Most Americans hear plenty about immigration and outsourcing. Those politically charged issues are as close as the nearest television or radio.
Chances are that far fewer people have heard of Gerdau Group, Cemex, Telmex, CVRD, and Embraer. Yet those companies embody a powerful, if quiet, phenomenon that is dramatically affecting international economics. Those firms are Latin American-based powerhouses that are aggressively expanding into the United States and other industrialized nations. The Latin multinationals--or "multilatinas," as they are commonly known-are part of a global movement of large companies from emerging economies that are pursuing profits and market share in developed nations, often through acquisitions.
This trend reverses the long-standing North-to-South flow of investment from rich, developed countries to emerging nations. The newer South-to-North foreign direct investment is fueled by myriad forces. For multilatinas, those forces include freer trade and economic liberalization policies in Latin America, greater competition from global players in their once-protected home markets, the quest to expand their markets, and easier access to global capital markets.
Growing up global
Many Latin American countries, led by Mexico, Brazil, and Chile, launched structural reforms during the 1990s designed to increase the role of the market in their economies. Privatization of once state-owned enterprises has been a major element of the reforms. According to Javier Santiso, deputy director and chief development economist at the Paris-based OECD (Organisation for Economic Co-operation and Development) Development Centre, 20 percent of the 500 largest enterprises in Latin America were under government control in 1991, but less than 9 percent were a decade later. One prominent example of this trend is Embraer, the world's No. 4 commercial aircraft maker, which was founded by the Brazilian government in 1969 and converted to the private sector in 1994.
Meanwhile, foreign competitors have made significant inroads in Latin America. Foreign transnational companies accounted for 27 percent of these 500 biggest enterprises in 1991. That number rose to 39 percent early this decade, said Santiso.
Economic liberalization has made it easier for Latin American companies to expand, and foreign competition in their home markets has spurred them to look beyond their own borders. In fact, said Santiso, the biggest multilatinas have become so thoroughly international that they are really no longer Latin American companies at all but rather hybrids of various nationalities.
For example, the financial and economic operations for cement giant Cemex are centered in London and Madrid, not in Monterrey, Mexico, the company's home. More than three-quarters of Cemex's 54,000 employees are from countries other than Mexico, according to a Cemex spokesperson.
Not surprisingly, Santiso notes, multilatinas like Cemex are highly sophisticated. Known as a leader in logistics, Cemex was a pioneer in the cement business with a global positioning system-based service that dispatches mixing trucks to construction sites to fill orders quickly, like taxicabs answering a call.
Cemex, Gerdau, Telmex, and Embraer, which are large technology- and capital-intensive multilatinas, "are so big they can't afford not to be world class," said Jerry Haar, a business professor at Florida International University in Miami who studies Latin multinationals.
Those companies and other multilatinas have climbed onto the world stage in two phases, Santiso explained. First, during what he calls the "trade expansion phase" that lasted through the 1990s, the companies dramatically boosted exports. Subsequently, the companies entered what Santiso terms an "investment phase," acquiring companies and other strategic assets abroad.
Building brick by brick
Companies from the "BRIC" countries--Brazil, Russia, India, and China--plus Mexico announced foreign acquisitions totaling a record $72 billion in 2006, Santiso said. …