The Call of the South - East Asian, European and North American MNC Strategies in Latin America

Recent Latin American market liberalisation has seen the area become far more attractive for foreign MNCs. While many US multinationals diminished their presence in the region, a host of others from East Asia and Europe have seen their FDI presence increase dramatically, often both with very satisfying results, and as absolutely integral parts of their wider global strategies. Lecturer Lourdes Casanova explains in thorough, yet highly readable detail how corporation in the last decade have pursued three main objectives when deciding to make a significant entry into the Latin American market: efficiency seeking, growth seeking, and resource seeking.

by Lourdes Casanova
Last Updated: 23 Jul 2013

Although limited recovery is now underway, the decade has seen major reversals in foreign direct investment flows in most Latin American nations. The phenomenal wave of market liberalisation and deregulation that characterised the 1990s, thus making the region far more attractive to a wide variety of foreign MNCs, was followed by often devastating contagion effects from the late-90s Asia and Russian crises, and the dot.com crash of 2000-01. While many US multinationals diminished their presence in the region, a host of others from East Asia and Europe have seen their FDI presence increase dramatically, often both with very satisfying results, and as absolutely integral parts of their wider global strategies.

Lecturer Lourdes Casanova explains in thorough, yet highly readable detail how MNCs in the last decade have pursued three main objectives when deciding to make a significant entry into the Latin American market:

· Efficiency seeking MNCs are looking to reduce their global production costs, mainly via access to cheap labour, and better access to North America.

· Growth seeking firms seek expansion by growing and/or acquiring new markets.

· Resource seeking firms are mainly interested in acquiring the minerals, metals and hydrocarbons so abundant in much of the region.

Casanova offers concrete examples of leading MNCs operating in accordance with each objective type. As the author describes at length, the mainly American and Japanese firms that have pursued efficiency through maquila programs have seen major benefits in both cheaper labour costs and often highly efficient manufacturing, even while generally adopting very different approaches. Sony's highly profitable experiences in Mexico are examined as a high-profile example. She points out, however, that the North American Free Trade Agreement (NAFTA), which now encompasses every country in the Americas except for Cuba, has had a profound and mainly negative knock-on affect for many MNCs, with the simultaneous fall in American demand for Latin American goods and massive competitive pressures now coming from China.

Growth-seeking companies have typically come to Latin America in search of new markets, whether through organic expansion, or via acquisitions. Auto making is one example of an industry now being forced to look to markets such as Latin America, where sales are far from reaching any saturation point. The authors also explains why and to what extent the performance of growth-seeking enterprises is so strongly dependent on local market conditions, relating the experiences of several leading Spanish, French and Japanese MNCs in very different industries. Many growth-seeking corporations have been hard hit by recent regional currency crises. Those in service sectors have also had reason to cool off on FDI, or even choose to quit the region altogether.

Casanova concentrates on natural resource-poor Japan and vastly expanding China in her consideration of resource-seeking multinationals. These firms have generally had a far happier recent history, being far less exposed to macroeconomic conditions or local market conditions. She also introduces the concept of "natural markets" - those sharing some type of common history, language or other cultural bond -- in attempting to explain the relative successes of MNCs from various regions. Iberian firms, for example, now hold dominant positions in most Latin American markets across a wide and growing variety of sectors.

Casanova concludes with a brief analysis of the implications of the relative success of many American and European MNCs for East Asian multinationals looking towards the region, many of which are looking beyond the efficiency- and resource-based objectives they have sought in the past.

(Original article: Business and Politics: http://www.bepress.com/bap)

Business and Politics, May 2004

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