Time to tune in

Latin American companies turn up the volume on global growth

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Insights and recommendations: Partnerships

A majority of the Latin American executives we surveyed say that beyond direct exports, forging partnerships will be their company’s preferred mode of market entry.

Seize strategic partnership opportunities

Not surprisingly, they see identifying reliable business partners as their biggest challenge. On top of this, many executives believe that their companies lack the kind of international perspective needed to become global players.

Non-Latin American global companies should be on the lookout for these partnership opportunities; if they have a complementary offering, a partnership could be a good opportunity not just in its own right but as a way to gain a foothold in the region and better understand Latin business culture without the risks of an acquisition.

Foreign companies will need to ask whether their offering is sufficiently unique to differentiate them from Latin players who might be competitors or whether they should enter Latin markets as partners. Anecdotal examples indicate that some Latin American firms have launched a few ventures beyond their borders rooted in strategic local partnerships.

For example, in February 2013, Mexico-based pharmaceutical firm Genomma Lab announced a major deal with Wal-Mart to distribute Genomma’s products in the US, following a similar arrangement with Walgreens drugstores, targeting Hispanic consumers in the US. Genomma also has distribution arrangements in Spain, France and several Latin American countries.

Most recently and famously, in March 2013 the Brazilian 3G investment group joined Warren Buffett in the acquisition of Heinz, to add to 3G’s global footprint of consumer products investments.

It is clear that getting to know today’s Latin American business leaders is well worth doing for its own sake. In Mexico, for instance, managers are sophisticated and increasingly adept at operating in a global environment.

“The management of Mexican companies has become much more professional in the last 20 years,” says Alberto Tiburcio, President and General Director of EY in Mexico. “They are dealing with the real issues and learning how to grow.”

But in some countries and sectors, the rapid growth may force global companies not based in Latin America to consider a merger sooner than they might have wanted to, as a defensive strategy to prevent local companies from becoming large enough at home to become a threat to them. Jorge Menegassi, Country Managing Partner at EY in Brazil, says that the banking sector, for instance, is growing so quickly that it has been more profitable for Brazilian banks to focus on the internal market than to invest time and resources to go abroad.

EY - Real GDP Growth in Latin America

“Even though GDP grew at 1%-2% last year, family consumption has been growing at 4% -5% each year. That still leaves banks with a lot of opportunities to explore.” And Cristián Lefevre, Country Managing Partner at EY in Chile, says bluntly that an M&A strategy is the best way for non-Latin American companies to get into a large market like Brazil. “The best way to start in Brazil or to grow in an efficient way and quickly is inorganic growth,” he says.