Latin American Business Strategy Embraces Diversification
Juan Castro Sloan '98
Local and global forces are pushing Latin American companies to become multinationals, to expand both regionally and worldwide. Some of the strategies for success include acquiring firms to move into new markets; focusing on large corporations or on a narrower set of products or services; and bringing in new management when necessary.
The advice came from panelists at the 2004 Latin American Business Conference, “Global Opportunities for a Growing Region,” held at Stanford University’s Graduate School of Business on January 24. The daylong event was organized by the MBA student Latin American Club. Top executives from some of the biggest Latin American companies headlined the event along with investment experts for the region and young entrepreneurs from Venezuela, Puerto Rico, and Chile. Their discussion of the challenges and opportunities of Latin America’s expanding markets captured the attention of more than 100 people—most of them business students—eager to apply these lessons to their own enterprises. Indeed, when one of the speakers asked who in the audience was planning to start a business of their own, the vast majority raised their hands. When the question was how many of those businesses would be founded in Latin America, at least half of the hands stayed up.
Successful Latin American companies no longer operate strictly within the confines of their national markets. Expansion tends be regional at first, where a common language and culture make “copy/paste” strategies possible, and then moves to the United States in its second stage.
One example came from John Muldoon, president of Bimbo Bakeries USA, a name well known in Latin America but not recognized when it came to the United States. “Our first idea was to sell the same products with a different name. It was a big failure,” said Muldoon. In the mid and late nineties, Bimbo tried again, this time merging with various tortilla manufacturers and acquiring well-known U.S. brands such as Oroweat, Mrs. Baird’s, Entenmann’s, and Thomas’. Today, the company is the fourth largest bakery in the United States.
Bimbo’s U.S. commercial success validates the company’s preference for mergers. The dilemma “to build or to buy,” explained Muldoon, is one of the key decisions involved in expansion processes. Panelists agreed that acquisitions present a significant advantage. They accelerate the expanding company’s capacity to achieve a critical mass of production and, therefore, to gain access to key customers.
When a new company is acquired, the first step is to change its management, said Jose Domene, MBA ‘79, chief operating officer of glass manufacturing giant Vitro and former president of the international division of Cemex, one of the world’s largest cement firms.
“If you want to change a company, change the CEO,” said Domene. “He’s the first that has to go.” Replacing local managers with Mexican executives in countries such as the United States and Spain has been particularly challenging. “In the United States, they always look down upon Latinos,” he said. In Europe, he added, “It’s worse.” Of course, having a degree from a prestigious American university such as his Stanford MBA helps, he said.
Domene and Juan Castro, Sloan ‘98, Cemex’s vice president of planning and marketing, shared a panel focusing on Vitro and Cemex strategies that led them to become the largest glass and cement manufacturers in Latin America. The two Mexican companies are now among the two or three biggest in their domain worldwide. In both cases, geographical diversification has been as important as product specialization and brand positioning, the executives said.
Domene’s experience at Cemex helped him pull Vitro out of the critical situation in which he found the company in 2000. “It was exactly the same case Cemex faced in the eighties,” he said. The formula to grow, he explained, was based on two things: focusing on glass and, therefore, selling more than 60 companies not related to the industry; and expanding out of Mexico into Latin America, the United States, and Canada, as well as into Europe.
Another barrier to acquisition, said Domene, is the high proportion of family-owned businesses in the region. Families, he said, tend to overestimate the value of their companies.
Other speakers saw family ownership as supporting growth and expansion. “Family-owned businesses can go global and outperform their markets,” said panelist Violy McCausland-Seve, a pioneer in restructuring, mergers, and acquisitions in Latin America and current CEO of VMS Associates. Because families focus on building a long-term patrimony, theirs is a more “patient capital.” “They are more likely to reinvest and defer payouts” and are less vulnerable to the pressures of short-term profits, she explained. In the United States today, one-third of the S&P 500 companies are family-owned.
Alfredo Carvajal, CEO of the Carvajal Group—a company born with his grandfather’s purchase of a printing press 100 years ago — further illustrated this phenomenon: There are 28 Carvajales working in the company, which has a presence in 15 Latin American countries, the United States, and Spain.
Carvajal, Vitro, Bimbo, and Cemex became multinationals only after establishing themselves as leaders in their home countries. Newer companies in Latin America, however, are being created specifically with international markets in mind. According to young entrepreneurs Rafael Somoza, MBA ‘96 (CEO of Viu Media); Ariel Poler, MBA ‘94 (chairman and co-founder of Topica); and Pablo Gimenez (head of Intel Capital for southern Latin America), there is enough money in the region to start such ventures. What is needed is the professionalism to take advantage of these opportunities. The entrepreneurs advised those willing to take on the challenge to focus on unique local needs and industries still lagging in professionalism and efficiency. In addition, they recommended starting in the region’s biggest markets, relying on local networks and employees, and building a strong reputation by avoiding unethical practices.
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