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

46 Outward Foreign Direct Investment by Enterprises from Chile
synergies. In their international expansion, these
companies have emulated the central elements of
their strategies carried out in Chile. However, they
also developed some adaptations in order to obtain
a good acceptance, and to gather knowledge of
the idiosyncrasies and the necessities of the local
consumers.
The main adaptation included the search for
local partners and the establishment of long-term
relations with local suppliers and the employment of
local staff. These changes have been implemented
during crisis periods in the host countries, and the
restructuring process has been difficult. However,
the recovery of the Chilean economy, the increased
competition at home and improvement in the
expectations of the neighbouring countries’ economies
revived the interest of Chilean retail companies to
extend their presence abroad.
There were also negative implications for
Chilean enterprises as a result of investing abroad.
These include the following instances:
• Threat of acquisition. During the first cycle of
Chilean investments abroad, many of the more
successful companies were acquired by other
TNCs. This is still a threat, since global markets
are undergoing consolidation and the size of these
companies makes it difficult for them to resist
hostile takeovers by global leaders.
• Inexperienced management. In the initial
few years of internationalization, Chilean
entrepreneurs behaved in manners that were
qualified as unpopular and arrogant. Companies
named young and inexperienced managers to take
charge of the new investments outside the country.
In many cases, there were few local managers. In
the neighbouring countries, the presence of some
companies sparked nationalistic reactions.
• Lack of managerial talents. Many of the
experiences in internationalization have met the
challenge of finding qualified human resources,
both in Chile and in the target countries. Expatriate
Chilean employees created difficulties for their
headquarters and at the same time it has been
difficult to recruit new qualified personnel with
international business management skills. Many
companies have started investing in training of
their executive personnel by sending them to
academic institutions in Europe and the United
States, and by opening small offices in more
complex markets such as in Asian countries.
• Host country factors. One of the main challenges
for Chilean investments abroad has been the
political and economic instability in target host
countries in the region. Excessive bureaucracy
and poorly developed business environments have
made the operation of Chilean firms more difficult.
In many cases, these companies faced highly
competitive environments with high degrees of
informality, where they were at a disadvantage in
regard to local players which were more at ease
operating with high taxes and operational costs
linked to complex bureaucratic and tax structures.
This has been especially true in the case of Brazil
where the federal structure implies a plethora of
national, federal, state and municipal laws and
taxes. The crisis in Argentina in 2001 affected the
regulatory environment, which became a problem
for Chilean enterprises operating in that country,
especially in services.
E. OFDI policies
In the past years, the Chilean administration
has undertaken an ambitious strategy to improve the
country’s international insertion. It signed free trade
agreements and investment protection agreements
with its principal trading partners and other strategic
countries with promising growth prospects. The
establishment of these free trade agreements and the
promotion of Chilean OFDI however have not been
an important driving factor of Chilean investment
abroad. The main policy measure influencing the
firms’ decisions to invest abroad was the lifting of
exchange controls.
In addition, Chile did not have explicit
policies in promoting OFDI or in creating national
champions or regional leaders. The experience of the
late 1990s and the beginning of this decade brought
about important lessons when Chilean companies
made significant lost in overseas activities. In 2005
the two main business associations in the country,
Confederación de la Producción y el Comercio (CPC)
and Sociedad de Fomento Fabril (SOFOFA) expressed
their interest in a new strategy that would enable them
to do business outside Chile with greater safety. The
business associations proposed the possibility of
opening up capital ownership of Chilean enterprises
abroad to institutional investors such as pension funds
in the target markets, the listing of these enterprises
in the stock markets of host countries and improved
conditions for joint ventures with local partners. These
measures would reduce mistrust, provide greater
security and better the legal framework for Chilean
investment abroad.
OFDI is a strategic necessity for many Chilean
enterprises given the small size of the local market.
Therefore, there is a need for Chile to have a clearer
policy supporting outward investment and to consider