by corruption scandals in Brazil (and elsewhere) and a new investment drive from China.
For 20 years Mexican companies adjusted their organizations and strategies to thrive within the NAFTA trade agreement. As a consequence, Mexico was successful in moving from a commodity exports dependent economy to one that is built on a solid foundation of manufacturing excellence. All of a sudden, the United States has questioned the agreement and companies are being forced to look for new markets to export to, including Latin America and China, and revise their strategies. At the same time, this year’s unexpected U.S. tariffs on steel directly affected Brazil, one of the biggest steel exporters to the United States.
The second threat has come from the corruption scandals affecting Brazilian multilatinas that are also impacting the overall investment sentiment in the region. While during the period of 2009-2016, the value of M&A deals increased in India, Korea and China, with respect to the period of 2003-2008, the numbers contracted in Brazil – going down from $60.7 billion to $28.8 billion. International investments are a source of learning and should be encouraged and Brazilian companies are loosing their edge by staying home.
Finally, moving from being the biggest trade partner of South America to a major investor, Chinese companies have enlarged their presence from mining, oil and agriculture to now includ e e-commerce, electricity and banking. Shy at first, they are now becoming major competitors. Brazilian banks, early adopters of technology, were able to stay afloat through good and bad times with healthy margins and by keeping most of the major international banks at bay. Will they be able to do the same with the biggest banks in the world: ICBC or Bank of China? Will both European utilities Iberdrola or Enel and local Brazilian companies be able to compete with the Chinese State Grid in the electricity industry?
The 2018 Boston Consulting Group (BCG) multilatinas report shows how the 100 biggest firms have managed to grow their market value 10 times above the rest from 2009 to 2017 because of their ability to acquire, connect with consumers, manage value chains and foster innovative networks while nurturing talent. To face the challenges above, multilatinas will need to strengthen these abilities described by BCG and my prior articles, as well as build a strong united front with governments that need to acknowledge the power of the private sector to contribute to the overall development of a nation.
LOURDES CASANOVA, senior lecturer and director Emerging Markets
Institute, Cornell Johnson College of Business, Cornell University.
This article was published in TOP500 2018 edition of Latin Trade