MULTILATINAS

SWINGING TO A NEW TUNE: MULTILATINAS

If there is one word and tendency that rightly describes Latin America's newly expanded and outward looking role on the world stage it probably is MULTILATINAS, or the directly related definition of Global Latinas*. The definition mostly refers to multinational companies based in a Latin American country that have become economic titans in their home countries and dominate their domestic markets, are aggressively pursuing growth in new markets in additional countries to facilitate their growth and are looking to own (or owning) operations in developed countries.

Multilatinas in practice tend to possess excellent management -that often is more action and decision oriented than their global peers-, innovative leadership, strict corporate governance, solid capitalizations, and highly-trained talent, which provide them with a strong basis for continued expansion.

I am personally convinced that the multilatinas are part of another phenomenon which effectively is the END OF EMERGING MARKETS. I find it very hard to continue speaking about emerging markets when some of them Assuming that companies from 'developed countries' would be better managed is definitely no longer valid with best practices being applied in terms of transparency, governance and disclosure. Ten of the top 20 GDP producing countries are emerging markets today. On a PPP basis, emerging market GDP almost equals 50% of global GDP and the GDP of the six largest emerging market economies exceeds the G7's GDP ex U.S. Emerging countries' capital markets have grown strongly and overtaken many European markets in terms of trading volumes and liquidity.

If on top of these elements also the medium term growth perspectives tend to be substantially better and policies as to inclusion of that part of the population that has so far remained behind are being strengthened and perfected, then we can probably agree that the time has come to develop new categorizations.Newer parameters for measuring the stage of development of the different countries should ideally be created.It is surely not easy to incorporate parameters relating to 'happiness', 'sense of well-being', or environmental parameters, but should this one day be perfected than surely Latin America, and especially Brazil, would count as one of the leading nations.

The concept of the multilatinas is a powerful phenomenon that is effectively re-shaping the dynamics of entire Latin America and having its impact on the global economy. Leading publications and analysts have been speaking about "a revolution in global business", "the new corporate giants" and "the birth of fast-moving, sharp-toothed new multinationals that are emerging from the poor world".

Public data on the size of this trend evidence that we are not dealing with an 'incident' or opportunistic event. Most all of the top 500 companies in the region had revenues in excess of one billion dollars,investments made by regional companies abroad (outbound foreign direct investment) had shown growth more than doubling and exceeding 50 billion dollars, making them active participants in globalization processes. This trend, if anything, seems to be strengthening: large Brazilian, Mexican and to a lesser extend Chilean and Peruvian companies have shown to be ferocious in their quest to become globally recognized or even dominant players in several sectors ranging from energy to commodities and food, from mining and metal processing to renewable energy, manufacturing, banking and telecommunications.

Market liberalization that was started more than a decade ago, had provided the right conditions for the multilatinas to establish their roots and build leading local positions. Lower costs of capital, more modern management techniques and principles, improving regional and global macro economic and market conditions, the 'Hispanization' of the U.S.A., and active market- and know-how seeking strategies have provided an additional impulse.

Successful examples of multilatinas that have made it to the leadership positions in their sectors include highly acquisitive and aggressively expanding companies like Grupo Bimbo (which not only has absolute leadership positions in most Latin countries but made sizeable acquisitions in the U.S. and in Brazil, as well entered Chile, Peru, Argentina, Paraguay, Guatemala, Costa Rica, Germany, Austria, and China), Cemex (having made several multibillion dollar acquisitions incl. the Australian Rinker Group for US$ 15 billion and being a top 3 cement company in the world with top positions in countries like the U.S., Egypt, the Philippines and Spain), America Movil (highly innovation-driven with operations in TMT all over the region and the U.S. through a acquisition driven -often under distressed scenarios- and greenfield completed strategy, and whose main shareholder -on a for the time being separate note- owns stakes in large U.S. and Brazilian telecom and media operations, is one of the main investors behind the New York Times and who made it to become one of the world's most successful business man), Vale (having acquired Canada's INCO for US$ 19 billion, and South African and Australian competitors), Ambev/Inbev (which acquired the famous Anheuser Busch brand), Embraer (with strong presence in Brazil, production facilities in China, investments in Portugal and partnership agreements in countries like France, Canada, Switzerland, Singapore, Italia) and selling more than 95% of its production outside of its home market), Marfrig (which has grown very strongly both in terms of size as well as geographic reach and product diversification with the purchases of Seara, several meatpackers and Uruguay's multinational Zenda Group),JBS (which became one of the world's largest meat producers after buying U.S.' Swift Foods for more than US$ 1.5 billion), Banco Itau (a bank recognized for its acquisition of both local banks as well as operations of international banks in different countries and with a market cap of almost US$ 100 billion a global contender), Gerdau (a US$ 20 billion behemoth that has grown aggressively through acquisitions in a.o.Canada, the U.S., Chile, Argentina and Colobia) and companies like strongly expanding Cencosud, Falabella, Concha y Toro,LAN Chile, Synergy Group,Politec, Carvajal and strong agro commodity groups from the SouthCone.

Petrobras is one of show cases of Latin strength: the company has leadership positions in a range of countries, has grown through a mix of autonomous growth, acquisitive growth and strategic alliances, and has become a world leader in new green fuels.Petrobras' reach and expansion has included Acquisitions ranging from neighboring Uruguay and Argentina to Iran, Colombia, the U.S.A., Bolivia, and Paraguay, Partnership Agreements with Sinopec and CNPC of China, the Pakistani government, and ENH of Mozambique, Production Share Agreements with the NOC of Libya, Collaboration Agreements with Russian Gazprom, Agreements with ENI in Senegal, Exploration and Pipeline J/Vs with Sinopec in Mexico and TPD in Tanzania, Concession Agreements andGreenfield Operations in countries like Chile, Ecuador, Bolivia, Iraq, and Turkey.

TAll this does not mean that MNCs will disappear from the regional stage, on the contrary. The region's vast opportunities, its growing middle class, changing consumption patterns and continued development, its more than 500 million consumers and a GDP that equals China\u2019s, are strong pull factors for some of the world's leading global companies to seek to expand their presence in the region or establish footholds here. To be successful however, these global leaders will have to fight tough battles with the local leaders in their respective areas. In many cases, to optimize the chance for success, it will be the preferred strategy to establish strategic partnerships with the vigorous multilatinas and leading single-country players.

Combining for example a MNCs strong or sophisticated product skill with the 'local's' distribution channels, or exceptional local manufacturing or resource access qualities with an MNCs global sales presence, there are ample combinations that would provide for great synergies. Casino is a good example: in i.e. Brazil and Uruguay the group has developed commanding market positions with strong local partners, Continental and Copa are another of the many successful partnerships. MNCs that will be successful on a stand-alone basis are the ones that will manage to establish a strong local profile in the markets where they operate; without this they will lose the battle for valuable local resources and not be able to capture the sympathy nor the purse of the consumers.It is highly likely that we will be talking a lot more about large Latin American companies expanding into Latin America and other continents, than see MNCs execute unfriendly acquisitions and trying to eat the Latin cake. To that same extend we will be seeing a growth in strategic partnerships and bundling of forces of big international players with large regional companies.We will likely be seeing a growth in MNCs looking to list on regional stock exchanges to have access to local investors and be more of a local player. This is a positive tendency: a balanced growth of in- and out-bound FDI will strengthen and balance the development of the local economies.Gazing in my crystal ball, I would argue that strategic partnerships and alliances, M&A and a rising influence of the multilatinas is a trend that is here to stay. In the near future the term 'emerging or developing markets' will be a term that will seem one of those out-of-context principles of the old days, implicitly caused by the coming of age of the multilatinas.The strong trend set by the very large global latinas will trickle through to the middle market multilatinas and exponential growth will be seen in cross border deal-making and business development.