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

A. Introduction
Chile began to open up its economy to outside
competition in the 1970s. Economic reforms included
trade and financial liberalization, deregulation,
privatization, and the lessening of the size and role
of the State. The country integrated rapidly into the
international market by signing numerous free trade
and bilateral investment agreements with countries
in Latin America, North America, Europe and Asia.
It became a large recipient of FDI and expanded its
trade links with other countries. Pushed by growing
external competition and domestic market saturation,
some Chilean enterprises began to invest abroad.
Between 1985 and 2004, the stock of Chilean OFDI
grew from $100 million to $14.5 billion (UNCTAD
2005).
This paper examines the trends, drivers and
cases of FDI by Chilean enterprises. It discusses the
implications of Chilean enterprise internationalization
on competitiveness and analyses the policies adopted
to support OFDI.
B. OFDI from Chile: Trends and
development
In the early 1990s, a group of Chilean
enterprises, having grown in a competitive home
market shaped by early liberalization and privatization,
stood out for their competitive assets including their
financial strengths and quality of the management.
CHAPTER IV
TABLE OF CONTENTS 37
OUTWARD FOREIGN DIRECT INVESTMENT BY
ENTERPRISES FROM CHILE*
* This paper was prepared by Álvaro Calderón, Economic
Commission for Latin America and the Caribbean (ECLAC),
Santiago, Chile.
37
This group of firms included large enterprises in
telecommunications, energy, retail, pension funds
and selected manufacturing industries. Saturated
local markets and investment opportunities in other
Latin American countries encouraged Chilean firms
to invest abroad. 16 With their efficient management
practices and early experience operating in open and
deregulated markets, some large Chilean enterprises
saw opportunities to invest in the neighbouring
countries that were starting a similar market opening
process.
The local capital market provided access
to funds that supported the expansion of leading
companies in Chile. The strong performance of
enterprises in finance and manufacturing sectors and
the promising prospects of the Chilean economy
offered new possibilities to raise external financing. 17
In particular, Chilean companies started looking abroad
to raise funds provided by institutional investors.
Listing of stock in foreign markets, especially through
American Depository Receipts (ADR) and bonds,
provided new resources for companies to undertake
expansion abroad. Chile became a sort of “recycling
centre” for international funds (Calderón and Griffith-
Jones 1995). Along with improved access to finance,
the Chilean authorities relaxed foreign exchange
regulations, making investments abroad easier.
Chilean OFDI grew rapidly in the 1990s, more than
in any other Latin American country (ECLAC 1998,
p.142; figure 1).
16 OFDI opportunities in the neighbouring countries emerged
because of the return of stability, market reforms, regional
integration (especially Mercosur) and privatization in the host
countries.
17 With average GDP growth rates of 7 per cent between 1990
and 1998.