Ever since the 1990s, the arrival of large volumes of FDI in Latin America and the Caribbean has led to much asset transnationalisation in the region. This process is revealed in sales data for the 500 largest enterprises operating in the region. The figures show the importance acquired by transnational corporations (TNCs) in goods-producing activities and in service provision.

Whereas in 1990 TNCs accounted for 25% of total sales, by 1999 their share had peaked at 43% (see chart 1) and FDI had reached its highest level. From that year, the foreign share began to decline, a slide which coincided with a sharp drop in FDI inflows to the region. Nonetheless, TNCs still account for 36% of the sales of the 500 largest companies there.


TNCs have a forceful presence in manufacturing and services. In the first case, they largely dominate many medium and high-tech industries, such as automotive and electronics. They have concentrated their operations in assembly plants in Mexico, from where they supply the North American market, and, to a lesser extent, in Brazil and Argentina, supply from which is oriented more towards the domestic market and the Mercosur bloc.

Along with medium and high-tech industries, a wide range of low-tech manufacturing industries such as clothing also operate under the assembly-plant system. These are in Mexico and in the countries of the Caribbean Basin.

TNCs are also broadly based in the services sector, which has been growing steadily since economic reforms led to the privatisation, deregulation and liberalisation of the public utilities in most of the region’s countries. This was the sector that received the largest FDI inflow in the second half of the 1990s.

Steady growth

The new climate for public-utility provision allowed TNCs to gain ground steadily by buying state-owned assets – and, sometimes, businesses owned by local private capital – mainly in energy, telecoms, finance and infrastructure. This process explains the growth of service-providing TNCs while the importance of state-owned firms has waned (see chart 1). It also explains the largest firms’ declining participation in the primary and manufacturing sectors, although the latter still displays the largest overall presence.






Market share

The relative decline in the TNC presence since 1999 has enabled locally owned private firms to expand in a number of service areas, specifically those where foreign firms previously held a large share.

Economic crises in several countries in the region meant several services companies showed disappointing results, especially those providing non-tradable services. At times like these, when demand slumped across the board, the inability to redirect production towards other markets was decisive in the results of these firms, even causing some of them to withdraw altogether from the countries in which they were operating.

Argentina suffered particularly from withdrawal when the economic crisis, compounded by social and political instability, forced a number of TNCs established there to refocus their strategies. Several of them closed their operations, which opened up opportunities for local enterprises to take on more active roles. In this way, whereas from 1998 to 2002 only about 30% of mergers and acquisitions in the region were intra-border – involved investors from one country buying assets in the same country – in 2003 about half of such operations were of this type.

This phenomenon, in which local agents take advantage of investment opportunities such as the purchase of foreign-held assets, probably indicates that during regional uncertainty local agents are better informed and more willing to take risks.

Alongside these factors, the repositioning process was facilitated by several local groups being highly liquid after previous M&As processes in which foreign firms had acquired local assets on a massive scale.

Manufacturers lead

Despite TNC sales weakening in the last few years, the consolidated sales of the 50 largest firms in Latin America amounted to $220bn in 2002, or 29% of the total sales of the 500 largest firms in the region, a figure similar to that of 1999.

TNCs’ sales volume in the manufacturing sector account for 62% of total sales by the largest 50 TNCs. Manufacturing is concentrated in the automotive and autoparts industry, based mainly in Mexico and Brazil. Key examples include General Motors, Volkswagen, DaimlerChrysler, Ford and Nissan in automotives and Delphi, Lear Corporation, Visteon Corporation and TRW in autoparts.

Firms in the services sector contribute 28% of the sales of the 50 largest TNCs, with telecoms firms posting the most vigorous expansion. In fact, Telefónica de Espańa is now the largest foreign firm in the region. From 1999-2002, its sales more than tripled, raising it from third place in order of sales volume in 1999 to first in 2002. It has also expanded to cover almost the whole continent, with its main operations in Argentina, Brazil, Chile and Peru. It also has presences in Colombia, Venezuela, Mexico and a number of Central American countries.

Firms such as Telecom Italia, MCI (formerly WorldCom) and Verizon joined the list of the 50 largest transnationals in the region, mainly thanks to operations in Brazil and Argentina.

Primary-sector TNCs account for just 10% of total sales, largely corresponding to extraction of hydrocarbons. The large TNCs active here are firms that traditionally have had a major presence in the region, such as Royal Dutch/Shell, ExxonMobil and ChevronTexaco. Alongside these, Repsol-YPF is the largest TNC in the sector, and is also the only large Spanish enterprise operating outside the services sector.

US domination

US-based TNCs dominate in the region. They account for 45% of total sales of the 50 largest transnationals. Spanish firms account for about 20% of the total sales, and German enterprises score 11%. The countries in which TNCs have the strongest presence are Mexico and Brazil, where they generate 53% and 31%, respectively, of the sales of the 50 largest TNCs in Latin America.

Firms in the automotive industry are important in both countries, but especially in Mexico. In Brazil, the services sector has also become important, with the local subsidiary of Telefónica de Espańa becoming the largest of the TNC subsidiaries present in the region.

Argentina’s case is notable. Poor results by subsidiaries of the 50 largest TNCs in some cases led them to abandon their operations in the country. This meant that Argentina generated just 6% of the sales of the largest TNCs in 2002, compared with 13% in 1999.

State-owned firms

Latin American state-owned firms have maintained a strong position in the primary sector, despite having lost some ground because of privatisation processes. State-owned enterprises had roughly a 75% share of the sales of the 25 largest firms in the primary sector from 1990 to 2002. In the last few years, strong international oil prices have meant the state share has actually increased.

Although the state has shed much of its old role as producer of goods and services, leaving the space vacated to foreign enterprises, this did not happen in the hydrocarbons sector, where, given the strategic nature of this resource, the enterprises generally remained in government hands. The only exceptions to this pattern are Argentina, Bolivia and Peru, which privatised their oil companies in the 1990s. Accordingly, the region’s largest firms are to be found in this sector, including Petróleos Mexicanos (Pemex), Petróleos de Venezuela (PDVSA) and Petróleo Brasileiro (Petrobras), which almost without exception have shared the three first places in the general list of the 500 largest firms. In 2002, this trio accounted for over 15% of the total sales of this list.

Progress in services

TNCs’ expansion in services can be seen more clearly by considering the hundred largest firms in the sector. In this group, TNCs have expanded vigorously, whereas state-owned enterprises have generally declined. Until 1994, TNCs accounted for about 10% of total sales (see chart 2), with a few firms, mainly in Argentina and Brazil, operating in the retail sector (Carrefour and Makro) and in telecoms (Telefónica de Espańa and Telecom Italia). Starting in the second half of the 1990s, however, the foreign presence in the services sector became increasingly clear, as other countries carried out large-scale privatisations. In addition to increasing in number, their range also expanded to cover more subsectors, mainly telecoms and energy, and more countries in which they were establishing their operations. Although Argentina and Brazil continued to be major hosts for these firms, Chile and Mexico also gained importance.






The most significant moves illustrating the transnationalisation of the sector included the so-called Operación Verónica, in which at the end of the last decade Telefónica de Espańa consolidated its regional system by raising its equity stake in its Brazilian, Argentine and Peruvian subsidiaries to almost 100%. The takeover of the Chilean electric power enterprise Enersis by Endesa Espańa was also highly significant in the configuration of the regional map of the electric power subsector, because this acquisition led to a series of operations to acquire energy assets in Argentina, Peru, Brazil, and elsewhere.

In the retail trade, Wal-Mart’s subsidiary in Mexico expanded vigorously, taking over supermarkets in that country to become a major sectoral player at local and regional levels. The entry of the Netherlands’ Royal Ahold and France’s Carrefour in the late 1990s also contributed to the regional restructuring of the sector. Nonetheless, from 1999 onwards, sales growth among TNCs in the services sector began to falter. Several of them abandoned the region altogether, leaving gaps for local investors to fill.

Unchanging presence

The largest manufacturers have faced a different situation. TNCs here display a major and virtually unchanging presence. State participation has been practically nil

(see chart 3).





Among manufacturers, the leading enterprises have permanently been subsidiaries of large automotive firms established in Brazil and Mexico, such as General Motors, DaimlerChrysler, Ford and Volkswagen. Other important subsectors have been the food industry and computers and electronics.

The largest operations carried out in the manufacturing sector, involving the entry of new transnational players, include the purchase of Grupo Embotellador México (Gemex) by PepsiCo in late 2002.

The panorama in the brewing sector has also altered, with operations involving regional groups, such as Cisneros (Venezuela) and Bavaria (Colombia), together with TNCs, including Heineken (Netherlands) and Budweiser (US). In March, the merger between the Brazilian brewer AmBev and Interbrew of Belgium created the world’s largest brewery, pushing Anheuser-Busch (of the US) into second place.

Analysis of the 200 largest exporting firms in Latin America and the Caribbean also reveals a process of transnationalisation in economies. From 1990-1994, 25% of all exports came from TNCs, whereas 10 years later their share was 42%.

The most dynamic sector, in which TNC presence is greatest, is manufacturing, which is explained largely by automotive and electronics activities in Mexico, and clothing and electronics in Central America and the Caribbean, based on an efficiency-seeking strategy.

Manufacturing exports virtually quadrupled between the first five years of the 1990s and the first three years of the new decade to top $113bn. With such explosive growth, this sector’s share in the total exports of the largest exporting firms grew from 42% in the early 1990s to 56% in the first few years of the new millennium. This increase has also resulted in a relative loss of share for firms in the primary sector, whose exports, although doubling, have accounted for a declining share of the total, shrinking from nearly 50% at the start of the 1990s to 36% in the first few years of this century.

The primary export sector, which plays a key role in the economies of several South American countries, also shows a heavy presence of TNCs engaged in hydrocarbons extraction – including ChevronTexaco, Royal Dutch/Shell and ExxonMobil – and in mining, where subsidiaries of BHP Billiton and Anglo American, among others, are operating. Although the exports of this sector grew by 115% from 1990-2002, its relative share among the 200 largest exporting firms has declined, given the remarkable expansion of the manufacturing share.

This extract first appeared in ‘Foreign Investment in Latin America and the Caribbean, 2003’, published by the Economic Commission for Latin America and the Caribbean (ECLAC) Unit on Investment and Corporate Strategies. To see the full report, visit www.eclac.cl