Global Players from Emerging Markets: Strengthening ... - Unctad

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14 Outward Foreign Direct Investment by Enterprises from Argentina 18000 16000 14000 12000 10000 8000 6000 4000 2000 0 Source: ECLAC. Figure 2. OFDI cumulative flows from Argentina and other large outward investors from Latin America, 1992-1997 and 1998-2004 (Millions of dollars) 1992 -199 7 (ii) most firms operated independently and with a small volume of ramifications and/or diversification in the local market; they were also in general not connected to the financial system; (iii) companies were often national leaders in their respective markets, having developed under an import-substitution regime (that included protection, government credit and promotion mechanisms); (iv) they developed their own technological capital by adapting existing product and process technologies to the characteristics of the local market; many also came to produce new and original products; and (v) they often operated with a high degree of vertical integration, largely as a result of the insufficient degree of development of independent distribution networks. By the late 1970s and early 1980s, crisis in the domestic market, factors inherent to the firms, and crisis and changes in target markets, led to the closing down of most of the Argentine operations abroad. It was only after the crisis of the 1980s and the beginning of the internationalization process with the adoption of new OFDI policies that they began to pick up again. A new wave of OFDI took place, against a background of overseas investment by Argentinean trade liberalization, deregulation, privatization and stabilization programmes. Investments in this period were undertaken mainly in neighbouring countries or in developed countries. 1998 -200 4 Argentina Brazil Chile Colombia Venezuela Mexico OFDI from Argentina took off in 1992 (figure 1). The country was the largest outward investor in Latin America and the Caribbean during the period 1992-1997 (figure 2).This upward trend was provoked by the restructuring of Argentine industry, which came as a response to the economic transformations during that decade (Kulfas 2001). OFDI flows peaked in 1997 and 1998, led by investments made by large enterprises including Arcor, Pérez Companc and Techint (table 1). Since 1998, OFDI flows from Argentina declined in each consecutive year, except in 2003. While OFDI flows recovered in 2003-2004 from the dramatic disinvestment in 2002, they remained under $1 billion. 10 Macroeconomic crisis and the acquisition of important Argentinean companies by foreign investors contributed to the OFDI decline in the early 2000s. Geographical destination. The large acquisitions made by Argentine companies took place within the Latin American region, reflecting the influence of geographical proximity, business knowledge and cultural affinity. Investment opportunities created by the privatization process in the region were also a determinant. Between 1997 and 2000, 85 per cent of Argentine OFDI flows were directed at Latin American countries, of which 31 per cent in Brazil and 28 per cent in Venezuela (Kosacoff 1999). This geographical distribution was prevalent throughout the 1990s up until 2004. This is not to say that OFDI was limited to the region. Some enterprises 10 Available data do not yet permit an interpretation of the beginning of a reversal of the previous trend.
Table 1. Largest acquisitions abroad by major economic groups in Argentina: the peak years of 1997-1998 Source: ECLAC, based on Kulfas (2001) and Techint. CHAPTER II 15 Acquiring Target Host country Year Value company company of transaction (millions of dollars) Arcor group Koppol (packaging) Brazil 1997 25 Dos en Uno (food products) Chile 1997 200 Clarín Cable operators Paraguay 1998 n/a Macri Group Isabela (food products) Brazil 1997 n/a Zabet (biscuits) Brazil 1997 38 Chapecó (refrigeration) Brazil 1998 135 Pérez Companc Petroleum Commercial Supply (oil and gas) United States 1997 1.8 Exploration area La Concepción Guatemala 1997 76.5 Exploration area Colpa y Caranda Bolivia 1997 5.9 Exploration area Acema Venezuela 1997 20.5 Soldati Onado (oil and gas) Venezuela 1997 5.1 Techint Sidor (steel) Venezuela 1997 192.3 Tavsa (steel pipes) Venezuela 1997 n/a such as YPF have invested in the United States and also in Indonesia seeking access to natural resources; Impsa invested in Hong Kong (China), Malaysia and the Philippines; and Techint has operations in North America, Europe and Japan. Sectoral distribution. Most of Argentina’s OFDI flows in the 1990s were in non-financial activities. The country’s participation in crossborder mergers and acquisitions concentrated in the oil and gas, iron and steel, and food sectors. From 1990 to 1996, the oil and gas industry accounted for 82 per cent of OFDI flows from Argentina, followed by the food industry. Since the late 1990s, Argentine oil companies that invested abroad, such as Pérez Companc and YPF, have sold their assets to other TNCs, the Brazilian Petrobras and Spanish Repsol respectively. Steel remains a leading industry for OFDI, a position reinforced by the recent acquisition of the Mexican company Hylsamex by Techint, which will be discussed below (box 1). Other industries investing abroad at the end of the 1990s, included food and beverages, engineering and construction, pharmaceuticals, petrochemicals, telecommunications, information services, banking and construction materials. Characteristics of firms undertaking OFDI. Besides acquisitions, a number of SMEs, especially export-oriented ones, have been a significant agent of development. They have also been the subject of important government support policies in Argentina. OFDI by these companies has become an increasingly important issue as the number of exporting SMEs has risen significantly and their investment abroad is often strongly linked to, or preceded by, exports (CEP 2005). Data on overseas investments by SMEs from Argentina are scarce. However, positive results are visible in some industries such as software (box 2) and agricultural machinery (box 3). 11 In general, Argentine OFDI has been marketseeking, either to intensify exports or to meet host country demand through local production. In some cases, they were related to taking advantage of incentives offered by the host countries. OFDI by larger Argentine companies also provide SMEs in Argentina with important opportunities to market their products overseas through business linkages between them. Techint’s investments abroad have had that effect in recent years (Techint 2004). C. Drivers and motivations The motivations of early internationalization by Argentina enterprises (1930s-1970s) include: 11 Although some of the companies mentioned in the boxes below have grown beyond the official limit of medium-sized enterprises, they still maintain management characteristics that justify their inclusion in the category of SMEs.
Page 2 and 3: United Nations Conference on Trade
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