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

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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
the proposals made by the private sector, while cautious of the potential costs of OFDI. F. Conclusion Chilean enterprises have used trade channels to access markets abroad. The exporting experience has provided valuable knowledge on new markets, their characteristics and the idiosyncrasies of consumers. This export know-how has favoured the expansion in these markets through OFDI. The stability and favourable economic conditions in Chile have created a strong base to pursue new businesses outside the country’s borders. Early reforms, the privatization of State enterprises and the acquired experience of doing business in an open, competitive economy, together with geographical and cultural proximity, gave Chilean enterprises an important competitive edge to expand internationally and take advantage of investment opportunities arising in neighbouring countries, particularly at a time when Chile had access to external financing that it could redirect into foreign investments (Calderón and Griffith Jones 1995). Chilean enterprises were especially dynamic in their internationalization during the second half of the 1990s. They are fairly small and have only limited international spread, and they are often regionally concentrated. Their initial internationalization drive CHAPTER IV 47 was due in large part to possession of competitive advantages. As their competitors in the region and elsewhere gained experience and access to the same markets, their initial advantages eroded. In many cases, the success of Chilean firms in establishing strong regional presence made them attractive targets for acquisitions by foreign TNCs (Enersis, Gener, Masisa and pension funds). However, there are examples of Chilean companies that have defended their own market against dominant TNCs (Cencosud, Ripley, Falabella), even through the acquisition of TNC assets in Chile (ENTEL, Falabella) and abroad (Cencosud). Chilean companies that have learned from experience and became more competitive, both locally and in neighbouring countries, have gradually consolidated their internationalization. Chilean investments abroad are concentrated in natural resource extraction activities or natural resource-based manufactures, in which the country has clear competitive advantages. The lack of critical assets has inhibited investments in knowledge intensive industries or in the establishment of manufacturing productive capacity abroad. The prospect for further enterprise internationalization from Chile is promising against the background of positive expectations of the Chilean economy and the desire of Chilean firms to internationalize to increase competitiveness.
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United Nations Conference on Trade
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