The globalization of business in Latin America

The Globalization of Business in Latin America Henry Gdmez

“If you hear the term ‘global corporation’ enough, you may begin to think that such a thing actually exists.”

-Debra Fleenor (1993)

New trade and exchange strategies, economic integration, political reforms, and privatization are driving Latin American firms to expand operations both within and outside the area. Additionally, multinational firms have stepped up operations, entered sectors previously dominated by state-owned enterprises, and restructured their management. Vast projects are upgrading transport, seaports, and airports. Communications and emerging patterns in consumer life styles are redefining markets. Sweeping change, plus the challenge of becoming internationally competitive, has burgeoned management training needs for both the business and public sectors. Yet in some countries the prospects for continued reform could be reversed by hardening social tensions and voter skepticism that free market policies will effectively reduce poverty and persistent unemployment. 0 1997 John Wiley BE Sons, Inc.

“Internationalization” may be a more apt term than “globalization” to describe the process of extending business across borders that is

Henry G6mez is Professor Emeritus, Institute of Advanced Studies in Administration (IESA), Caracas, Venezuela; and President of the International Management Development Network (INTERMAhV, Geneva.

The author gratefully acknowledges comments on an earlier version of this paper from his col- leagues Janet Kelly, Josefina Garcia, and Antonio Franc&.

The International Executive, Vol. 39(2) 225-254 (MarcWApril 1997) Q 1997 John Wiley & Sons, Inc. CCC 0020-6652/97/020225-30

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today taking place in Latin America. But alas, internationalization is also something of a misnomer. Alan Rugman (1980: 231, who is an authority on multinational enterprise, describes “internationalization” as the process of penetrating foreign markets “at a slow and cautious pace.” In Latin America, on the contrary, the pace has been fast and furious. By throwing caution to the winds, many an enterprise has committed expensive mistakes and at least one icon has gone under; but the race among firms that is currently under way across Latin America, each vying to tap opportunities uncovered by new rules and converging markets, can only be described as spec- tacular.

BUSINESS IN REVOLUTIONARY TIMES

For Latin America, these are revolutionary times. Market-oriented policies are breaking down barriers that until recently enclosed weak, undersized, and heavily regulated economies. Privatization, deregulation, and reduced trade restrictions are replacing state monopolies and private cartels. Foreign investment drawn from outside the region is being matched locally by unprecedented flows of capital as Latin American firms purchase neighbor country companies, enter new markets, and forge networks of strategic alliances throughout the hemisphere. Information technology, combined with the privatization of staid monopolies in telecommunications, is boosting the flow of data and triggering linkages between financial markets across countries. For the first time, concessions and other market mechanisms are being employed for managing port facilities, building new highways, expanding airports, and upgrading long-ne- glected infrastructure. To be sure, progress varies from one country to another; but history may well mark the 1990s as the decade when Latin America pulled itself together.

Reforms are also being made in the ways Latin America is gov- erned. Region-wide fiscal deficits have been reduced and responsible monetary policies put in place. Unwieldy, centralized bureaucracies are transfering the delivery of public services to state, local, and even non-government agencies. Governors and mayors that were traditionally designated by the chief of state and drawn from party stalwarts are in many countries being elected. New political forces are making their appearance, ushering in favorable prospects for political accountability. Overbearing regulation of business enterprise is being eased. Judicial systems are being depoliticized and regulatory frameworks modernized. Much remains to be done, but Latin America has shifted gears.

The combined impact of economic and public sector reform in

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Latin America is already evident in the region’s performance rela- tive to other world regions. Intra-region exports doubled from $16 billion in 1990 to $32 billion in 1994, without slowing trade with the rest of the world (World Bank, 1995: 13). Exports of manufactured goods to industrialized countries have grown faster than traditional exports. By developing indigenous technology, Latin American man- ufacturers are changing the historical role of Latin America as a supplier of raw materials. Moreover, Latin America has outranked other developing regions in speed of privatization; per capita proceeds from the massive sale of state assets in the early nineties set a world record (Elstrodt et al., 1994). Whereas the 1980s hit most of Latin America with the debt crisis, hyperinflation, and decreasing standards of living, the 1990s have featured trimmed inflation and an economic turn-around.

Why the Region Changed its Course

When North America was laying cross-country railroad tracks and building an industrial complex, Latin America enjoyed successive booms that generated immense wealth. Exports of tin, copper, silver, coffee, rubber, bananas, beef, fish, and oil brought successive, generally short-lived economic booms to one country after another, much as Spain’s galleons, during the colonial period, brought back tons of gold. Just as occurred in Spain, resources in Latin America were seldom channeled to productive investment that might improve the average citizen’s level of living. When the boom was over, the country became impoverished; only the privileged could emulate a European or North American lifestyle. Industrial growth got started across much of the region at the turn of the century, but not until the 1930s did policy-makers recognize manufacturing as an activity that could shape the future economy.

Following the Second World War, Latin America’s policy mandate for the next four decades was spelled out. As large numbers of rural poor moved to the cities in search of a better and more exciting life, urban sprawl posed the prospect of massive unemployment and social unrest. Across the region, a uniform economic strategy was put in place: protect local industry to satisfy the growing market for consumer goods by means of import substitution; and create state enterprises to reduce the concentration of wealth and promote social justice. Economic development was expected to serve as the passkey for entry into the First World. At the time, the new strategy seemed to make sense.

Even in the largest countries, however, the manufacturing base that emerged from the import substitution policy was shallow. Little emphasis was placed on producers’ goods and the industrial struc-

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ture for consumer goods was largely disconnected and poorly clus- tered, Only a few manufactures, mainly from Brazil and Mexico, became competitive in world markets. Reliance on imported machinery and a common practice of ignoring attention to research and development widened the technological gap between Latin America and the industrialized countries. Multinational firms that operated locally dominated the market for technologically advanced products; in certain countries they also partnered with local firms in the manufacture of consumer goods that became preferred brands. Small and even some medium-sized economies came to produce pharmaceuticals, home appliances, and other assorted goods that, notwithstand- ing their “made in x country“ labels, were in fact merely assembled or packaged locally.

By the 1970s Latin America’s highly protected manufacturing firms had more than saturated the import substitution market for their original products and diversified into different industries. Some favored vertical integration, such as moving backwards from the retail sale of building materials to the production of cement, ce- ramic tile, and sanitary fixtures, followed by manufacturing the sacks, cartons, and tape required for packing. Other firms combined the production of chemicals, for example, with packaging materials and food products. For the most part, however, manufacturing plants were small in scale and dependent on imports of machinery and even processed inputs. Once local tariff and non-tariff barriers were removed in the late eighties and early nineties, the undersized plants proved uneconomic to operate in competition with world suppliers. Erstwhile conglomerates shed product after product and focused on their basic line. The stronger Latin American firms, together with multinational firms from outside the region, scrambled across borders to acquire discarded plants suited to their businesses and buy into local brands.

Apertura: The Trade and Exchange Strategy of the 1990s

Latin America’s economic and commercial reform, a common strategy known as uperturu, has been applied by countries throughout the region but in varying degrees of depth, with Chile performing the two roles of pioneer and champion. Chile’s early reforms, initiated in 1973 under the authoritarian regime of General August0 Pinochet, were maintained once democracy was restored.

Elsewhere, the effort to replace government controls with market forces has been strongly opposed by wide sectors of public opinion, including formerly protected industry leaders, bureaucrats in state enterprises that oppose privatization and fear losing their jobs, pow-


erful public sector unions, entrenched labor leaders that have held office for decades, and other cozily placed interest groups. But the region’s declining living standards during the crisis-ridden 1980s, together with the world example being set by Southeast Asia, have persuaded country after country to follow the pack and change course. It remains to be seen whether, for the average citizen, the now region-wide strategy of uperturu will help bring about the human welfare and social justice that half a century ago were sought from common policies that embraced protectionism and the creation of state enterprise. With democratic rule and an increasingly clam- orous electorate, upertura could be voted out.

The most striking effect of deploying the uperturu strategy lies in commercial and exchange policy. Import duties were cut dramatical- ly, from an average of 50 percent ad valorem to 15 percent in only five years. Most notably, these cuts were applied unilaterally, with no demands for reciprocity, wiping out as well a wide array of non- tariff barriers. Exchange controls long in use were scrapped or pared to curb capital outflows.

Vigorous steps have also been taken towards regional economic integration. The first efforts were initiated 30 years ago, when governments created the ALALC free trade area (seven countries) and the Andean Pact (6 countries before Chile’s early drop-out). ALADI, a trade promotion agreement, came in 1980. But each country’s pro- tective barriers stalled business across borders. In the 1990s dozens of trade and industrial policy agreements have been negotiated across countries under umbrella pacts that, except for Pact0 Andino, are known by their acronyms, defined below: among others,

The flurry of integration activity in Latin America during recent years has been spurred by the challenge posed by the North Ameri- can Free Trade Area (NAFTA). The prospect that NAFTA may ex- tend beyond the United States, Canada and Mexico, to include Chile and other region countries, has hastened support for regional and bilateral agreements. These include the regional G-3 (targeting a free trade area between Mexico, Colombia and Venezuela over ten years), plus scores of economic complementation agreements, such as those negotiated by Mexico/Chile and Venezuela/Brazil. For the business traveler, however, no agreement has fostered economic integration better than the open skies policy that dates from 1991; the number of flights between BogotB, Caracas, and Quito, for example, increased from an average of five or six per week to five or six per day.

MERCOSUR, which also dates from 1991, is the strongest trade group, featuring a customs union that includes Brazil, Argentina, Uruguay, Paraguay, and more recently, Chile. Brazil has become a

MERCOSUR, CACM, CARICOM, and G-3.

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giant; gross domestic product rose from 28 percent of the region’s total in 1970 to 40 percent in 1990 (Quijano, 1993: 5). MERCOSUR’s intra-region exports reached $11.4 billion in 1994, nearly one-third of the intra-region total. Trade within this emerging free trade area surged three-fold in only three years, coupled with a 28 percent growth in exports to the rest of the world (World Bank, 1995: 13). Chile, before joining, had been linked to MERCOSUR by means of bilateral agreements with Argentina (1991) and Uruguay (1985). MERCOSUR holds the potential of becoming a southern counterpart to NAFTA that may expand at a faster pace; several countries that are members of other regional groups, such as Bolivia, Colombia, Peru, and Venezuela, are vying to join.

Elsewhere, progress has been mixed. Pact0 Andino countries include Colombia, Venezuela, Ecuador, Peru, and Bolivia, with 1994 intra-region exports reaching $3.5 billion. Interestingly enough, the first three countries in this group, from the standpoint of several multinational as well as locally based, expansion-minded firms, are reported to be increasingly serviced as a single market (Avila, 1995). The Central American Common Market (CACM) doubled intra-region trade from 1990 to 1994, but trade within the Caribbean Com- mon Market (CARICOM) stagnated. When Venezuela imposed exchange controls in 1995 following the breakdown of its financial system and ensuing recession, trade with Colombia and other region partners continued to flourish thanks to the ALADI payments and compensation agreement that links eleven of the region’s largest economies.

IMPACT ON CONSUMER MARKETING

Beyond the numbers that measure the impact of economic reform and growing regional integration, the revolutionary changes now under way in Latin America also include a sweeping redefinition of consumer markets. Consumers in Latin America are usually classed from “A” to “E.” The “As” and “Bs” enjoy monthly incomes that may reach $5,000 or more, meaning they tend to purchase all goods and services that are common to modern living; but marketers love the “CS,” whose monthly incomes range from a high of $1,500 to a low of $500 (in some countries, the parameters denoted by these figures may vary).

Cs have some money to spend and there’s simply more of them to target than in the upper strata. They include venturesome married couples where both husband and wife may be income earners. To- gether with the young urban professionals generally included among the Bs, the Cs often emulate the acquisitive life styles and status


symbols favored by middle income families in the United States. A Master Card manager that is responsible for Peru, Bolivia, Chile, and Paraguay offers a telling insight related to consumer behavior: C’s use credit cards not as a cash service to be paid in full at the end of the month, but as means to buy food, clothes, and household sta- ples, paying monthly credit charges that report greater profits to the card issuer (Ruiz-Velasco, 1996: 32).

What do these changes mean for marketers? First, consumers in the C category may have much in common with one another, from Mexico all the way to Argentina. In the past, marked cultural differences based on nationality influenced the choice of marketing strategy; but over time, a growing, region-wide, consumer-oriented market may lay such differences to rest. Second, Cs represent a broad share of the region’s 480 million population, that generally live in apartment buildings, spend their evenings watching television, enjoy increasing access to new products, and have acquired a degree of shopper sophistication in terms of brand preferences. Deemed as Latin America’s “new consumer” (Ruiz-Velasco, 1996: 311, they represent a vast urban market segment that tends to shop in modern malls and are apt to be prime customers for firms now expanding operations throughout Latin America, such as Wal-Mart, Blockbuster, and McDonalds.

Does this mean that as we enter the 21st Century Latin America will mirror the United States market? That the average consumer will be driving a car to shop? That highways across Latin America will soon resemble US 1, dotted perhaps with more Taco Bells but fewer Hardees?

Happily or not, the above scenario is not likely to emerge, except perhaps for a relatively few suburban communities housing the Bs and upper Cs. Streets in these communities are frequently cordoned off with guardposts and patrolled by armed private police, for in much of Latin America personal security is generally a t risk and marked social inequities and income disparities persist. Poverty represents a serious threat to Latin America’s social and political stability. In the late 1970s, before applying the economic adjustment reforms that hit the poor the hardest, the share of income reaching the poorest 20 percent of the population in Latin America was the low- est in the developing world (World Bank, 1995: 16). The poor include consumers that marketers label the “DS” and “Es.”

What it’s Like to be Poor The urban Ds and Es of many countries across the region live in squatter communities variously known as barrios, favelas, or tugu- rios. Masses of people dwell in makeshift sewerless shacks, put to-

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gether from a variety of materials, such as cardboard, adobe, or zinc. Large numbers of homes can only be reached by foot. Those who are gainfully employed, i.e., the Ds, often work in the “informal” economy, operating a hot dog stand, running an auto repair service under a mango tree on public land, or peddling lotteries or assorted goods in stalled expressways and downtown street corners. In some countries the informal economy provides a living for as much as one-half the total labor force. For the Es, supermarkets are generally beyond reach, except on a dilapidated television, run with electricity that is tapped free of charge from the nearest powerline.

In many capital cities, barrios are unsafe. Police seldom enter and dwellers fear for their lives outside their homes. Drug trafficking by children is commonplace. Marauding vandals collect “tolls” from residents as they enter or leave the barrio, with higher charges levied to courageous outsiders who venture entry. From time to time, a community takes the law into its hands to lynch an abusive van- dal; more often, roving “death squadrons” will “cleanse” a barrio by spraying gunfire. A few of these communities feature primary schools and health care centers, but teachers, doctors, and nurses may be unable or unwilling to report to work.

One of every three Latin Americans lives in poverty. The share of Latin America’s population that lived in poverty in the early nineties ranged from 17.6 percent in Argentina, to 24.0 percent in Chile, 53.7 percent in Peru and 75.2 percent in Guatemala (Burki and Edwards, 1996: 9). As a region, the poverty share for Central America is highest; but in absolute numbers Mexico alone has more poor than Cen- tral America and the Caribbean (Londofio, 1996: 7). The social tensions sparked by poverty were beamed to the world by television coverage of the Caracas street riots in 1989, where the population then living in poverty was estimated at 31.4 percent; and even more so when Mexico’s Chiapas insurrection was shown in 1994 (25.9 percent in poverty for the country at large); but poverty conditions in both Venezuela and Mexico have since worsened.

Measures of inequality in Latin America are more extreme than in many world regions. A study of 21 countries that compares an average worker’s earnings with those of a CEO, shows the four Latin American countries included as ranking poorest. CEO earnings were 8 times as high as workers’ in Ireland, 9 in Korea, 15 in Spain, and 25 in the United States; whereas in Argentina, Mexico, Brazil and Venezuela they were found, respectively, to be 42, 53, 66, and 68 times as high! (Towers Perrin, 1991, cited in Malave and Piiiango, 1994: 6). Were the responsibility of a public school teacher with ten years’ experience judged to be comparable with that of an engineer with five years’ experience, the net annual income of each would be about the same in Chicago or in Zurich; whereas in Stio Paulo the


engineer would earn nearly three times more and, in Buenos fires, nearly five times over (Union Bank of Switzerland, 1994: 30, 34). As recently as the 1950s, Southeast Asia was considered to be a

poor and backward region; but a strong emphasis on education is widely credited with the region’s record progress in reducing poverty and inequality, as well as in shaping industrial competitiveness to supply world markets. Whereas 100 percent of Korea’s primary school age children are today enrolled in school, even in Latin Ameri- can countries that rank near the top, such as Chile and Costa Rica, the corresponding figures are only 86 and 87 percent (World Bank, 1995). The quality of Latin American education is one of the poorest in the world (Burki and Edwards, 1996: 20). In much of Latin Amer- ica, the average youth is likely to be a functional illiterate who lacks the qualifications for career employment in a modern manufacturing plant.

In sum, Latin American consumers may no longer be classed in simple categories, such as either haves or have-nots. Continued change will spur multinational as well as locally based firms to grow and benefit from Latin America’s modernizing economy. Expanding market segments, such as the so-called Cs, will undoubtedly recast current approaches to marketing strategy and logistics, keeping step with increasingly globalized business operations. Yet the number of Ds and Es is dangerously high and include 86 million people who seek to survive on less than one dollar a day (Londoiio, 1996). The region has enjoyed fairly high rates of economic growth in the 199Os, but not nearly high enough to begin reducing the structural causes of poverty. Under these circumstances, setbacks to the current wave of economic reform may reappear anywhere; and in much of Latin America, crime, guerrilla kidnappings, and street demonstrators who employ firearms, are only steps away from the homes of sophisticated consumers who patronize the local Blockbuster or Burger King.

HOW BUSINESS IS BECOMING INTERNATIONALIZED

The forces that drive the globalization of business vary across world regions. Lovelock and Yip (1996) provide a convenient list. The first four-common customer needs, economies of scale, government policies and regulations, and transferable competitive advantage-represent forces that are well reflected in current business internationalization under way in Latin America; three other forces-global channels, favorable logistics, and information technology-show up in the experience of a comparatively small number of firms. In Latin America, securing adequate distribution for consumer products can represent a challenging management task; logistics represents more

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of a barrier than a driving force; and information technology, including communications, has only recently begun to contribute to internationalizing the region’s business. Recent progress in the use of information technology by Latin American firms owes in part to the rapid modernization of services that follows the privatization (or threat of privatization) of long inefficient, state-owned communications monopolies.

Business in Latin America began to internationalize long before the barriers to moving capital and goods were cut. Exchange disparities and food subsidies made it highly profitable for informal sector peddlers to carry goods across the border. “he volume of such trade perhaps soared highest between Venezuela and Colombia:

Outgoing items included gasoline, vegetable oil, powdered milk, beer, and cigarettes; incoming, agricultural produce. For years, food whole- salers and appliance dealers in border communities stocked goods well in excess of local market needs. Cattle ranchers on or near the border moved their herds back and forth depending on the price of meat. Branded items were carried across land by truck or bicycle through back roads, often with the open complicity of border patrols. Some brands even enjoyed a significant share of market before legal trade got started, particularly in border regions favored by neighbor country tourists or migrant labor. Generating consumer acceptance in Colombia for Venezuela’s Polar beer and Mauesa mayonnaise in the 1990s’ as one marketer put it, ”was a piece of cake.”

Hence a share of the rapid growth of intra-region trade that has taken place since uperturu is simply a result of legalizing an established practice; but at some borders smuggling certain goods contin- ues to this day.

Building Export Sales

Few of Latin America’s new generation of exporters have followed conventional textbook guidelines in new business development. For some Latin American firms, making good use of the informal market became a way for building home market as well as export sales. Cunels, for example, has become Mexico’s second largest chewing gum manufacturer by focusing its distribution effort largely on the informal sector. Leonisa, a Colombian lingerie manufacturer, came to dominate the market for its product line in nearby countries chiefly by building and carefully monitoring, in each country, its informal sector wholesale and retail network.

Other firms that have developed a significant volume of export sales initiated their operation without so much as leaving home; i.e., by sourcing for local multinationals. Curtonujes Estrellu, for exam-


ple, a leading carton maker in Mexico, obtained a contract to supply cups for McDonalds and soon afterwards serviced this firm’s needs in Costa Rica, Ecuador, and Argentina. Another carton supplier, Con- vermx, also supplies McDonalds, as well as KFC, Domino’s Pizza, and other fast food suppliers in Mexico and elsewhere in the region. By serving as local suppliers of multinationals, these Mexican firms learned how to cater to customers that demand consistent quality, low prices, and large volume.

Leading firms have in some cases developed alliances with counterpart firms in neighbor countries as a way for breaking into each other’s market. Colombia’s Alpina, for example, initiated exports of its dairy products to Venezuela by entering a mutual marketing agreement with Plumrose, a meat processor. Both firms produce pre- mium quality products, and both benefit from the agreement by re- lying on each other’s extensive retail distribution network, render- ing channels more efficient by adding new and complementary lines. Once Alpinu obtained consumer acceptance in Venezuela, the firm acquired a local plant to expand operations. A similar start-up strategy was followed by Colombia’s Noel and Venezuela’s Mavesu, also in the food business, both of which are known for their professional (as distinct from family-led) management teams.

The prospect for building closer business ties between Colombia and Venezuela exploded in 1995 when a Colombian group known as the Sindicuto Antioquerio, representing some 100 independently- owned firms, joined Holland’s Mukro and Venezuela’s Polar to acquire Venezuela’s largest chain of supermarkets (50 Cuda outlets) and department stores (eight Maxy’s branches). The Sindicuto group in Colombia includes some of that country’s largest and most advanced retailers. The Cudu supermarkets, founded by Nelson Rockefeller’s International Basic Economy Corporation in the 19509, were once IBEC’s most profitable overseas unit; whereas the Maxy’s department stores were initially part of Sears Roebuck‘s Latin American operations. The new chain of supermarkets and department stores, together with the Makro bulk retail outlets that are expanding rapidly in Venezuela, provide a powerful, ready-made distribution channel for the Sindicato’s wide range of manufacturing firms, including Noel. Both the Cadu and Maxy’s retail networks were divested by Venezuela’s Cisneros group in order to raise the vast capital required for its Hemisphere-wide entry into satellite-beamed television.

How Internationalization became Contagious The internationalization of business in Latin America got its start when firms began crossing the border to neighbor countries, but has

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since leap-frogged. In some industries the firms involved are among the world’s largest. Consider the following:

PDY Venezuela’s state-owned oil company, initiated downstream operations outside Venezuela in the 1980s. Refining operations were acquired in the Caribbean, North America and Europe. Today, PDV ranks among the world’s largest integrated oil companies, second only to Aramco and ahead of Royal Dutch Shell. One of its US affiliates, CITGO, supplies some 12,000 outlets, the largest chain of service sta- tions east of the Rocky Mountains.

The Cisneros Galaxy venture, launched in association with Hughes Communications, Inc. (a GM affiliate) is but one of four Hemisphere groupings that aim to tap the region’s projected pay television market, estimated to reach $4 billion by the year 2000 (Zellner, 1996). One such grouping features participation of Brazil’s Globo and Mexico’s Teleuisa, in association with Rupert Murdoch’s News Cow.

As these and other ventures in oil and telecommunications illustrate, business internationalization in Latin America has not only begun to span the region but as well the world.

The cement industry provides another striking example. From the 1920s onwards, the cement business in Latin America represented the domain of dozens of family-owned companies strewn across each country. Once the region’s trade barriers came down, minor league firms suddenly became a part of Mexico’s Cemex. This company is now on a par with three French, Swiss, and Italian multinationals that, together with Cemex, dominate the world’s cement market. Ce- mex already operates plants and other facilities in Mexico, Central America, Colombia, Venezuela, the Caribbean (including Cuba), seven US states, and Spain.

Steelmakers, in contrast, have remained independent but have forged new alliances. For decades, steelmaking in Latin America was largely in the hands of staid, generally inefficient state-owned firms protected from competition by foreign producers; but under the upertura strategy, the governments of three steelmaking countries- Brazil, Mexico, Argentina-followed Chile in opting for privatization. Even before privatization, growing steel exports destined both to the region and to the United States had prompted dumping charges, levied by firms that deemed the new competition unfair. Alliances can help deter such restraints. Steelmakers from Brazil and Chile brought into a newly privatized Argentine firm and created Aceros Paranu, the first steelmaking firm to be part of a regional group. Similarly, Mexico’s Tamsa entered a strategic alliance with Argenti- na’s Sidercu, that is part of the Paranu complex (Benavides, 1994). Speculation abounds on how these and other new alliances will fare


as additional countries, such as Venezuela and Peru, privatize their respective steel industries.

Privatization has also spurred business integration in public util- ities. Chile was the first country to privatize power generating and distribution companies. Enersis, a major player in Chile both in elec- tric power and other businesses, crossed the border first into Ar- gentina. By 1993, it had acquired 9 percent of Argentina’s generating capacity and one-half the distribution network for Buenos Ares.

The Supportive Role of the State

State policy has played a pivotal role in the internationalization of business in Latin America. Under the protectionist policy followed by each Latin American country from mid-century onwards, infant industry became coddled and state enterprises inefficient and overstaffed. Yet key elements for building an industrial economy were put in place, the grooming of managers included. Also, by requiring world contractors that bid for state-supported infrastructure and construction projects to partner with local firms, future big-time exporters in certain industries evolved a strong indigenous technology base. More recently, by championing economic integration Latin American governments have swiftly expanded the region’s undersized home markets and hastened the sale or break-up of long-protected firms. State policy shaped as well whatever strengths are to be found in Latin America’s industrial and technology base and the current drive for internationalizing business. For example:

Mexico’s auto parts industry, the largest in Latin America, shows how evolving elements of state policy have shaped its current and future potential. This industry emerged from a long-standing state policy of requiring a percentage of locally made content in the manufacture of vehicles, itself a highly protected activity across the region for many years. Thanks to NAFTA, much of Mexico’s auto parts industry has been taken over by U.S. firms and is now being expanded to supply increased local production by U.S. and European auto makers. As the region’s markets continue a merging process under G-3 and MERCOSUR auspices, the Mexican auto parts industry is readying for battle. It will surely take over an established industry in Venezuela (under G-3), and compete elsewhere with a major rival in Brazil. But then, as the region’s largest auto maker, Brazil could vie with Mexico in acquiring the Venezuelan plants; for Venezuela’s current government is pushing hard to lead the country into MERCOSUR.

Technology exports provide another example of state support and orientation. Huge contracts in Brazil for public works construction

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such as the trans-Amazon highway, and in Venezuela for the Cara- cas subway system, enabled engineering firms in both countries to develop an export capability for engineering and technical consulting services. Brazil’s Odebrecht now bids for construction projects not only across Latin America but also in other world regions, including the United States. Petrobras, Brazil’s state-owned oil company, built a technology base by drilling in Brazil’s varied geographic conditions, that range from dense jungle to arid desert, as well as off-shore (Neto, 1995). It thereafter drilled wells in the North Sea and discov- ered two of Iraq’s largest and most productive oil fields. Iraq recip- rocated by becoming a major world customer for Brazil’s short-haul aircraft, tanks, and other military equipment. Although cultural affinity has facilitated the entry of Brazilian firms in Portuguese- speaking Angola, successive Brazilian governments have provided support to encourage business ties with Africa.

How the Internationalization of Business Has Been Financed New project announcements in Latin America over the twelve months ending September 1994 totaled a staggering US $67 billion (Arne‘ricaEconomia, 1994: 15). Certainly a major share of this investment owes to reawakened interest by multinational firms in expanding or initiating operations in Latin America. Nonetheless, new investment within and across countries by Latin American firms has risen impressively. A measure of the extent to which the internationalization of Latin American business is being financed from local sources is the extent to which American Depositary Receipts (ADRs) floated on the New York Stock Exchange are purchased by nationals of the countries where companies issuing the ADRs are based. When J.P. Morgan offered Banco Industrial Colombian0 ADRs in July 1995, the first such offering since Mexico’s 1994 currency bust, demand from Colombian investors was twice what had been targeted; soon afterwards, local demand for a proposed issue of Chile’s Bancosorno ADRs proved to be so high that plans for international brokerage were cancelled (Hudson, 1995: 52)!

Years ago, the source of capital employed to finance Latin Ameri- ca’s economic growth was crystal clear. British investors financed the construction of Argentine railways; major world oil companies put in place Venezuela’s modern infrastructure; and established importers of harvesting equipment and tools throughout the region obtained from European and North American exporters credit terms of up to 180 days, long enough to allow coffee, wheat, or sugarcane growers to pick their crop and sell it before payment for the equipment was due. But in today’s globalized and electronically interwoven financial


markets, it has become virtually impossible to determine accurately who finances what.

Today, the internationalization of Latin American business is being financed from sources that include, among others: repatriated flight capital that had been invested outside the region during the eighties, Latin America’s ‘lost decade”; international investment banks; loans from local institutions, including both privately-owned and state banks that thrived on public deficit spending; reinvested earnings by profitable local companies; local stock issues to increase or expand the shallow capital base of family-owned or other local firms; multinational firms that buy into going concerns to expand operations; ADRs, bonds, and other instruments that “emerging markets” employ to attract investment capital from the rest of the world; and Chile’s burgeoning, privatized social security and pension fund system. Undetermined sums of legitimate business financing have also come from trade in drugs.

Following is a summary of published information describing the steps taken by Nicolini Hermanos, a Peruvian macaroni producer that is large by local standards but not large enough to qualifj. for issuing ADRs, in order to raise the capital it needed to keep pace with its industry rival (Hudson, 1995: 47):

During the 1980s the firm’s debt had risen from $1 million to $146 million. To save a highly profitable operation, the Nicolini family sub- scribed an $18 million increase in capital, a step described by a local broker as being “too little to late”. Next, some $15 million was raised from local investors, 18 affiliate firms were merged, and four firms that were outside the basic business were sold off. Also, President Fu- jimori‘s famed, outgoing Finance Minister, Carlos Bolofia, was named to the board. These moves were still not enough. ING Bank and Bankers Trust, now shareholders, saved the firm by supplying an additional $30 million with equities of 10 and 20 percent, respectively.

The outcome of Nicolini’s experience is typical of what has hap- pened to scores of family-owned Latin American business firms in all countries. In this instance leadership for change came from the founding family; whereas in others, such as Venezuela’s Venepal, a pulp and paper processor, the turn-around followed a management buy-out that brought in as shareholders Stone Container from the US and Carvajal, a leading Colombian firm. For family firms to bring in outside directors or raise equity capital from an investment bank or from a public stock offering is no easy decision; and when a public offer is made, the stock is usually non-voting. But in a swiftly internationalizing economy, firms such as Nicolini may have no choice. Bet- ter to hold a small share of a growing company than a large share of one that has no future. Also, by attracting an internationally recog-

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nized investment bank the firm improves its opportunities for tapping state of the art technology as well as establishing ties with strategically placed partners for new business development.

Capital inflows into Latin America understandably plummeted following the year-end, 1994 Mexican peso crisis. Nonetheless, by mid-1996 speculative attacks on the region's economies were largely contained (World Bank, 1996: 6). At this time Brazil became the first Latin American country to succeed in tapping the Euroyen capital market, with an offering the equivalent of $918 million (Kilby, 1996).

A Shopping Spree for Multinationals

For multinational firms, Latin America's changed economic land- scape has fueled growth, impacted management change, and brought in new players. Foreign direct investment in the region reached $18 billion in 1995, up from only $8 billion in 1988. Multi- nationals based in the US spread the fastest: of 39 mergers and acquisitions led by firms based outside the region that were reported in 1993 (Arne'ricaEcononiu, 1994),21 were US-based, with UK firms in second place with only 7 entries. Food, beverage and consumer goods producers top the list, but new and traditional industries are both represented, including medidentertainment, telecommunications, pulp and paper, automotive parts, chemicals, pharmaceuticals, aluminum, energy, mining, and financial services. Even during the aftermath of Mexico's year-end 1994 currency crisis and the ensuing region-wide tequila effect, merger and acquisitions volume was reported to be as much as 39 percent higher than in the previous year (Sedelnik, 1996).

Underlying the current interest of multinationals in Latin Amer- ica is an expanding market, for the region is expected to grow at twice the rate of the developed world. Compound economic growth stems not only from the cumulative impact of the new apertura policies, but as well the young and expanding consumer pool, with 50 percent of the population under 18 years of age. The region particularly appeals to food and beverage marketers. For example, Coca- Cola reported a 1992 profits to sales ratio of 36 percent for Latin America vis-a-vis its 26 percent ratio for the world at large (Harri- son, 1993); not surprisingly, for in much of the region sweetened car- bonated beverages are commonly consumed with meals, including breakfast. Some companies have built a competitive edge by inte- grating Hemisphere operations. Cargill, for example, running two- way export and import of grain, vegetable oil, poultry, and other food products from Canada to Chile, reportedly considers that Latin America offers better opportunities than other world regions for ex- ploiting each link in the chain of food production (Quinn, 1995).


Marked differences exist in the kind of multinational companies now entering Latin America as compared with twenty years ago. In the past, getting around protected trade barriers led multinationals to erect manufacturing plants in each of the key countries; but vast opportunities for foreign investment have opened up. Today, opportunities include state-owned telecommunications and power generating firms that are being privatized; natural resource or “strategic” industries once reserved for state enterprise development, such as oil, steelmaking, and aluminum smelting; and iron ore, copper and gold mining operations, where restrictive and cumbersome legislation has been removed. Other fresh investments are also being chanelled to build and expand airports and highways, in some cases under concession to private operators. Capital is also flowing into the region in new fields of activity, such as the exploding medidentertainment industry, and in Latin America’s underdeveloped retail distribution system. Recent entrants include Blockbuster’s, that plans to establish 75 superstores in Peru alone, Wal-Mart’s entry into Mex- ico, Argentina, and Brazil, and Makro’s growing cash and carry bulk retail outlets in Brazil, Colombia, and Venezuela.

For multinationals, Latin America’s new economic policies have signaled sweeping management change. Kodak, for example, pared twelve hierarchical structures in as many countries, creating five regional organizations; IBM also shifted authority away from once powefil country managers to centralized business units that may operate anywhere (Ferro and de la Sierra, 1996: 44). These observers report the change at Procter & Gamble as follows:

Traditionally, P & G defined its objectives from the ground up; now they are defined top-down from Cincinatti to each region, where product and country goals are defined. Latin American operations are headquartered in Caracas. General managers in each country were first assigned region responsibility for a particular product category, but this approach did not work out; it became necessary to designate product leaders with a region-wide vision, able to generate action through each field office. As put by Executive Vice President Jorge Montoya, “this is not very democratic, but it has simplified our process.” A product such as Vick’s Vaporub was once made in nine plants, with 60 kinds of packages; now it is made in only one plant and sold in six packages throughout the region. In the 10-year period ending 1995, return on investment has tripled and the number of em- ployees increased only 50 percent, including those that came with firms that were acquired.

Cost containment that accrues from scrapping country organizations, such as implemented by Procter & Gamble, illustrate the profit that regional management stands to offer the multinational firm.

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Nonetheless, fully centralized manufacturing plants and regional distribution nodes will not likely become the rule before Latin Ameri- ca’s shipping and transportation facilities become more efficient, let alone the possibility that some countries may revert to protectionist measures.

Now that Latin America’s family-owned firms have opened up to outside directors to expand operations and remain competitive, multinational companies have an expedient means for buying into local firms with an established client base. Exchange devaluations, combined with economic integration, have prompted multinational companies that are flush with cash to buy up scores of firms. Unilever, for example, acquired a series of Mexican firms that pro- pelled its sales in that country from $80 million in 1985 to $610 million in 1992 (Bardacke, 1994). Once a multinational consumer goods company successfully sets up shop in one country, it can easily lever- age its position and enter a neighbor country. Early in the coming century, conceivably, the food marketer’s dream could well come true: millions of consumers throughout Latin America that, prompted by a region-wide, satellite-beamed advertising campaign, begin each day by drinking the same brand of juice (or soft drink) and the same breakfast cereal!

Lessons that Emerge from Growing Internationalization

The publicized successes recorded for both Latin American and multinational firms that have made progress in building international operations that cut across the region should not obscure the difficulties that many have experienced. Even in rapidly modernizing Chile, consumer acceptance for marketing strategies that have proven successful in North America is not necessarily assured. For example, J.C. Penney opened its first Latin American outlet in Chile’s capital city in 1995; after one year of operation, shoppers were so few that the public likened the store to a mausoleum (Par- ra, 1996).

For multinationals, the problems encountered center on currency volatility, such as that triggered by the 1994 Mexican peso crisis, and throwbacks in economic policy, such as occurred in Venezuela. Ex- change rate fluctuations can render a plant uncompetitive from one day to the next, or spell losses when earnings are translated into the multinational’s home currency. Changes in tariffs can cause havoc for multinationals that are in the process of choosing between targeting a particular country as an export market or as a manufacturing base, particularly in the case of complex products with some parts locally made and some imported. For new entrants that have


descended on the region with little experience, such as Wal-Mart, the Mexican peso crisis proved so costly that it halted plans for expansion; more experienced firms avoided losses by holding local cash to a minimum. One lesson from recent experience is the crucial role of financial management (Quinn, 1994). For both multinational companies and for Latin American firms generally, the chief financial executive is often a key decision-maker, holding a degree of power that is uncommon among firms that operate only in developed countries (Griffith, 1996).

For Latin American companies that have gone international, the lessons recorded are sobering. In Mexico, Vitro enjoys as much as 90 percent of the local market for glass containers; but its efforts to pen- etrate the US market, following a hostile takeover of Anchor Glass in 1989 and an alliance with Corning that aborted in 1994, have proven disappointing (Rodiles, 1996). Vitro appears to have over-estimated its capability to engineer a turn-around for Anchor Glass and upgrade its outdated technology (Thurston, 1996). Consider the following experiences in airlines and paint, respectively, of Aeronix- ico (Zellner, 1994) and Corimon (Gerente, 1996):

In 1993, Aerom’xico chief executive Gerard0 de Prevoisin acquired Mexicana, the dominant air carrier in Mexico’s domestic market, and cornered start-up T M S A into near-bankruptcy. Emboldened by his success in Mexico, de Prevoisin bought a controlling stake in Aeroperri, Peru’s flagship airline. Soon after, he was named president of the In- ternational Air Transport Association (IATA), that regulates airline operations world-wide. Both Mexicana and Aeroperri were money- losers, and de Prevoisin failed to foresee TMSA’s comeback as a lean and mean, non-union, price-cutting carrier. Meanwhile, operating ex- penses for the money-losing airlines ballooned to over $1 billion in the first half of 1994. Well before the end-of-year peso crisis, a syndicate of Mexican creditor banks took control.

In 1992, Venezuela’s Corimon began divesting some of its 18 food, petrochemicals, packaging, and roofing materials businesses. “he aim was to become a multinational and span the Hemisphere. In that year it acquired a controlling interest in Grow Group, Inc., a US. paint manufacturer, for $58 million. This boldly financed purchase was made from funds Corimon raised by becoming the first Venezuelan firm to issue ADRs on the New York Stock Exchange, plus an issue of bonds and commercial paper in Europe, plus local bonds and a loan package denominated in both foreign and local currency. A neat profit was turned when Grow was sold for $86 million in 1995, but other ventures to expand its paint business proved unhappy. In 1993 Cori- mon acquired Argentina’s Colorin for $8 million in long-term debt, while also seeking to dominate the Caribbean by acquiring Sisson’s Paint in Trinidad and Montana in the Dominican Republic. It then

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paid $6 million in cash for Mexico’s General Paint, plus $18 million (of which, $7 million in cash) for its Venezuelan competitor Pinco Pitts- burgh, and used the rest of its profits from the sale of Grow (plus new debt) to purchase the California-based Standard Brands Paint Co. for some $32 million. In November 1995 Standard Brands filed for Chap- ter 11 and Colorin sought similar shelter in Argentina. The firm is now at the mercy of its creditors. Never in recent years had a Venezuelan business empire fallen so fast in so short a time.

The following lessons, drawn mainly from those that a Venezuelan editor (Gerente, 1996: 26) gleaned from the Corinon experience, are equally valid for Aeromexico and other Latin American firms that are determined to become international too fast, too soon. These include:

Begin expansion with an integrated management team. Loyalty to headquarters may be equally as important as knowledge, at- titudes and skills. Make sure the firm can weather the worst possible scenario before undertaking a new business venture. Assess the balance between the firm’s financial and production operations carefilly and continually. Avoid proposed business ventures that hinge mainly on events over which the firm has no control. Do not draw the entire loan capacity of an established enterprise in order to support risk-laden ventures.

Across Latin America, leading firms that are bent on internationalization and are reported to be facing perilous circumstances, would do well in applying these lessons.

Is There a Latin American Management Style?

The speed of internationalization in Latin American business has provided a quick vantage post for both academics and business practitioners that seek to determine how different, or how similar, are management styles from one country to another. A study of innovative, highly successful organizations identified a degree of informal- ity in management styles employed by certain Brazilian, Colombian, and Venezuelan organizations that differs from principles found in the literature (Davila and Gbmez, 1994). Management innovations in 104 organizations examined by that study include novel property and organizational structures, effective empowerment strategies, unconventional organizational missions, and deliberate efforts to build on culture-specific idiosincracies. At least one organization, led by managers with little or no formal training in management, ap-


plied the substance of total quality management long before the con- cept became disseminated locally (Malave, 1995). In short, not many Latin American organizations may be adept in the use of best management practice, but rich examples can certainly be found. As yet, little or no research has been undertaken to determine

whether Latin American firms stand to forge a management style that appropriately reflects the region’s cultural features. Colombia’s management specialist Enrique Ogliastri, drawing on surveys and in- terviews with large numbers of managers, has compared the negoti- ating skills of Latin Americans with those of other cultures and finds significant differences (Ogliastri, to appear). Human resource author Elena Granell, examining the competitiveness of a sample of Venezuelan firms, found resistance to implement modern management practices such as participative decision-making (Granell, 1995). At the southern extreme of the hemisphere, Argentine business firms operating in Brazil have been described as being more cautious than Brazilian firms in Argentina, a difference that may perhaps owe to varying perceptions of macroeconomic stability in the two countries (Montenegro, 1995). Nonetheless, some 150 Brazilian firms with investments in Argentina that surpass $800 million, are reportedly net- worked in order to assist newcomers, exchange market information, and discuss how best to adapt to Argentine cultural nuances.

What clearly stands out in assessing the growing internationalization of Latin American firms is the innovative approaches that many employ. Alliances described earlier for Colombia’s Noel and Alpina with Venezuela’s Mavesa and Plumrose, respectively, provided each of these four companies with an instant distribution network made up of tens of thousands of directly-serviced retail outlets. The informal management practices uncovered by research (Dgvila and Gtimez, 1994) are mirrored in the way Brazil-based Bruhma has expanded its beer market to neighbor countries, transplanting a cor- porate culture that features “jeans, sandals and adrenalin” (Ferro, 1996: 28). Elsewhere in the region, a member of a worldwide consulting firm credits Chilean business entering foreign markets with employing simpler management structures than North American multinationals (Vera, 1995). For example,

Chile’s Mudeco sells copper-based telephone wire in Peru, Brazil, and Argentina Sales managers faced with a problem directly contact a peer manager in Chile, avoiding the conventional firm’s hierarchical head of international sales; instead of pyramid-based operations, the firm boasts a management network.

The above example could be viewed as being in tune with modern management trends, for multinationals are revamping their struc-

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tures. A number of Chilean firms that operate successfully in Latin America are also said to rely on local legal, auditing, and other services, as distinct from those provided by multinational firms headquartered in the US or UK.

Perhaps Latin American business has benefited from being something of a comparative latecomer in the internationalization process; for even as multinational firms based outside the region downsize, Latin American firms initiate international operations with leaner structures. Be that as it may, Latin America’s pool of management talent can hardly be considered abundant; hence leaner structures are virtually unavoidable. Also, technology facilitates communication and decentralized operations, as noted in the following examples from Mexico that illustrate state-of-the-art practice (LatinFi- nance, 75: 62):

Cemex, the rapidly expanding cement company described earlier, makes use of the latest information technology in day-to-day operations, including e-mail. Traveling managers are reportedly able to coordinate action by assessing, from hotel rooms anywhere, data on out- put, sales, and product inventories on hand in company plants located in each of several countries.

Pulsar employs what may be the ultimate features in customized insurance service. Not only are code bars used to collect premiums for its insurance company, thus accelerating payment and enabling finance managers to trace collected funds at any given moment; the firm’s auto insurance service, manned by roving paramedics, is dis- patched to the scene of an accident equipped with a computer that can show as well the location of the nearest hospital and company-autho- rized auto repair shop!

These and other examples show a creative bent shared by large numbers of Latin American managers that should help the region’s competitiveness .

Logistics: Latin America’s Sturdiest Business Barrier First time visitors to Latin America find it dificult to believe how millions of tons of cargo move from one country to another and across vast expanses of national territory, without benefit of a railway system; only Mexico and Argentina have such a system in place. High- way networks exist but, in most countries, modern highways are few; in many, less than half of the road mileage may be paved. Thirty years ago many Latin American countries were among the first in the world to feature fairly effective airline service from one domestic city to another for the transport of both passengers and cargo. But


today, airports throughout the region are congested, poorly adminis- tered, and seriously deficient in both navigation control equipment and basic service infrastructure. Temperate climate notwithstand- ing, flight delays and suspensions of service are legion. Yet trade within the region is expanding by leaps and bounds and Latin Amer- ica is first in world air traffic growth.

Highways are Latin America's transportation backbone, but a Pan American Highway to span the hemisphere begun fifty years ago links only a few countries. Beyond the poor road conditions already noted, a number of other problems brake the flow of goods across borders. Weight limits for heavy vehicles, for example, have only recently become subject to negotiation. Inter-country surface cargo and passenger services vary widely from one part of the continent to another; its development hindered by cumbersome regulations. Cus- toms services may be attended only on weekdays and then only for a few hours. Shipments must often be unloaded at border points and reloaded in trucks registered in the importing country. Unscrupulous and generally underpaid border guards and customs officials often deny knowledge of recently relaxed regulations as a means for charg- ing fees to supplement their income or fall prey to those that seek to curb the unprecedented growth in intra-region trade, such as trade associations, transport unions, influential growers of agricultural produce, and other interest groups.

Maritime services within Latin America are few, for links are generally north-south or east-west. Seaports have long been noted for their inefficient administration, outdated equipment, and abusive practices by labor unions. At some ports ships remain moored off- shore for days waiting to unload goods. The following description of Santos, Latin America's largest general cargo port, mirrors conditions found in many other ports (Coone and Katz, 1996: 45):

At Santos . . . it's just another day: Cargo handlers are on strike, customs officials are taking bribes, thieves are stealing cargo, and ship after ship is waiting to get merchandise off-loaded so it can get back to sea.

Several countries have made strides to improve port operations but the problems to be resolved are complex. According to a study of the "composite" Latin American and Caribbean port (Burkhalter, 1992):

Little coordination and few communication links exist between the various [institutional] groups (dockworkers, banks, truckers, customs agents, port authorities, etc.) . . . The ports are heavily overstaffed and suffer from low labor productivity, at only 20 to 40 percent the labor

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productivity level of ports in industrial countries. . . . In an effort to fa- cilitate their operations, private companies . . . hire their own non- union workers to handle their goods, while still paying for the services of the unionized state dockworkers.. . . Total port costs [are] two or three times higher than comparable costs in industrial countries.

Operating inefficiencies in Latin America’s ports impact the region’s prospects for global competitiveness as they f lec t as well the cost of imported goods and the cost of exports. For example, it is reported that the average international port service cost to export a ton of soybeans is about $2 a ton, but can reach $8 to $10 in Brazil (LatinFinance, 69: 48). Brazil is a major world fruit grower; but Chile exports ten times more h i t , thanks to its more efficient port infrastructure.

Urban chaos is Latin America’s newest logistics nightmare. Be- tween 1950 and 1990, for example, the area occupied by Mexico City grew by ten times and its population six-fold. In common with other fast-growing cities, delivery of goods to wholesale markets and retail stores can only be made during a few hours, usually at night. Managers spend much of the day in traffic, either from home to office or travelling across town to attend a meeting; whereas Euro- peans may average 40 minutes from home to work, in Siio Paulo the time may reach 90 minutes or more (Bachelet, 1996). Workers in Bo- gota, Caracas, Lima, and other large cities may spend an apalling four to five hours a day standing on streets waiting for a bus and standing once on board. These conditions are exacerbated as the number of car-owners grows by the day, and are bound to curb the productivity of the region’s work force for years to come.

Vast projects and bold measures are under way across Latin Amer- ica to improve transport, build highways, and reckon with urban traffic congestion. Airport facilities and services in several countries are being privatized or operated under concession. Argentine and Mexican railroads have been privatized and plans for adjusting different gauge widths will permit cross-continent railway shipments from Sao Paulo to Montevideo, Buenos Aires and Santiago. Toll roads spanning hundreds of miles are sprouting, often built by world class construction companies based in other region countries. Throughout the region, seaports are being modernized; in Chile, new ports are under construction. Striking improvements in port operation have been made in some countries. For example, once the administration of Venezuela’s Puerto Cabello was transferred from national to state authorities in 1991, the number of ships attended increased on the average from 800 to 2100, stay in port was reduced from 163 to 58 hours, and cargo per worker increased from 650 to 4400 tons (Dres- ner and Diaz, to appear).


Some projects are particularly ambitious. Inland waterways are under partial construction or drawing-board stage that will link Bo- livia with the South Atlantic, open Venezuela’s hinterland, and join the Atlantic and Pacific oceans by means of a new canal across Colombia. From Mexico City to Buenos Aires, rapid transit systems are being built and modernized. Funds that may exceed one hundred billion dollars, from World Bank and other multilateral agencies, are being targeted to buttress the region’s transport investment needs. But it is cheaper and easier to improve an existing airport than to build a 1,000 mile highway. Real headway in upgrading the region’s logistics may have to wait until well into the 21st Century.

ARE LATIN AMERICAN BUSINESS SCHOOLS RESPONSIVE TO CURRENT MANAGEMENT NEEDS?

The challenge of becoming internationally competitive poses vast demands on management training in Latin America for both business and the public sector. Accordingly, schools that offer executive education programs spread thin their faculty resources and hire large numbers of part-time staff to cover their courses. Nonetheless, Latin American business schools, for the most part, are poorly prepared to address and meet the needs of the times.

Half a century ago, with the coming of a new world economic order, business schools in North America experienced sweeping change. Schools of mediocre quality became research centers and created new analytical and organizational tools that were soon applied by multinational business firms to expand operations worldwide. Spearheading change proved to be a difficult process, entailing painful choices and costly academic investments made possible by huge resources obtained from leading foundations. In Latin Ameri- ca, today’s leading schools were also early beneficiaries of generous North American aid to upgrade the quality of management education; thanks to that support, scores of faculty in each of these schools pursued doctoral studies. Except for limited graduate training under the Fulbright program and attention to comparatively specialized topics such as those relating to the environment, however, Latin American business schools now find it next to impossible to draw de- velopmental support from US sources.

Latin America’s business schools, for the most part, are not well placed to address the challenge of aiding business to internationalize operations. To be sure, some of the leading schools cooperate with each other across countries and have begun to explore joint offerings. Yet outside the elite schools, few employ full-time faculty and fewer still support research. Research-oriented schools that boast a cadre

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of senior faculty with advanced degrees do not appear to be grooming a back-up generation of equal caliber. Too many talented faculty are recruited away from academe and their home country; after fill- ing cabinet-level positions to steer economic reforms, they are offered well paying posts in multilateral agencies. To maintain a lifestyle that is reasonably in accord with the social class to which they belong, career faculty must devote long hours to executive education and consulting, for both the pursuit of academic research and pub- lishing in scholarly journals generally entail high opportunity costs. These and other shortcomings of the region’s business schools are examined elsewhere (D6vila and Mmez, 1994).

Little information has been documented to shed light on how Latin American firms that are expanding across borders develop their new markets or train managers for international operations; again, one reason is the paucity of research. To be sure, MBAs that graduate from local schools or obtain degrees abroad are recruited as well by regional firms and by multinationals that operate locally. Also, the large demand for conventional executive education short courses responds to management training needs in all organizations, regardless of whether they belong to the public, private, or not-for- profit sectors. Significantly, large numbers of these courses are offered not only by business schools and non-academic training centers, but by consulting firms that are generally identified with international accounting firms.

Other sources of management training are also employed, some not altogether salutory. In-house courses are now common in large companies, multinational and local, the benefits being known only to their sponsors. But even a cursory scanning of the business press in each country reveals the large number of entrepreneurial offerings by visiting experts or so-called “gurus,” generally from North Ameri- can business schools, who offer one-day quick-fix solutions to management problems and show listening executives how to succeed in global business. The advent of hemisphere-wide, satellite-beamed communications foretells an explosion in such offerings, including the unscrupulous sale of televised “MBA” courses with phantom academic credentials.

No one has taken on the task of examining the process that Latin American firms are currently employing to succeed internationally. Accounts published in the business press, such as many cited in the preparation of this paper, provide valuable insights but lack depth. Learning from Latin America’s own experience is a charge that awaits both management practitioners and academics. Sadly enough for the business schools but admirably enough for the firms, it is probably fair to say that Latin American business enterprises gen-


erally train the managers they need for international operations by tightening their own bootstraps.

OUTLOOK: THE YEARS AHEAD

What can we say about the globalization of Latin American business in the years ahead? Will the region’s economy flourish and its firms become internationally competitive? There can be little doubt that Latin America’s business firms possess the capability of becoming internationally competitive; indeed, examples above show that many already are. What may remain in doubt is the h tu re competitiveness of the region’s economy, an issue that relates closely to the region’s prospects for economic and social progress.

Whether or not Latin America will enjoy robust and sustained growth early in the new century may depend on the outcome of current efforts to implement a broad round of economic, social, and political reforms. The nature of these reforms has been worked out in consultation with multilateral agencies (Burki and Edwards, 1996). Guidelines and measures directly addressed to promoting competitiveness have been set forth by studies commissioned both by government and private sector agencies, undertaken in several countries, including, for example, Venezuela (Enright, Franc&, and Scott, 1996). Successful implementation of these reforms and measures would attract to the region vast resources in foreign investment, stimulate the level of domestic savings, and put Latin America back on track as the developing region most likely to succeed in joining the First World.

The magnitude of the reforms that await implementation is fear- ful. They range, in each country, from an overhaul of the basic health and education system to the modernization and depolitization of the judicial process. The financial sector in most countries is woefully in- adequate, particularly if it is to serve the needs of small business. Outmoded labor legislation must be scrapped, old-age and health insurance services restructured. Implementing any one of these measures is politically sensitive, let alone several. Privatization of state enterprises, from energy to public services, transport infrastructure, and financial institutions, will in time only worsen existing conditions unless adequate regulatory agencies and guidelines that are needed to shape and support a free market system are designed and put in place. Happily enough, most countries are making at least some progress working on these issues.

Private sector reforms needed in Latin America are no less ambitious. Few trade associations play a supportive role for their mem-

bers that goes beyond lobbying for special interests. It would be fair to say that, across Latin America, only a small number of business firms are good citizens, concerned with community issues. Moreover, management practices dealing with employer-employee relations, human resource development, market needs, customer service, and other strategic areas relevant for strengthening a firm’s competitive position are generally poor. No wonder, as a recent World Bank pub- lication that focuses on the region’s private sector notes, the public’s attitude to private enterprise across the region is generally hostile (Holden and Rajapatirana, 1995). Nonetheless, the region’s ablest and most distinguished business leaders appear resolved to marshal1 the strength of business to promote progress. Included among them are the men and women who are leading the internationalization of Latin America’s business enterprise.

The kinds of social and economic reforms needed to alter the course of events in Latin America involve costly, painful, and politically charged processes. Accordingly, successful implementation of so broad a range of measures hinges on uncommon leadership. Busi- ness leadership alone will not suffice; strength must also be drawn from the many currents that underlie each country’s increasingly ar- ticulate civil society, coalesced by skillful government. It is also to be hoped that the rapid progress being made in regional economic integration and other steps that promote unity and identity will help pool experience and nourish the reform effort everywhere.

Momentum generated by Latin America’s continued integration, improved governance, and successful implementation of economic reforms, could foretell a market-building experience that parallels the experience of the European Community. In the Americas, this process will be facilitated in most countries by a common language and similar culture. Production operations for certain goods should gravitate towards locations that provide comparative advantage. Re- gion-wide advertising campaigns will become commonplace, to the extent that governments don’t interfere with requirements for national content. Investment from within the region will strengthen economic ties and encourage governments to coordinate monetary and exchange policy across countries. Stock markets in larger countries will fuel the expansion for region-based companies. Interna- tional banking services will be provided not only by North American institutions but by regional banks that already have begun to operate across borders. Consumer tastes will become more standardized. Managers will continue to be Argentine, Brazilian, or Mexican; but their business employers gradually lose their national identity and become known as Latin American.

In assessing future prospects for globalizing business in Latin America, it should be kept in mind that the challenges that are now


being addressed in the region are no greater than those surfacing elsewhere, much of the industrialized world included. In Latin America and around the globe, the kinds of societal goals needed to forestall existing or emerging threats to the human condition are widely known. Process is where knowledge lags. To turn goals into reality, Latin America may have to find a way to unfurl magic. Many feel this is already happening.

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