“Family businesses often emphasize caring

and loyalty, which some talented people

may see as values above and beyond what

nonfamily corporations offer”

The Five attributes of enduring family

businesses, McKinsey Quarterly, January 2010

In reaching global success Latin American (LATAM) companies need to coup

benefits from the lessons learnt competing in the demanding Latin American

markets and combine them with the type of global corporate practices that will

allow them to scale operations across the globe.

Jorge Martinez Durazo

While reading the article “Building Global Champions In Latin America” I couldn’t help

to think on the title in a broader manner, for I think it is from the same title that the first

premise of the article arises. The use of the verb “Building” implies that while some of

the companies in LATAM have privilege market position to take on challenges abroad

these companies lack the corporate structure/culture to undertake this deeds.

The first challenge that Latin American firms need to

overcome is the tendency to a family-own business

structure within their businesses. In this region a vast

majority of the leading firms are own and run by the

founding family and as family businesses expand from

their entrepreneurial beginnings, they face unique

performance and governance challenges. To deal with

this increasing complexity, family run businesses tend to

develop informal networks in which direct hires from

other companies tend not to be successful, and top

managers are often appointed based on a long history with the company. Herein lies

one of the biggest pitfalls LATAM companies faced when expanding its operations, in

appointing someone to a leadership position Loyalty tends to outweigh Talent.

Aiding this phenomenon is a widespread issue that relates to the perception of threat to

the senior executives from the new hires that leverages the power dynamics in favor of

turning loyalty, to a person and not the company, a customary component.

Yet, as evidence shows, since the second half of 1990’s a growing trend has the

number of family-owned businesses decreasing from the ranks of the top 100

companies –from 70.8 percent (1994) to 57.1 percent (1999) in Mexico and from 24

percent to 18.8 in Argentina1 - in LATAM. This trend signals the need to further

corporatize business practices in our region given the increasing competition from

abroad and the constant deregulation of local markets.

1 All in the Familia, McKinsey Quaterly, December 2001

LATAM, the struggle for talent.

Michael Porter, The five competitive forces that shape

strategy, Harvard Business Review January 2008, pg. 6

Exhibit 1 Consider the case of a regional firm

wanting to take on the US market as an

expansion strategy. In general, the United

States market could present a hefty

opportunity for expansion for any firm in

the LATAM region. But as Exhibit 1

shows, some industries in the United

States present below average returns on

invested capital (ROIC) for the years

1992-2006. A closer look at the standings,

in terms of considering US as an

expansion market for a regional firm,

would hint that in the industries with higher

than average ROIC present a more

complex market to compete in, as local

players look to restrict access to preserve

the higher margins while risking going to

war at home with an eight hundred pound

gorilla. On the other side of the spectrum,

the industries that present a lower than

average ROIC, we find more regional

players competing for a piece of the pie.

Companies such as Bimbo, Volaris,

Chilean and Argentinean wine industries

contend hand to hand with the local

players in each market. At this juncture,

we discover that some of the factors mentioned in the article such as demanding price

sensitive costumers, challenging distribution infrastructure and rampant volatility do

enable some companies to develop competitive advantages that allows the company to

successfully expand into this market.

Furthermore, most of the local moguls in serving the local market develop corporate

cultures that serve well only in the local markets and as the article points out, just a few

of them had global aspirations since their inception. Therefore, the majority of global

companies in the Latin American region have only grown global aspirations after

exhausting its local market. Some of these companies compete in closed industries

where they enjoy a privilege position but lack the incentive to further their expertise and

put in place a corporate structure to take on the global industry.

The case of Elektra’s expansion in the late 1990’s helps exemplify this process2. The

Mexican White Goods giant already enjoy an ample market share due to its proprietary

underwriting and collection process that allow them to serve the under bank and

provide them access to a growing number of products and services via in-house credit.

Initially, the expansion to Central and South America was meant to be a defensive

2 Harvard Business School, Grupo Elektra, 9-502-039

strategy to La Curacao initiative to expand to the Mexican territory. Elektra’s first store

abroad was open in Guatemala. Within the year, it expanded to El Salvador,

Guatemala, Honduras and Dominican Republic. At first glance, Elektra’s credit model

could may as help the entire under banked population across the continent. Yet, as

Elektra’s executive team later learnt, in spite of symmetry of its market segment

throughout the continent, its credit model perform poorly in some countries and had to

withdraw from Dominican Republic and El Salvador.

Currently Elektra holds a competitive position in Latin America and has expanded its

operations to Venezuela, Brasil, Panama and United States and remains as the main

provider of white goods in Mexico in spite of raising competition in its industry. Elektra’s

strong performance has come only after years of transitioning from a family-own

business to integrate a corporation with its own culture and values. The company has

also made a point of hiring young talent that they scout and attract from top business

schools. Understanding that in the competitive landscape were Elektra competes,

talent is king, and top talent…well, you get the idea.

But the search for talent is not exclusive of the business world. If there is another realm

where talent is king that would be the world of sports. For decades, the top teams of

the world in every discipline have fought over who hires and retains the best talent.

The sort of talent that will allow them to reign over their sport and pound their

archrivals. But accomplishing this feat is not an easy task and therefore the teams that

accomplish it and reach the peak of excellence are forever remember. Such examples

date from decades but recent sports history provide us with examples such as the

1980’s Lakers, Michael Jordan’s Bulls, John Madden’s Raiders, 1990’s Dallas

Cowboys, Tom Brady’s Patriots, 1990’s Atlanta Braves and Joe Torre’s Yankees. But

in a world where free agency, salary caps and steep signing bonuses are abundant,

dynasty team are increasingly hard to come by. Yet , the best example and most

applicable for the purpose of this article is that of FC Barcelona.

Futbol Club Barcelona (FCB), also known as Barcelona is a professional football

club, based in Barcelona, Catalonia, Spain. Founded in 1899 by a group of Swiss,

English and Catalan footballers led by Joan Gamper. The club has become a symbol of

Catalan culture and Catalanism, hence the motto "Més que un club" (More than a

club)3. From 1997-2007 Real Madrid’s, Spain’s most iconic football club, success had

cast a long shadow over FC Barcelona, who has lose competitiveness and struggle to

keep up with the big budget acquisitions of his rival. During that time, FC Barcelona

parted ways with high salary caps and envision a football organization centered in

pursuing football’s sangrial, total football. Total football is a playing philosophy that

emphasizes ball management and speed over individual talent or physical qualities. In

total football, the ball is view more as an experience rather than as a possession.

Barcelona took this idea to heart and adopted it as a core value during the 90’s. Its

football academy, known as “La Masia” took a central role in finding and developing

3 Wikipedia, http://en.wikipedia.org/wiki/Fc_barcelona

FC Barcelona World Class Football Academy, La Masia

players that will fit that model. In these trenches, FC Barcelona started procuring the

talent needed to pursue this model and win over their dreadful rivals. In opposition to

standard practice, La Masia nurtures and develops children from all around the world

as young as 9 years old. Most of these kids posses paramount skills for their age and

left home for the dream to become professional athletes. La Masia is the key to FC

Barcelona grand success; finding and developing the best possible talent in the world

and bringing them in-house to grow them within the demands of their football

philosophy (corporate culture), total football.

The same tenet could prove true for corporations. Finding and retaining prime talent is

an important and central task in order to overtake the competition. But in order for firms

in the LATAM region to compete on a global scale, talent will have to be scouted on a

local, regional and global level from the leading academic faculties. Although feasible,

this practice remains unapplied at large mainly because of the absence of commitment

from the corporate offices and the lack of consideration of recruiting as a key

component of strategic planning.

But as competition becomes ferocious in the business world, firms across the globe are

look for an edge that will provide them with the upper hand. Across the organization

recruiting the right kinds of talent can provide such edge.

Yet, in some areas of the

regions the challenge to

integrate the right people

becomes very specific. In

a global survey

conducted with

executives around the

world by McKinsey in

2010, respondents cite

Recruiting talent from

emerging markets as their

second activity in

importance to achieve

success, just behind

developing a local

presence4. The same

document outlines that in functions such as Management, R&D and Strategy the talent

shortfalls are sizeable across all regions.

In summary, I believe that the nature of Latin American markets provide a fertile ground

in some industries for companies to enhance their operations and develop systems and

procedures that could grant a competitive advantage when expansion is at hand. In

other industries, the lack of regulation, unsophisticated demand and meager buying

power deter the growth of competitive firms to stand challenge in the global arena. In

my opinion, successful expansion abroad depends not only on having clear global

aspirations with systematic ways to develop their talent and integrate cultures and

organizations but also being in an industry in which operating in the region hones its

core capabilities and grant a competitive advantage when expanding into new markets.

4 Five forces reshaping the global economy, Mckinsey & Company

Exhibit 2