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 / Fall 2003 / Issue 32(originally published by Booz & Company)


Multinationals vs. Multilatinas: Latin America’s Great Race

The fact that local owners wanted to sell abetted the MNC buying spree of the 1990s. Worn out by decades of economic instability and government upheavals, local companies faced increasingly stiff competition from global brands. Many were servicing expensive debt, yet needed more capital to upgrade their infrastructures. Second- or third-generation family members, in numerous cases, no longer had close ties to their businesses, and preferred to cash out to obtain liquid assets.

The Multilatinas’ Turn
Locals have acutely felt the disadvantages of size, financing access, and costs. During the 1990s boom, few local companies had the capacity to battle MNCs for prime acquisitions; most of their transactions were within their home countries. Brazil’s largest retailer, Companhia Brasileira de Distribuição SA (CBD), acquired several smaller Brazilian chains, and Almacenes Exito SA (Exito), the largest retailer in Colombia, merged with its leading competitor there, Cadenalco.

Upon securing top positions at home, some of these local leaders aspired to grow internationally. Typically, a budding multilatina would begin that process by exporting to neighboring countries; then it would establish alliances to obtain access to distribution channels. Subsequently, a company might set up small operations or make small acquisitions.

Today, a strong case can be made that in the next few years, multilatinas will become even more vigorous in their pursuit of international expansion and consolidation; some will become formidable challengers to foreign MNCs. Global candy and food companies such as Kraft Foods and Nestlé still compete against strong single-country players and such emerging multilatinas as Mexico’s Bimbo; the confectioner and food company Grupo Arcor, which is headquartered in Argentina; and Compañía Nacional de Chocolates and InverAlimenticias Noel SA in Colombia. In retail banking, leading local companies such as Banco Bradesco SA and Banco Itaú in Brazil compete with Citibank and ABN AMRO, two of the world’s largest and most powerful global banks.

Clearly, with the decline of the world economy and global stock markets, MNCs have lost some of their advantage. The lackluster Latin economy hasn’t helped; regional GDP contracted by 0.6 percent in 2000 and grew less than 1 percent in 2001. Spain’s BSCH and the U.S.’s Clorox and BellSouth corporations, for example, all cited disappointing results in Latin America in 2002. Many major foreign companies that acquired aggressively in the region during the 1990s are acknowledging they did not generate enough growth in revenue and earnings to justify the large premiums they paid.

Leading local players have stepped into the vacuum. In the beer industry, a locals-led consolidation battle is brewing, with Brazil’s Companhia de Bebidas das Américas (Ambev) acquiring control of Quilmes SA in Argentina in January 2003, and Colombia’s Bavaria SA acquiring several Panamanian breweries and then struggling to gain control of the Backus Corporation in Peru (in which Venezuela’s largest brewer, Cervecería Polar, already had a share). Such global beer giants as Anheuser Busch Companies, Heineken NV, and Interbrew NV, despite their minority stakes in several breweries in the region, have remained aloof. Further consolidation among Latin America’s largest brewers could create a company comparable in size and profits to the world’s top beer companies.

Indeed, the continuing liveliness of Latin M&A activity today is largely a function of domestic consolidations and cross-border unions among Latin companies. Three years ago, non-Latin companies accounted for more than 80 percent of the region’s deals. Since the beginning of 2003, locals have accounted for 62.5 percent of all M&A activity in the region, spending $6.5 billion on other Latin American enterprises, according to Thomson Financial.

Economic uncertainty always makes foreigners wary, so it is conceivable that the volatility will prompt some global multinationals to pull back permanently from the region. Latin companies appear to be exploiting the uncertainty by repositioning themselves against foreign rivals. For example, Mexico’s América Móvil SA has been acquiring companies in Brazil and Colombia from BellSouth, which has been divesting holdings in the region. In the financial-services sector, earlier this year Brazil’s largest privately owned bank, Banco Bradesco, bought J.P. Morgan Chase’s asset management division, and also acquired the local asset management operations of Spain’s BBV and Deutsche Bank. Rival Banco Itaú bought Banco BBA-Creditanstalt SA from the HVB Group of Germany in 2002 after acquiring the private banking and asset management units of the U.K.’s Lloyds TSB Bank PLC in 2001.

Capturing Network Value

If non-Latin MNCs find themselves at a temporary stall, it’s because their acquisitive zeal did not translate easily into profitability. As much as executives try to attribute their woes to unfavorable economic conditions, that has not been the only cause; managerial missteps, even arrogance, have played a role. Most foreign acquirers underestimated how difficult it is to absorb companies in different countries and create synergies among them.

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  1. ResourcesJorge H. Forteza, “Competing in Emerging Countries: The Case of Latin America,” s+b, Second Quarter 1997; Click here.
  2. James A. Gingrich, “Five Rules for Winning Emerging Market Consumers,” s+b, Second Quarter 1999; Click here.
  3. C.K. Prahalad and Stuart L. Hart, “The Fortune at the Bottom of the Pyramid,” s+b, First Quarter 2002; Click here.
  4. “The Changing Face of Strategic Alliances in Latin America,” strategy+business and Knowledge@Wharton white paper, September 11, 2002; Click here.
  5. Geri Smith, “War of the Superstores,” Business Week, September 23, 2002
  6. Christopher C. Williams, “La Vida Loca: Latin American Markets Are Surging — and Money Is Still Pouring in,” Barron’s, June 17, 2003
  7. John Williamson and Pedro-Pablo Kuczynski, “After the Washington Consensus: Restarting Growth and Reform in Latin America,” Institute for International Economics, 2003
  8. “Wanted: A New Regional Agenda for Economic Growth,” The Economist, April 26, 2003
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