For family firms in Latin America, the news over the past 10 years has been both good and bad. The bad news is, a more open and free market paves the way for external competitors. The good news is, family firms have a strong knowledge of local markets, long-standing business contacts, and the know-how to manage the recurrent crises that tend to plague the region. In this Case Study, Lourdes Casanova, Lecturer, looks at the strategy employed by Quiñenco, a Chilean conglomerate founded and run by the Luksic family.
Founded in 1957, Quiñenco, like many family owned firms in Latin America, quickly branched out from its original business, in this case a forestry company. From the 1960s through the 1990s, Quiñenco followed a strategy of buying under-priced businesses, taking over their management, and reselling them. The strategy took them from forestry to hotels and construction to food and beverage plants and eventually to banking, an industry the family hoped would propel them onto the global scene. Indeed, by 1997, after purchasing shares in several banks and aligning with the Spanish bank Banco Central Hispano, Quiñenco was able to secure control over the largest bank in Chile at the time, Banco Santiago.
Yet despite a highly successful initial public offering in 1997 on the New York Stock Exchange, the stock price languished, dropping from a high of $16.85 in July 1997 to $7.20 by December 2001, forcing management to face several critical issues:
- For several decades, the Lukiscs had harboured a wish to create a global firm from local Chilean roots. Was this, at the start of the new millennium, the time to give up on this dream?
- As part of its corporate refocusing on financial services, Quiñenco had already shed many of its businesses outside of Chile. Was now the time to go further and focus solely on the Chilean domestic market?
- In looking at their broad portfolio, the Luksics had to ask themselves what value they brought to the subsidiary companies in the holding and what synergies, if any, existed across the holding companies?
- Finally, as a family business, what would Quiñenco need to do to compete within the changing face of the Latin American market? Were they dinosaurs facing extinction or could they modernize and adapt to new realities?
The authors remind us that Quiñencos troubles mirror those of other family conglomerates in Latin America, which for years thrived under the protection of closed markets. There are no cookie-cutter answers, say the authors, but successful strategies will address:
- Greater competition due to the presence of multinationals
- The need for stronger governance models in order to attract and retain qualified managers
- A way to capitalize on their strengths: tight contacts in local markets and the ability to react quickly to changing market dynamics and economic crisis
This case is designed for MBA students and executive education participants for use in courses addressing multinational strategies, business in Latin America and emerging markets, and strategic evolution of conglomerates and family firms.