To go or not to go? The internationalization imperative for global Latinas.

Author:Casanova, Lourdes

As the economic climate becomes more challenging, Latin American companies are questioning the need to go international. Executives cite several hurdles to be overcome--lack of talent, different business cultures and risk management. Are these reasons good enough to hold back? Can firms survive and thrive in today's business world by staying domestic?

Traditional theories tell us that companies go international looking for natural resources they lack at home, to become more efficient by being able to leverage cheaper labor costs and searching for markets to acquire size. The first two reasons are usually not compelling enough for many Latin American companies. The region is rich in natural resources and enjoys cheap labor costs and other production efficiencies.

However, Latin American multinationals have moved beyond their borders to acquire size, and the Mexican Grupo Bimbo, the world's most important baking goods company, provides a good example. Trade agreements like the 20-year-old NAFTA between Canada, Mexico and the U.S., have offered a stable framework to facilitate the expansion into the U.S. of Mexican multinationals such as Grupo Bimbo. This has allowed them to gain in scale and become more competitive globally.

In my research into the internationalization of multilatinas, I found a number of additional motivations to move abroad. The ups and downs of the regional markets often prove to be challenging for the survival of companies. Cemex initially went abroad to compensate the economic volatility of its home market. The company's acquisition in 1992 of the Spanish companies Valenciana de Cementos and Cementos Sanson helped the company to survive the 1994 Mexican crisis and provided a natural hedge against the depreciation of the Mexican peso.

The revenues in Spanish pesetas, and later euros, compensated the losses in devaluated Mexican pesos. Through its global expansion, Cemex was also hunting for access to cheaper financing. Traditionally, emerging markets have had very high interest rates.

Even today, Brazilian interest rates are above 12 percent, which makes it very expensive for companies to finance major mergers and acquisitions. Cemex funded its aggressive international...

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