Multinational enterprises from Latin America: investment strategies and limits to growth and diversification

Abstract

The expansion of multinational enterprises from Latin America over the previous 10 years is part of a global trend of increasing outward foreign direct investment (FDI) from developing countries. This paper proposes to analyse outward FDI in the region categorising the behaviour of the 50 largest multinational enterprises from the region and attempting a broad classification of their motivations, objectives and means for their international expansion (FDI strategies). The author argues that the prevalent strategies identified can point towards an explanation for the current downturn in FDI outflows from the region. The paper finally provides a connection between the FDI strategies and the efforts towards structural change of the economies of the region, highlighting the role of outward FDI in this process.

Keywords:

• Diversification
• growth
• investment strategies
• Latin America
• multinationals

Notes

Disclosure statement

The authors report no conflicts of interest. The authors alone are responsible for the content and writing of this article.

Notes

1 If we transport ourselves to a more remote time, the relevance of Latin America in outward FDI was even more marked: In 1980 the region accounted for almost 80% of emerging markets outward FDI stock (Dunning, Kim, and Park 2008).

2 Data on Brazil outflows have been particularly difficult to assess. The Central Bank has regularly reported negative outflows for the past few years, because intra-company loans negative balance were larger than positive capital outflows. This has consistently depressed aggregate FDI outflows from the region since 2009. A change to BPM6 methodology implemented in 2015 changed the way these loans were accounted for (they become FDI inflows rather than negative FDI outflows). This change will make a long-term comparison difficult and has been ignored in Figure 1.

3 The choice of this variable (as opposed to sales or employment) skews the results in favor of capital intensive industries but it has the advantage of coming closest to the concept of FDI as reflected in the national accounts.

4 . See http://ccsi.columbia.edu/publications/emgp/ for more details

5 For this exercise I have categorized forest companies within natural resources, even if they also own processing plants.

6 The transnationality index of Petrobras and Pemex is only 1%. This index provides a measure of the importance that foreign affiliates have for a company. It is a simple average of three ratios: foreign assets to total assets, foreign employment to total employment and foreign sales to total sales.