Spanish Foreign Direct Investments in Latin America: Internationalization Strategies and Financial Management Practices
Curci, Roberto, Cardoza, Guillermo, Journal of Comparative International Management
This study analyzes the internationalization strategies and the financial management practices of seven Spanish companies with the largest volume of investments in Latin America. The companies selected for an in-depth analysis represent approximately 80 percent of the total Spanish foreign investments during the period of analysis. Their investments have taken place mainly in service sectors such as banking, energy, and telecommunications. The study identifies the market conditions and the corporate strategies that have allowed these Spanish companies to successfully initiate and expand business activities into Latin America. The findings suggest Spanish investors have strengthened their global competitiveness and have accomplished greater financial results.
This study presents a comprehensive analysis of the corporate internationalization strategies and financial management practices implemented by seven Spanish companies to initiate and expand operations into Latin America. Such practices include strategies for domestic or international financing, international capital budgeting and risk management for exposures such as foreign exchange risk, credit risk, institutional and country risks. All companies analyzed in this study had limited international experience before engaging in foreign direct investments (FDIs) in Latin America. Therefore, this study provides insights on the formation of Spanish multinational enterprises (MNEs).
Previous studies of corporate internationalization strategies suggest that the analysis of success factors should be centered on the capacity of companies to exploit their knowledge and capabilities in new markets more than on factors such as their operational cost and/or efficiency (Dunning, 1977; Johansson and Vahlme, 1977; Caves, 1982, 1985; and Madhock, 1998). In fact, when companies expand into international markets they strategically use their knowledge and capabilities in the development of those new markets. The understanding of successful internationalization strategies is of interest to researchers and corporate executives alike.
This study begins by analyzing the universe of Spanish foreign direct investments into Latin America. We utilize Spanish investors' records obtained from Standard & Poor's Research Insight. Subsequently, to analyze corporate internationalization strategies and financial management practices we collect primary data through personal interviews with financial executives of the Spanish companies with the largest volume of foreign direct investments in Latin America. In effect, seven Spanish companies were selected for an in-depth analysis. These companies represent approximately 80 percent of the total Spanish foreign investments during the period of analysis.
This study identifies the antecedents and factors that explain the internationalization of premier Spanish companies in Latin America. Evaluating the competitive advantages, risk factors, and management practices associated with such Spanish investments in Latin America, the study analyzes the seven Spanish companies' strategies associated with corporate decision-making in areas such as financing and investment.
The results suggest that the selected Spanish companies with foreign direct investments in Latin America have been successful. The survey respondents indicate that their investments have strengthened their global competitiveness and have generated the expected financial results. Nevertheless, as the 1999 crisis in Argentina occurred, it became evident that economic volatility, political instability, institutional fragility and consequently, a high level of uncertainty within these emerging economies, have conditioned the investment strategies forcing the Spanish companies under study to periodically adjust their financial practices (Cardoza et al., 2007; Fornes and Cardoza, 2008).
The following sections of this study present a theoretical background regarding the internationalization of corporations, a synthesis of economic development and foreign direct investment in Latin America, a description of the research methodology, a discussion of results and finally some concluding remarks. …