Corporate Competitiveness in Corporate Competitiveness in Latin America and the Latin America and the

CaribbeanCaribbean

Michael Mortimore and Wilson Peres

CEPAL Review, 74, August 2001

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

Latin America and the Caribbean in the world markets

in the 1990s

The regional dimension

The winner in exports to OECD countries: manufactures not based on natural

resources

0

10

20

30

40

50

60

70

%

Productos primarios y manufacturas basadas en recursosnaturalesManufacturas no basadas en recursos naturales

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

The great opportunity in the The great opportunity in the world marketworld market

Industrializedcountries

Developingcountries

DevelopingAsia

LatinAmerica

1985 1998 1985 1998 1985 1998 1985 1998

Natural resources 37.8 43.2 62.1 56.8 29.7 27.4 12.3 13.8

Natural-resource basedmanufactures

68.1 69.5 31.3 30.5 12.4 14.4 6.5 6.2

Non natural-resource basedmanufactures

82.4 69.7 17.5 30.3 11.6 22.1 2.5 4.3

- Low tech 51.5 35.5 48.5 64.5 39.1 49.8 4.0 6.7- Medium tech 89.4 80.3 10.6 19.7 5.2 11.6 2.4 4.5- High tech 83.0 66.4 17.0 33.6 11.3 27.6 2.0 3.0Other 71.1 62.2 28.9 37.7 6.4 11.0 4.1 4.1

TOTAL 68.7 65.8 31.1 34.2 16.0 21.5 5.6 5.7

Who caught the opportunity?

Latin Americaand the

Caribbean

China Korea, HongKong,

Singapore &Taiwan

Philippines,Indonesia,Malaysia &Thailand

1985 5.57 1.60 5.51 2.801986 5.03 1.76 6.02 2.571987 4.66 1.94 6.68 2.521988 4.63 2.22 7.09 2.651989 4.61 2.45 6.97 2.721990 4.53 2.82 6.95 2.891991 4.38 3.18 6.90 3.041992 4.41 3.74 7.25 3.381993 4.62 4.26 7.48 3.721994 4.81 4.62 7.66 4.001995 5.01 4.81 7.63 4.161996 5.27 5.06 7.59 4.301997 5.52 5.33 7.44 4.361998 5.66 5.50 7.37 4.37

Risingstars

Retreats

Latin America (1985) 16.4 67.6Latin America (1998) 43.4 34.9

Latin America, excluding Mexico (1985) 12.5 63.8Latin America, excluding Mexico (1998) 28.2 40.6

México and Caribbean Basin(1998) 61.3 20.7

Korea, Hong Kong, Singapore & Taiwan (1998) 61.8 12.2Philippines, Indonesia, Malaysia & Thailand (1998) 63.4 21.4China (1998) 64.0 11.1

Rising stars and retreats in the worldmarket, 1985 and 1998

Latin America and the Caribbean in the world markets in the 1990s

The country dimension

1985 1998 ChangeMexico 1.55 2.24 0.69Argentina 0.37 0.51 0.14Chile 0.23 0.32 0.09Costa Rica 0.07 0.10 0.03Guatemala 0.06 0.08 0.02Honduras 0.05 0.07 0.02Dominican Rep. 0.08 0.10 0.02El Salvador 0.04 0.05 0.01Colombia 0.24 0.24 0.00Paraguay 0.03 0.03 0.00Nicaragua 0.02 0.02 0.00Jamaica 0.04 0.04 0.00Uruguay 0.07 0.06 -0.01Cuba 0.03 0.02 -0.01Guyana 0.02 0.01 -0.01Suriname 0.02 0.01 -0.01Bolivia 0.04 0.02 -0.02Barbados 0.02 0.00 -0.02Haití 0.03 0.01 -0.02Peru 0.17 0.12 -0.05Panama 0.10 0.05 -0.05Ecuador 0.17 0.11 -0.06Trinidad & Tobago 0.10 0.04 -0.06Venezuela 0.66 0.41 -0.25Brazil 1.37 1.01 -0.36

25 competitors, only 8 winners

Pattern I: Manufacturing exports from Mexico and the Caribbean Basin

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.

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

MEXICO & THE CARIBBEAN BASIN: ASPECTS OF ITS COMPETITIVESITUATION WITH RESPECT TO WORLD IMPORTS, 1985-1998

1985 1990 1995 1998I. Market share 2.21 1.79 2.27 2.85Natural resources 1/ 4.84 3.35 3.09 3.39Manufactures based on natural resources 2/ 1.61 1.34 1.44 1.69Manufactures not based on natural resources 3/ 1.26 1.48 2.28 2.99 - Low technology 4/ 1.13 1.52 2.53 3.57 - Medium technology 5/ 1.21 1.53 2.45 3.03 - High technology 6/ 1.53 1.37 1.87 2.58Others 7/ 1.96 1.92 2.20 2.64

II. Export structure 100 100 100 100Natural resources 1/ 52.8 32.1 19.8 16.2Manufactures based on natural resources 2/ 13.5 12.4 9.7 8.6Manufactures not based on natural resources 3/ 31.0 52.0 67.1 71.9 - Low technology 4/ 7.0 13.3 17.4 19.5 - Medium technology 5/ 15.7 26.6 33.6 33.0 - High technology 6/ 8.1 11.6 15.6 18.8Others 7/ 2.8 3.6 3.4 3.3

III. 10 principal exports (by % export structure) a/ b/ 41.9 35.2 36.2 38.4781 Automobiles for passengers * + 0.6 4.2 7.4 7.4333 Crude petroleum - 32.0 15.0 7.4 6.1773 Equipment for distributing electricity * + 1.7 3.2 3.7 3.8761 Television receivers * + 0.4 1.8 2.7 3.2846 Underwear, knitted or crocheted * + 0.6 1.2 2.4 3.2764 Telecommunication eqpt. & parts, accessories * - 2.4 2.2 2.9 3.2752 Computers and other data processing eqpt. * + 0.1 1.2 1.9 3.0782 Automobiles for the transport of merchandise + 0.4 0.4 2.2 2.9931 Unclassified operations and special merchandise * + 1.9 2.9 2.8 2.8784 Parts & accessories for motor vehicles + 1.8 3.0 2.9 2.8

Pattern II: Natural resources and services in South America

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.

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

SOUTH AMERICA: ASPECTS OF ITS COMPETITIVE SITUATION WITHRESPECT TO WORLD IMPORTS, 1985-1998

1985 1990 1995 1998I. Market share 3.34 2.73 2.73 2.81Natural resources 1/ 6.75 7.15 8.29 9.20Manufactures based on natural resources 2/ 5.41 4.53 4.81 4.90Manufactures not based on natural resources 3/ 1.21 1.13 1.11 1.17 - Low technology 4/ 1.99 1.81 1.71 1.58 - Medium technology 5/ 1.16 1.18 1.32 1.51 - High technology 6/ 0.45 0.35 0.28 0.38Others 7/ 2.08 1.14 1.33 1.42

II. Export structure 100 100 100 100Natural resources 1/ 48.5 45.0 44.3 44.3Manufactures based on natural resources 2/ 29.9 27.6 27.0 25.4Manufactures not based on natural resources 3/ 19.7 26.0 27.1 28.5 - Low technology 4/ 8.1 10.4 9.8 8.7 - Medium technology 5/ 9.9 13.5 15.1 16.7 - High technology 6/ 1.6 1.9 2.0 2.8Others 7/ 1.9 1.4 1.7 1.8

III. 10 principal exports (by % export structure) a/ b/ 52.3 44.6 40.8 41.1333 Crude petroleum + 12.3 10.0 11.2 11.1081 Animal feed (excluding unprocessed grains) + 4.4 4.4 4.7 4.3334 Petroleum products, refined - 10.7 7.2 4.4 4.3071 Coffee and its products - 9.9 4.6 4.1 4.2682 Copper - 3.2 4.5 3.7 3.6057 Fuits and nuts (excl. oleaginous), fresh or dry + 2.9 3.9 3.6 3.6281 Iron ore and its concentrates + 4.1 4.4 3.3 3.1222 Oleaginous seeds and fruits + 2.2 2.4 2.1 2.5781 Automobiles for passengers * + 0.6 0.7 1.2 2.3287 Minerals of base metals and their concentrates + 2.1 2.4 2.4 2.3

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

Two “worlds”

The transnationalization of the Latin American economies

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

1990 1991 1992 1993 1994 1995 1996 19971998

1999

Developing Countries

Developed Countries

World Total0

100

200

300

400

500

600

700

800

900

Net Inflows of FDI to Developing Regions, 1990-2000

(millions of dollars)

1990 1991 1992 1993 1994 1995 19961997

19981999

2000e

Latin America/Caribbean

Developing Asia

Developing countries

0

20

40

60

80

100

120

140

160

180

200

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

1990-1994annualaverage

1995-1999annualaverage

2000estimate

LAIA 14 250 56 362 67 191 (Brazil) (1 703) (20 056) (30 250) (Mexico) (5 430) (10 928) (12 950)Central America & Caribbean 1 406 3 953 4 500Financial Centers 2 506 3 811 2 500 TOTAL 18 162 64 126 74 191

Net FDI Inflows to Latin America and the Caribbean, LAIA Countries, 1990-2000

(millions of dollars)

1990-1994annual average

1995-1999annual average

2000estimate

Argentina 2 982 10 168 11 957Bolivia 85 714 695Brazil 1 703 20 056 30 250Chile 1 207 5 334 3 676Colombia 818 2 764 1 340Ecuador 293 618 740Mexico 5 430 10 928 12 950Paraguay 99 153 100Peru 796 2 187 1 193Uruguay … 163 180Venezuela 836 3 277 4 110

Total 14 249 56 362 67 191

Latin America: Sources of FDI inflows, 1990-1998

(billions of dollars)

1990 1991 19921993

19941995

19961997

1998

Japan

Europe

United States0

5

10

15

20

25

TNCs and globalization

TNC trade with unrelated firms

intra-firm TNC trade

non-TNC trade

transnational corporations

other firms

1. Foreign direct investment = 75% of world total flows are by TNCs

25%

75%

33% 34%

33%

2. International trade = 67% of total imports through TNCs

1990-92 1994-96 1998-00

Sales of the 500 largest corporations Foreign 27.4 32.1 41.6 Private domestic 39.4 41.0 37.8 State-owned 33.2 26.9 20.6 Total 100.0 100.0 100.0 Sales of the 100 largest manufacturing corporations Foreign 53.2 59.3 61.7 Private domestic 42.6 38.6 37.6 State-owned 4.2 2.1 0.8 Total 100.0 100.0 100.0 Exports by the 200 largest exporters Foreign 29.2 43.4 Private domestic 35.9 30.3 State-owned 34.9 26.3 Total 100.0 100.0

The dynamics of Latin American largestcorporations in the 1990s

Ownership Sector ExportsPDVSA State-owned Oil and natural gas 16 299PEMEX State-owned Oil and natural gas. 9 914GM de México Foreign Automobiles 5 050Volkswagen México Foreign Automobiles 5 040Chrysler México Foreign Automobiles 3 792IBM México Foreign Computers. 3 000CEMEX Private domestic Cement 2 665CODELCO State-owned Mining 2 501Ford México Foreign Automobiles 2 330ECOPETROL State-owned Oil and natural gas. 2 170EMBRAER Private domestic Airplanes. 1 692Nissan México Foreign Automobiles 1 586CVRD Private domestic Mining, cellulose, aluminum,

transport.1 542

YPF Foreign Oil and natural gas. 1 436FEDECAFE Private domestic Coffee commercialization. 1 418Odebrecht S.A. Private domestic Construction, chemicals,

petrochemicals, cellulose.1 317

CINTRA Private domestic Airlines and related services. 1 185Philips SET Foreign Radio, TV and communication

equipment1 095

Cargill Argentina Foreign Agricultural inputs. 1 084GRUMA Private domestic Corn products. 1 047

20 largest exporters in Latin America, 1999

TNC strategies

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 4392 General Motors (GM) USA Automobiles 12 4253 Volkswagen AG Germany Automobiles 11 9024 DaimlerChrysler AG Germany Automobiles 9 7465 Carrefour Group/ Promodés France Trade 9 5616 Ford Motor Co. USA Automobiles 8 2527 Repsol-YPF Spain Oil 7 9808 Fiat Spa Italy Automobiles 7 6599 Royal Dutch-Shell Group UK/Neth. Oil 6 44910 Exxon Mobil Corp USA Oil 6 40311 IBM USA Computers 5 47912 Endesa España Spain Electricity 5 47513 The AES Corp. USA Electricity 5 18214 Wal Mart Stores USA Trade 4 81615 Nestlé Swiss Foodstuff 4 766

TNC strategies in Latin America and the Caribbeanin the 1990s

Corporatestrategy

Efficiency-seeking

Natural-resourceseeking

Market-seeking(national or regional)

Naturalresources

Oil and gasArgentina,Venezuela,Colombia, Boliviaand BrazilMining Chile,Argentina & Peru

Manufactures

AutomobilesMexicoElectronics:Mexico &Caribbean BasinGarmentsCaribbean Basinand Mexico

Automobiles: MercosurAgribusiness: Argentina, Brazil yMexicoChemicals: BrazilCement: Colombia, Dominican Rep.and Venezuela

Services

Finance: Brazil, Mexico, Chile,Argentina, Venezuela, ColombiaPeruTelecom: Brazil, Argentina, Chileand PeruElectricity: Colombia, Brazil, Chile,Argentina & Central AmericaNatural gas Argentina, Brazil, Chileand ColombiaTourism: Mexico, Central Americaand the Caribbean

Strategies of the domestic conglomerates

Sales of the 500 largest corporations in Latin America

(billion dollars)

Sales of the 500 largest corporations in Latin America

(billion dollars)

142

99120

245

276

120

0

50

100

150

200

250

300

1991-92 1998-99

Privadas nacionales Extranjeras Estatales

Sectoral specializationSectoral specializationShare in the sales of the five largest companies

Non-alcoholic beverages and beer 100Petrochemicals 100Glass 100Steel 80Car parts 76Textiles 74Agribusiness 71Cement 69Pulp and paper 66Machinery and equipment 57Foodstuff 48Electrical and electronic appliances 46Chemicals 18Computers and telephone equipment 14Tires 14Aluminum 8Tobacco 0Automobiles 0Hygiene and cleaning products 0Total 40

The 20 biggest Latin American groups

Country Sector SalesCarso Global Telecom Mexico Telecommunications 10 242CEMEX Mexico Cement 4 826Grupo Carso Mexico Diversified 4 272Grupo Alfa Mexico Diversified 4 240FEMSA Mexico Beer yand beverages 4 060CVRD Brazil Mining 3 901Tele Norte-Leste Part. Brazil Telecommunications 3 478Organización Techint Argentina Steel 3 407COPEC Chile Oil and natural gas 3 169Petróleo Ipiranga Brazil Oil and natural gas. 3 106Grupo Industrial Bimbo Mexico Foodstuff 3 026Comercial Mexicana Mexico Commerce 2 855Grupo Votorantim Brazil Commerce 2 815Vitro Mexico Glass 2 720Savia Mexico Foodstuff 2 664VARIG Brazil Airlines 2 486Grupo Desc Mexico Diversified 2 444Grupo Gigante Mexico Commerce 2 414Organización Soriana Mexico Commerce 2 169Grupo Televisa Mexico Television 1 889Grupo Camargo Correia Brazil Non-metallic minerals 1 889

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.

Conclusions and policy considerations

• 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).

Fact IThe lost opportunity

Fact IITwo different “worlds”regarding

FDI and international trade

–Efficiency seeking: Mexico and the Caribbean Basin

–Market-access seeking: South America

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.

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.

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.