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THE NEW LATIN CORPORATION
These savvy companies are moving beyond national borders
Miguel Gomez Mont Urueta has put roofs over the heads of half a million of Mexico's working poor. As chief executive of Corporacion GEO, the country's largest low-income housing developer, he expects to put up many more. Mexico needs at least 5 million houses and apartments. This year, GEO is building 19,000 two-bedroom homes in attractive developments that cluster houses and apartments with schools, shops, and cultural centers. Since the houses are modular, purchasers can easily upgrade them as their fortunes improve. "We want to do for housing what Henry Ford did for the automobile," says Gomez Mont.
And profit from it. GEO, long a contractor for Mexico's public housing authority, has tripled its sales since 1993, when the government got out of the housing business, to $246 million last year. Its stock has risen to $25.80, from $17.50 when it went public in 1994. Now, GEO is taking its low-cost formula to Chile and to poor southern U.S. communities. "We can compete with anybody," says the 44-year-old Gomez Mont, who runs the company with six other directors in a collegial style that is rare for Latin America.
GEO is one of Latin America's corporate stars. A decade after most governments in the region began opening their markets to trade, competition, and investment, a new breed of Latin American company is making its mark. Run by a generation of relatively young and internationally savvy managers, they are expanding rapidly, not just at home but throughout the region. Technology-driven groups are exploiting low costs and North American Free Trade Agreement connections to supplant Asian suppliers to U.S. companies. Indeed, the region's corporate strengths are a contrast to the problems in Southeast Asia, where heavy debt has caused widespread distress among companies.
BUSINESS WEEK has taken a close-up look at the new Latin American corporation. Based on scores of interviews with CEOs, fund managers, and business consultants, we have identified companies that stand out as leaders. They include new Latin multinationals whose clout is expanding as trade barriers fall. Others are companies that are zeroing in on the region's new consumer class (tables). Innovators and entrepreneurs, meanwhile, are tapping a nascent flow of risk capital, while blue chips reinvent themselves to match foreign competition. The state is fast withering, too, with billions of dollars of assets now in private hands.
BIG PLAYERS. What all these companies share is the conviction that they must equal their global rivals in technology, productivity, and entrepreneurial drive. With multinational heavyweights encroaching fast, in businesses from banking to supermarkets, Latin corporate pacesetters also know that in many sectors they must grow or perish. In electric utilities, where foreign competition is fierce, "Latin America is for big players now," says Ricardo Alvial Munoz, investor relations director for Chilean energy conglomerate Enersis, which supplies electricity to 32 million people in the region.
While few Latin companies are well-known beyond the region's borders, that's starting to change. Mexico's Cemex recently bought a stake in a Philippine cement maker, extending its earlier march into Europe and the U.S. Smaller, but no less competitive, is Brazilian textile maker Coteminas, whose state-of-the-art factories are turning out garments that undersell even Chinese rivals. "A number of Latin American companies have figured out how to be world-class competitors," says Roberto Batres, head of consultant Arthur D. Little Inc.'s Latin American division. "They have done everything possible to lower their costs, become more efficient, and export all they can."
What shaped many of these winners--and wiped out thousands of others--was the financial squeeze of the 1982 debt crisis and the ensuing free-market reforms that stripped away trade barriers and subsidies in many countries. The survivors ditched products in which they had no chance of competing, plowed resources into cutting-edge technology, and sent promising young executives abroad for MBAs. Many went public and learned how to communicate with investors. With the return of corporate financing to the region, these companies are thriving.
Nowhere is this new Latin dynamism more evident than in companies chasing opportunities for cross-border investments. Economic opening has let companies leverage the strengths they've developed at home by taking them abroad. Chilean companies, up to now, have led the way, cashing in on the business knowhow they've accumulated since they pioneered open markets in the mid-1970s. Flush with cash from fast growth and a buoyant stock market, they have plowed more than $8 billion in the past five years into cross-border investments from mining to breweries and paper products.
Chile's pension fund managers have been among the most aggressive emissaries, offering expertise they gained setting up the region's first privatized pension system. Provida, Chile's biggest fund, with $5.4 billion in assets under management, has already captured 30% of the market in Colombia and 25% in Peru. Last year, it started a Mexican pension fund with local and Spanish partners.
Other companies are border-hopping with new factories and distribution systems. For decades, Mexico's Grupo Industrial Bimbo has baked and delivered bread and cakes to thousands of mom-and-pop stores. Its 13,000 trucks travel unpaved roads to villages all over the country. Now, Bimbo vans are carting locally baked bread throughout 11 countries, from Guatemala to Argentina. Bimbo earns 16% of its annual $1.9 billion in sales outside Mexico.
Argentine candymaker Arcor has adopted the same strategy. This year, it expects to top $1 billion in sales to 75 countries. Arcor started eyeing foreign markets in the 1970s, when Argentina was still a protected backwater. "We brought in good technology and became very efficient in order to compete with the rest of the world from inside a closed country," says Daniel Feraud, general manager of the international division. Now with five factories throughout Latin America, it plows more than $60 million a year into regionwide advertising to hold onto its consumer base.
The ability to round up new customers is a skill the best of the new Latin companies are honing. As growth has taken off and inflation slowed, the region's 470 million consumers are demanding products and services that were once beyond their reach. To be sure, there are big gaps in income across the region's 28 countries. While Argentina boasts a per capita income of more than $6,000, Nicaragua's is less than $500.
But incomes have been rising, often quickly. In Chile, incomes are up more than 5% a year since 1990. Just to walk the streets of Lima or Sao Paulo is to see that millions of people are slowly moving up the income ladder from grinding poverty toward the middle class. Latin America's new business class is tuned in to the new opportunities. Sales are booming as they develop products for lower-income families or offer more sophisticated goods and services to richer consumers.
Retailer Elektra is targeting Mexicans eager for a taste of the consumer society. The company has built a half-billion-dollar business selling everything from washing machines to VCRs to the 9 of 10 Mexicans who make less than $5,900 a year. "We sell poor people goods on credit when nobody else will," says Elektra's Chief Financial Officer Luis J. Echarte.
To keep the customers coming back, Elektra is constantly unrolling new schemes. The latest is a savings account launched in August with Mexico's third-largest bank, Banca Serfin. Customers unable to make the minimum deposit that most banks require can begin earning interest with as little as one peso--12 cents--on deposit in their account.
In Peru, retailer Carsa has taken Elektra's approach a step further: It not only sells appliances through stores and mobile outlets but also finances building materials for bare-bones shanties. Carsa's goal is to win loyal customers early, as they take their first steps up the path to prosperity.
Further up the income scale, Banco Excel Econimico, known as Brazil's "populist bank," is catering to a growing middle class. It allows interest-free overdrafts for 12 days or more on some checking accounts. Excel also struck a deal with Sao Paulo cinemas to reserve 20% of seats for the bank's credit-card customers until just 10 minutes before show time--a perk that's prized in the traffic-plagued city of 18 million.
Leisure activities such as movies and concerts were the first items cut from family budgets when inflation was soaring. Now, Latins are spending more of their reals and pesos on entertainment. Enter Mexican mogul Alejandro Soberon Kuri: Ten years ago, the former movie producer launched Corporacion Interamericana de Entretenimiento (CIE) to promote international music concerts in Mexico. Soberon, now 37, figured that Latin America, with 34% of its population under 15, was a ripe venue for rock concerts, sports events, and theater.
SMART SET. CIE shook up the live-entertainment business by introducing telephone ticket sales in a joint venture with Ticketmaster. CIE also manages sports stadiums, industrial expositions, and theaters, handles 50% of all soccer stadium advertising, and does telemarketing for clients. Soberon plans to take his formula to other Latin countries, starting with productions of Walt Disney Co. theatrical shows throughout the region.
Latin America's smart set is also the target of Saraiva Livreiros Editores, Brazil's leading publisher and Latin America's No.1 bookstore chain. Book sales are up 60% since Brazil tamed triple-digit inflation in 1994. Now, Saraiva is pioneering the megabookstore in Latin America with stores featuring Internet cafes. Five dollars buys 30 minutes on the Net and a snack of pao de queijo, a Brazilian cheese-filled bread.
Saraiva's chief operating officer, Ruy Mendes Goncalves, wanted to build a chain of megastores after spotting an outlet in France 15 years ago. But "it was too early for Brazil," he says. He waited until after the country lifted its ban on imported software and video games in 1992. In the meantime, Goncalves was almost arrested in Madrid in 1994 as he videotaped a megastore to show his colleagues in Brazil.
Such enthusiasm is the stuff of many of the managers running Latin America's hottest corporations. Bright, hard-working, often U.S.-trained executives are in charge at many top companies, from retail and finance to industry. Entrepreneurial and innovative, they're hustling to take advantage of technology and freer trade to expand.
Josue Christiano Gomes da Silva, 33, is one of Brazil's hardest-charging managers. With an MBA from Vanderbilt University, he runs one of the world's lowest-cost textile producers, Coteminas. By investing in the best technology, Gomes da Silva can crank out T-shirts for a wholesale price of 75 cents while a similar shirt from China goes for 90 cents.
His strategy is to boost the company's margins by moving from his textile base into clothing. After just two years in the business, he is Brazil's largest T-shirt manufacturer. The company wants to get two-thirds of its sales through higher-ticket clothing by 1999, up from 15% now. Coteminas' revenues grew 16%, to $223 million, last year, and analysts think it could top $1 billion early in the next century.
Fast-moving companies such as Coteminas are likely to get a closer look from global investors. Analysts say Gomes da Silva hopes to raise $100 million from an issue of American depositary receipts later this year. Other entrepreneurial companies, such as Mexico's Softtek, are looking for capital, too. A regional pioneer in custom-designed software, Softtek recently snagged contracts from four U.S. companies, including General Electric Co. CEO Gerardo Lopez Garcia, who wants to go public in a few years, expects Softtek's sales to nearly double, to almost $60 million this year, as it vies for contracts usually farmed out to India.
Even many of Latin America's establishment companies are starting to step lively. Blessed with considerable resources from years of protected markets, the better companies are remaking themselves. These conglomerates, many of them family-owned, are shedding businesses, hiring new managers, and tapping outside markets.
In Argentina, for example, the Perez Companc conglomerate is dumping real estate and other businesses to focus on energy. It's investing $900 million this year in oil, gas, electricity, and petrochemicals from Venezuela to Chile, often in partnership with heavyweights such as Exxon Corp. "Our idea is to become one of the world's major energy companies. Latin America is the first step," says Daniel Rennis, manager of corporate financial planning.
CORRUPTION. Despite the hard-won gains, Latin companies still face challenges. At many levels, Latin America is still an underdeveloped region, with legal systems that are politicized and often corrupt, thin capital markets, and low savings levels. While many companies are giving multinationals a fight, the assault from outside is intensifying as Latin markets prove more promising. To fortify themselves, many are taking on foreign partners in joint ventures and alliances.
Such infusions of foreign equity aren't bad, of course. And they may mean a faster transfer of top management knowhow. Meanwhile, day by day, Latin America's corporate pacesetters are consolidating the region's free-market reforms. By ignoring national boundaries they're creating a close-knit regional economy out of a continent long fragmented by economic nationalism. The next step, of course, is for Latin America's hottest players to become the equals of the United State's, Europe's, and Asia's best companies. That means greater clout and greater wealth. For Latin America's executives and citizens alike, that is a hopeful prospect.By Geri Smith and Elisabeth Malkin in Mexico City, Ian Katz in Sao Paulo, Andrea Mandel-Campbell in Buenos Aires, and John Pearson in New York