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Foreign Policy
Summer 1999
Grandes empresas y grupos industriales
latinoamericanos
(Large Latin American Industrial Companies and
Groups)
By Wilson Peres (editor)
Reviewed by Jorge O. Mariscal*
Given the limited breadth of capitalist development, individual companies often play a much larger role in shaping the destinies of emerging markets than in shaping those of developed economies. In fact, it is difficult to recount the modern history of emerging economies without referring to those key corporate players. Latin America is no exception. Throughout the region’s last 50 years of frequent upheavals and varied policy responses (from import substitution to export promotion and more recent trends toward trade openness and deregulation), its largest conglomerates have been at the center of change—adapting, transforming, and sometimes perishing. In some cases, the fate of these companies has shaped the outlook for entire industries and carried broad macroeconomic implications for a country’s global competitiveness, its balance of payments, and other fiscal matters. In other cases, conglomerates have served as catalysts for modernization and progress—witness the leadership role played by the groups that acquired Teléfonos de México (Telmex), Mexico’s national phone company, and YPF, Argentina’s oil and gas giant, through privatization.
A collection of six essays, Large Latin American Industrial Companies and Groups discusses the dynamics and recent history of the largest corporate groups in five Latin American countries: Argentina, Brazil, Chile, Colombia, and Mexico. The essays could have achieved a better balance between a taxonomy of economic trends and a detailed discussion of company strategies by putting less emphasis on the search for universal rules and overarching conclusions. Yet, because of the research it provides on the history of Latin America’s leading conglomerates, this book should appeal to economists, historians, and business school professors and students, as well as to bankers, investors, and government policymakers. Among its important contributions is the study of how different corporate strategies have played out in different countries facing similar challenges. To the extent that Latin American nations have faced the same external and internal challenges, the exploration of how different companies and groups have reacted to these dilemmas provides a real-life study of the interaction between the economy (the macro) and individual corporate strategies (the micro).
In the introduction, Celso Garrido, an economics professor at Universidad Metropolitana in Mexico City, and editor Wilson Peres attempt the ambitious task of extracting larger truths about the behavior of corporate groups in the five countries covered. They focus on how these corporations have dealt with external variables such as technological change, freer global trade and deregulation, and the deeper integration of their respective national economies with the rest of the world. The authors note that companies have tended to integrate vertically and combine manufacturing and finance in an effort to respond to a rapidly shifting and more competitive environment. Garrido and Peres also provide a comprehensive breakdown of the key features determining the nature of these large Latin American corporate groups: origin (natural resources, industry, etc.), ownership type (family or public), relative size, operating sector, and linkages with foreign markets.
The essay “Structure and Dynamics of Argentinean Conglomerates,” by Roberto Bisang, looks to the 1970s to identify the roots of today’s private sector, which has evolved from four main types of corporations: government-owned companies, mostly in energy and utilities; subsidiaries of multinational companies; medium-sized companies of national origin with links primarily to the agricultural sector; and a large number of small and inefficient companies. A series of shocks and structural transformations over the last 20 years—including the “lost decade” of the 1980s, the debt-restructuring period of the early 1990s, the 1991 Convertibility Plan linking Argentina’s peso to the dollar, and the so-called Tequila Effect stemming from the devaluation of the Mexican peso in the mid-1990s—helped reshape Argentinean corporate groups. They now fall into four new categories: those with dwindling or almost nonexistent business (Celulosa Arauco, Massuh, and Richard are examples in the natural-resources sector); those with moderately diversified businesses and rapid expansion (Techint, Perez Companc, and Acindar in heavy industry and energy, among others); those with a tendency to specialize in specific industries (Alpargatas in footwear and apparel, Bunge & Born in food); and finally, those with highly diversified businesses and high financial risk (scp, Benito Roggio).
In “Changing with the Economy: the Dynamics of Leading Companies in Brazil,” coauthors Ruy de Quadros Carvalho and Roberto Bernandes trace the development of ten leading Brazilian firms throughout the 1990s, using the companies’ corporate strategies as a prism for viewing Brazil’s opening to foreign trade in the early 1980s; the creation of the regional trading bloc mercosur; the imposition of the Real Plan, which tamed inflation; and the effects of the Mexican peso crisis on Brazil’s economy. The authors conclude that a sharp increase in competition, a growing role for regional integration under mercosur, a process of denationalization, and a greater emphasis on technological modernization have been key factors in shaping today’s economic groups.
The second essay on Brazilian conglomerates, “The Strategies of the Great Brazilian Groups,” complements the first by studying the evolution of the groups through Brazil’s recent economic history. Among the facts that author Regis Bonelli highlights is that almost 90 percent of the country’s 300 largest national conglomerates remain under family control. The important role of banks and construction companies in the Brazilian corporate fabric also receives special attention. Very early on, Bonelli points out, finance and construction exhibited many synergies that led to the creation of large and influential groups still in existence today (the Camargo and Odebrecht groups, for example).
In “Leadership in Large Companies in Chile,” coauthors Marco Castillo and Raúl Alvarez isolate some of the key factors that account for the success of some corporations. One of the most interesting insights their essay provides is that the leading companies are not necessarily those that show the largest profits but rather those that embody a set of characteristics tied to management skills and vision. Chile’s principal economic groups have also been aggressive in their search for new industries and countries to diversify their portfolios and have taken full advantage of the opportunities offered by the privatization of electric utilities and telecommunications companies throughout Latin America—for example, the purchase of Argentinean utility Central Costanera by a group of companies including the Chilean electric utilities Enersis Group and Chilectra.
Gabriel Misas Arango’s essay on Colombian groups, “Colombia: Business Strategy During the Opening-Up of the Economy,” also analyzes the behavior of conglomerates with reference to industrial dynamics in the context of structural change and economic crises. The author discusses the corporate strategies of 17 companies in the food, beverage, textile, paper and printing, capital goods, chemical, and appliance sectors. To my knowledge, this essay is the only one of its type on the Colombian private sector. As such, it supplies readers with invaluable knowledge about this unexplored territory.
Finally, Garrido’s essay, “Leadership by Large Industrial Companies in Mexico,” is an essential complement to the book’s mosaic of Latin American corporate modalities. Despite some similarities with the experiences of the rest of the region, Mexico’s has two distinctive features: the government’s more visible role in the gestation of large and powerful groups (the result of privatization of the commercial-banking and telecommunications industries) and the more prominent role of U.S. multinationals dictated by the growing commercial integration of the two countries. A third element essential to explaining the current makeup of Mexican corporate leadership is the impact of the Tequila Effect, which helped stir a debate on the need to equilibrate economic growth with macroeconomic stability. In Mexico’s case, ensuring the congruence of broad government policy guidelines and market regulation with corporate objectives could, according to Garrido, provide the basis for a virtuous economic cycle under the leadership of Mexico’s largest corporate groups.
Surveying the results of this invaluable study of 46 leading companies and 15 industrially based economic groups, the Economic Commission for Latin America and the Caribbean notes that privatization and deregulation have presented large Latin American enterprises with formidable competitive challenges. Not only are these firms increasing their sales at a slower rate than their foreign counterparts, but they now account for only 40.2 percent of the sales by the 100 largest industrial companies in the region (compared with the 57.3 percent share accounted for by foreign firms)—yet more proof of how the globalization of the manufacturing process and the financial markets is eroding the national boundaries of capital within Latin America and around the world.
Endnotes
*: Jorge O. Mariscal is chief investment strategist at Goldman Sachs and Company in New York. Back.