Illustration: ©iStockPhoto.com/FMNG
The largest 500 companies in Latin America are growing substantially faster than the countries in which they are based. Welcome the Latin Holdcos, the region’s new entrepreneurial phenomenon.
Latin America’s entrepreneurial panorama has two salient innovations. The first is the region’s 500 biggest non-financial companies had combined sales of $2.7 trillion in 2012. That’s slightly larger than Brazil’s GDP and equal to the combined sales of the world’s 14 largest companies. Their revenues grew by 8.1 percent last year, which is 2.6 times greater than the 3.1 percent growth of Latin America’s GDP.
These figures are tremendously important because they show that the companies are growing at an accelerating pace. At the current rate, they could double their revenues in eight years. But, it also shows up the gigantic lag in the rest of Latin America’s productive structure. For economic growth to be at its current level, it’s obvious that the smaller businesses are moving at a different speed, substantially slower.
The academic literature is full of studies that show that behind this phenomenon of slow growth is a problem of productivity. The numbers allow us to see what a serious issue this is. Calculations from the Oecd show that the productivity of Latin America’s large companies is six times greater than that of the small and medium-sized businesses. In that organization’s member countries, the difference between the large and small companies is 2.4 times in terms of productivity. What’s worse is that small businesses comprise 99 percent of all companies, and account for 67 percent of the region’s jobs.
There are several parts to an action plan to improve this situation. One is to end the isolation of small businesses from the productive sector. The governments and the Latin 500 could do a lot to link this archipelago of lagging companies to the bigger ones with expanding markets. By the same token, improve their access to innovation, education, information technology and financing. Success in this project would undoubtedly also reduce the inequality of opportunities that permeates the region.
Small business policies aren’t the only solution. There is a surprising absence of companies from the service sector, apart from telecommunications and transportation, in the Latin 500 ranking. Sales from companies in health, media, education, water and other services come to barely 2 percent of the total revenues of the Latin 500. There is also a large body of studies which shows that productivity in services is one of the fundamental conditions for economic growth. Yet another task for businesses and government.
There’s one other strategy: to preserve and promote the growth of the 500. It might appear strange to suggest support for the wealthy, but improving business conditions for large companies is not a bad idea. Taking advantage of their accelerated expansion may anticipate the arrival of material prosperity to nations. Just ask Singaporeans.
The second major innovation. In 2012, the Latin 500 ranking shows a notorious advance of the holding companies. Last year, they reported a 46 percent increase in their revenues. In 2012, there were 11 holding companies on the 500 list, with combined revenues, which represent 4.6 percent of total sales. In 2011, there were 8, with 3.4 percent of the total.
This is not a passing phase. Reorganizing conglomerates around a holding company, or holding company´s expansion, is a new trend for corporate Latin America. We have christened them Latin Holdcos, the holding companies of the Latin American groups.
Santiago Gutiérrez,
Executive Editor
sgutierrez@latintrade.com