Time to tune in

Latin American companies turn up the volume on global growth

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Insights and recommendations: Policy and expansion

Many Latin American countries have been updating their Western-style policy regimes, increasing their attractiveness for inbound investment and making them more predictable and credible partners/competitors in their own quest for international expansion.

Take advantage of newly progressive policy regimes

In improving the ease of doing business in their markets, Chile has led the way, with Mexico, Colombia and Peru also making significant recent improvements, while Brazil clearly needs to do more in this regard.

However, although policy-makers “get” business much more than they once did, political pressure and misconceptions about what constitutes the most productive ways to help a company can still derail growth or “unbalance” the playing field. To an extent, the heavy-handed paternalism of the past makes it difficult for foreign companies to play a productive role as Latin American policy advisors.

Alliances with local stakeholders and NGOs may be a more useful route to influence policy as well as cement relationships that will be useful later on when considering new investments and partnerships.

Countries that have not liberalized their policy regimes are also worth keeping an eye on, to be well-positioned if or when the markets do reopen. For the Colombian companies that are still in Venezuela, it is a risk due to currency exchange restrictions, cautions Luz Maria Jaramillo, Colombia Managing Partner at EY. “It is not worth making money if you cannot bring it to the supplier or investor,” she says.

Prepare for Latin America’s entrance into several markets

There is no single destination for Latin American companies expanding abroad. Eighty percent of the executives we interviewed say their companies do business outside of their home market. Most believe they will be selling more abroad in three years. The largest Latin global companies will forge strong connections with Asia and Africa.

Latin American companies particularly favor China and India as important economic and business partners outside the Americas, even as developed-market companies are beginning to rely less heavily on the Asian giants for growth. Africa also is on the radar for Latin American companies.

But they are not underestimating North America: for absolute growth, Asia and Africa may be the best bets, but depending on the sector and the home country of the business, the US and Canada still offer great opportunities. Between 2011 and 2021, Oxford Economics estimates, exports from Latin America to the US will grow by as much as all of Latin America’s exports to other countries combined.

Furthermore, North America has some distinct advantages – it is culturally more familiar than Europe, Africa or Asia, as well as geographically more convenient and home to one of the biggest and richest populations of Hispanics in the world.

Global companies with operations in one or more of these regions of the world will have the most to lose or gain from the entrance of Latin American companies. Many developed-market companies are sufficiently entrenched in Asia and may find partnership opportunities with global Latin businesses looking to go west.

However, in Africa, solidarity with other countries that endured colonial dominancen ability to improvise in markets with weak infrastructure, may make Latin firms tough competitors.

This competition may also come from unlikely quarters – not only from the leading enterprises of the region’s two giants, Brazil and Mexico, but also from companies based in the smaller Latin economies.

Take Peru, for example: “Due to the steady growth of the national economy in the last two decades, and an expanding middle class, Peruvian companies have been successful in expanding in the local market, and after achieving that, the most mature companies are now expanding to foreign markets,” explains Jorge Medina, Peru Managing Partner at EY.