Edition 34, Strategy

The New Multilatinas and their Challenges: The Colombia Case

By: Veneta Andonova y Mauricio Losada

Although it is no longer new the follow-up of multinational companies in emerging countries, its study is relatively a new interest in literature that specializes in international businesses. This interest is due to a certain fact that is that up until a few years ago, the purchase of companies abroad was almost the exclusive power of developed countries multinational companies, but currently many firms of emerging economies have consolidated as multinational leaders in their sectors, buying companies in highly competitive markets. Some of those cases are: Cemex, the Mexican cement producing company that today is the second cement company in the world, Companhia Vale do Rio Doce (CVRD), the Brazilian mining company and Embraer, the Brazilian manufacturer of aircraft. These multinational companies of a Latin American source are examples of the Multilatinas.

How do Multilatinas emerge?

In an attempt to explain the growing expansion of multinational companies from emerging markets, some of the proposals related to the traditional internationalization theories have lost their relevance. Santiso (2008; p.12) states that now it is not enough to think that access to cheap labor, the control of natural resources or managerial/technical skills acquired during periods of state protection, are sufficient arguments to explain this trend. Their ideas stem from these approaches by stating for example that innovation is a distinctive feature of the main emerging countries including Latin-American multinationals.

Another explanation to the phenomenon of the multilatinas is provided by Cuervo-Cazurra (2008; p.148). This author states that the changes in the institutional environment forced companies to face new scenarios, in which the skill to innovate and grow was crucial to stay current in the markets. The liberalization of the economies that took place at the end of the eighties in most of the Latin-American countries allows the entrance of world renowned foreign companies to respond with improvements in their efficiencies and innovation.

By tradition, the studies on Latin-American or multilatinas multinational focus above all in Mexican and Brazilian companies that sometimes include Argentinean or Chilean companies, and leave aside the rest in the “others” categories. However, it seems that this approximation to the study of multilatinas companies will have to change at least for the Colombian companies. In the most recent study of these organizations made by the America Economía magazine, a notorious growth in sales of the Colombian Multilatinas happened between December 2008 and December 2009; high above the data of Mexican and Brazilian enterprises. This new dynamism amongst Multilatinas that also coincides with a global crisis presents interesting questions on the strategy of Colombian multinationals and the threat this could represent for the Mexican and Brazilian consolidated enterprises.

In the first place, it is possible to analyze the multinationalization movement of several Colombian companies to better understand their positioning in international markets due to the recent Cuervo-Cazurra (2008) hypothesis, that states that multilatina companies (Colombian, Mexican or Brazilian) have some advantages when they decide to embark on even less developed institutional environments (Africa, for example).

The importance of the institutional environment for the companies lies in that it is a given scenario, the managers develop the necessary skills to manage the institutional world contingencies that surround them, they generate assumptions and attitudes that influence the way firms establish relationships with their environment (Cuervo-Cazurra & Genc, 2008; p. 961). In a multinationalization process, the comparison between the local institutional environment and the institutional environment of the country where it takes its investments, may give the firm “signals” of the degree of easiness / difficulty it will face during the process and in the subsequent development of its entrepreneurial activities in the host country.

In accordance with this statement, one can expect that when foreign investments are made, a firm tries to enter those countries where institutional conditions are similar or lower than those they usually face in their country of origin. This would allow companies to benefit from the experience in managing difficult institutional conducts and would positively impact their competitive advantage abroad. Below we shall assess this hypothesis to see if it reflects the behavior of Colombian companies and if it explains the spectacular growth in sales of Colombian multilatinas which is way higher than the figures reported by Mexican and Brazilian companies. In addition, we shall present some proposals on the internationalization strategy of multilatinas in general.

The Empirical Study

One of the difficulties in studying a new phenomenon is the lack of data on the object of interest. This work is no exception, and therefore the first step in the research was the construction of a data base of companies that made direct foreign investments (DFI) from Colombia in any place in the world. Information was searched in the specialized press on Colombian companies that had made direct investments abroad in the period 2000-2008.

Information was gathered on the year of operation, the sector and the country to which the investment was destined. In addition, it was investigated if a company belonged to a national entrepreneurial group and if it had any experience in international markets (exports, acquisitions, affiliates, etc.). Twenty six companies were identified and 15 beneficiary countries of DFI from Colombia. In the data base of the Superintendencia de Sociedades de Colombia (Colombia’s Superintendence of Corporations) data of current assets and current liabilities was collected and the current ratio of the companies identified was calculated.

Simultaneously, information was collected on the institutional differences between Colombia and the DFI countries of destiny. Databases of the Heritage Foundation were studied to determine the Economic Freedom Ratio (ILE, as per initials in Spanish) of Colombia and the country of destiny in the year in which the investment was made. The same procedure was followed with the World Wide Governance Indicators (WWGI) data of the World Bank, from which he Rule of Law (ROL) indicators were taken.

The table herein below summarizes the relationships found in the variables studied and the decision to make DFI by the Colombian companies between 2000 and 2008 using a logistic regression.

Belonging to an entrepreneurial group, in the international experience of the current ratio are variables that in accordance with the data, do not significantly impact the probability that the Colombian firms included in the study decide to go with DFI to a specific country. Physical distance does have a significant effect on the decision to do DFI and this result supports the approaches of the incremental multinationalization model companies us, for example when making investments in nearby countries benefitting from the knowledge they have or acquiring additional knowledge with more ease, due to the fact that the exchange of information becomes more fluid in view of the existence of common elements such as language or the history of countries; these issues facilitate the mobility of the various key elements to be successful in the multinationalization process, such as factors associated to capital, management technologies and capacities of the human resources in general.

At the same time, we see that the institutional difference between Colombia and the countries of destiny negatively affect the decision of Colombian companies to make DFI. That is, the companies try to establish operations in countries that are not only physically and culturally close, but also institutionally, to benefit from the knowledge on the management of its operations in institutional environments with a similar degree of development. Also, we found that the firms do not take into consideration if the institutional environment in the country of destiny is stronger or weaker than the Colombian, only if there is or not a difference with the institutional environment of Colombia. For the Colombian multilatinas, this result only partially supports the recent idea of Cuervo-Cazurra et al. (2008; p.975) on the potential of multilatina companies in institutionally less developed environments and it has major strategic implications for the internationalization policy of these companies. We find that in general, Colombian companies continue to follow a strategy of multinationalization influenced by the similarity of conditions and the sudden increase in the sales volume of these companies cannot be explained by the hypothesis of search of institutional differences. In summary, it seems that the increase in presence of the Colombian multilatinas is due to their capacity to benefit from factors of similarity and closeness and not so much by the more risky strategies presented by Cuervo-Cazurra et al. (2008). This result is of interest to the Mexican and Brazilian multilatinas that traditionally excelled in the studies of multilatinas in part due to the fact that their internationalization strategies have been different.

Final Thoughts

The partial support to the ideas recently presented based on which the competitive advantage of the multilatinas could be built regarding the capacity to manage an underdeveloped institutional environment deserves a final thought. The first multilatinas, like the Mexicans or Brazilians built success when they conquered markets in institutional environments more competitive developed than theirs. This internationalization strategy was and is difficult to follow by Latin companies that more recently opted for internationalization specially in sectors with little innovation and technological development. In general these companies are from Latin countries that opted for commercial liberalization later and their companies are less experienced in competing with the leading multinational companies in their sectors. What the Colombian case reveals is that the companies that are facing such a situation almost always try to expand not so much in the markets of developed countries that have well organized institutional environments; they rather try to establish operations in the neighboring countries whose development level is similar. Given that several of these “new” multilatinas point to strategies which target market is “the base of the pyramid” or the massive Latin clients, its entrance in other Latin markets has the potential of destabilizing the competitive advantage of local competitors. Consequently, one has to be attentive to a new wave of multilatinas that do not opt to invest in the wealthy countries nor do they want to operate in less developed countries, such as the Africans for example, where it has been argued that there is a true opportunity for multilatinas. The “new” multilatinas look for clients in other Latin countries with similar development. Undoubtedly, companies in the traditional birth countries of multilatinas such as México and Brazil should take note.


America Economía, (2010) http://rankings.americaeconomia.com/2010/multilatinas/ (página consultada el 10 de julio de 2010)

Santiso, J. (2008). “La emergencia de las multilatinas”. Revista de la CEPAL, 95: 7-30.

Cuervo-Cazurra, A. y Genc, M. (2008). “Transforming disadvantages into advantages: Developing-country MNEs in the least developed countries”. Journal of International Business Studies, 98: 957-959.

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