Monitoring Brazilian FDI in Latin America - ESPM · OBSERVATÓRIO DE MULTINACIONAIS BRASILEIRAS DA ESPM BRAZILIAN MULTINATIONALS OBSERVATORY About us A Research Center which seeks

Monitoring Brazilian FDI in

Latin America

OBSERVATÓRIO DE MULTINACIONAIS BRASILEIRAS DA ESPM

BRAZILIAN MULTINATIONALS OBSERVATORY

About us

A Research Center which seeks to generate and

disseminate knowledge about internationalization

process of Brazilian firms.



Products

• Scanning of Brazilian Direct Investment abroad

• Benchmarking of management practices

• Diagnostic tools

• Market index

• Courses for foreign students

• Academic research



Managerial Reports



Website (Dataset)

http://23.23.206.106/observatorio



Quem somos?

O Observatório de Multinacionais Brasileiras da ESPM é um Think Tank que busca influenciar as transformações científicas, econômicas, políticas e gerenciais por meio da geração e difusão de conhecimento sobre a competitividade internacional de empresas brasileiras.

Monitoring Brazilian FDI in LA

Research Design



Overview

The study aims to understand the profile of Brazilian

firms investing in Latin America and the characteristics

of host-countries business environment



Methodology

Data was collect from multiple sources

Firm-level: primary surveys; open and private databases;

firms’ websites; academic publications; and media

Host country-level: World Bank Indicators; Heritage

Foundation; World Economic Forum; Global

Competitiveness Report among others



Sample

Composed by 449 Brazilian subsidiaries scattered across

16 Latin American countries in different industry sectors

from 1969 to 2014

The sample comprehends operations such as overseas

sales offices, distribution centers and industrial plants



Quem somos?


Prime Outcomes (Firm-level)



FDI Location # COUNTRY %

1 Argentina 30,07%

2 Mexico 14,03%

3 Chile 11,36%

4 Colombia 10,47%

5 Peru 9,13%

6 Uruguay 8,24%

7 Venezuela 4,90%

8 Bolivia 3,34%

9 Paraguay 3,12%

10 Ecuador 2,45%

11 Costa Rica 0,89%

12 Puerto Rico 0,67%

13 Dominican Republic 0,45%

14 Panama 0,45%

15 Cuba 0,22%

16 El Salvador 0,22%



Largest Firms in LA # Company

Number

of

foreign subsidiaries

Countries

1 Petrobras 29

Argentina, Bolivia, Chile, Colombia, Ecuador,

Mexico, Peru, Uruguay, Venezuela

2 Camargo Correa Contrutora 17

Argentina, Bolivia, Chile, Colombia, Paraguay,

Peru, Venezuela

3 Ibope 17

Argentina, Chile, Colombia, Costa Rica,

Ecuador, Mexico, Panama, Paraguay, Peru,

Puerto Rico, Uruguay, Venezuela

4 Gerdau 16

Argentina, Chile, Colombia, Mexico, Peru,

Uruguay, Venezuela

5 Marfrig 16 Argentina, Chile e Uruguay

6 Odebrecht Construtora 15

Argentina, Bolivia, Chile, Colombia, Mexico,

Paraguay, Peru, Uruguay, Venezuela

7 Natura 14

Argentina, Chile, Colombia, El Salvador,

Mexico, Peru, Venezuela

8 Vale 12

Argentina, Chile, Colombia, Paraguay, Peru,

Uruguay

9 Weg 11

Argentina, Chile, Colombia, Mexico,

Venezuela

10 Artecola 10 Argentina, Chile, Colombia, Mexico, Peru



Industrial Sector

Most part of manufacturing firms produce low value-added products

Primary 19%

Manufacturing 48%

Services 33%



Industry vs. Year of Entry

In the last years, IT companies are looking for

more cost effective countries

Antes de 1989

1990 - 1999

2000 - 2004

2005 - 2009

2010 - 2014

4

11

9

52

8

10

45

42

98

23

10

37

23

62

15

Service

Manufacturing

Primary



Firms’ Age

New Born: Less than 10 years old

Young: Between 10 and 19 years old

Mature: Over than 20 years old

89%

New Born 61%

Young 28%

Mature 11%



Entry Mode

Historically, Greenfield investments are the

favorite ones

Greenfield 60%

Acquisition 31%

IJV 9%



Entry Mode vs. Year of Entry

But this has been changing in the last years

Antes de 1989

1990 - 1999

2000 - 2004

2005 - 2009

2010 - 2014

21

68

50

120

10

1

17

18

76

29

2

8

6

15

7

IJV

Acquisition

Greenfield



Entry Mode vs. Industry

Services: preference for Greenfield

Manufacturing: preference for Greenfield

Primary: preference for Acquisitions

Greenfield

Acquisition

IJV

43%

51%

6%

62%

31%

7%

66%

21%

13%

Service

Manufacturing

Primary



Quem somos?


Prime Outcomes (Host Country-level)



Market Attractiveness Country

Millions Ranking % Ranking $ Ranking

Argentina 41,803,125.0 3 0.5 13 12,922.4 4

Bolivia 10,847,664.0 9 5.4 3 3,150.5 14

Chile 17,772,871.0 6 1.9 12 14,520.0 3

Colombia 48,929,706.0 2 4.6 4 7,720.0 8

Costa Rica 4,937,755.0 13 3.5 7 10,035.4 7

Cuba 11,258,597.0 8 n.a n.a n.a n.a

El Salvador 6,383,752.0 12 2.0 11 3,950.7 13

Ecuador 15,982,551.0 7 3.8 6 6,290.8 10

Mexico 123,799,215.0 1 2.1 10 10,361.3 6

Panama 3,926,017.0 14 6.2 2 11,770.9 5

Paraguay 6,917,579.0 11 4.4 5 4,479.1 12

Peru 30,769,077.0 5 2.4 9 6,594.4 9

Puerto Rico 3,548,397.0 15 n.a n.a n.a n.a

Dominica Republic 10,528,954.0 10 7.3 1 6,075.5 11

Uruguay 3,418,694.0 16 3.5 8 16,810.9 1

Venezuela 30,851,343.0 4 -4.0 14 16,529.7 2

POPULATION5 YEAR GDP

GROWTH (%)GNI PER CAPITA

Source: World Bank (2015)



Total Tax Rate (% of commercial profits)

# COUNTRY%

Brazilian FDITAX RATE

Argentina 30,07% 137,30%

Bolivia 3,34% 83,70%

Colombia 10,47% 75,40%

Mexico 14,03% 51,80%

Peru 9,13% 36,00%

Paraguay 3,12% 35,00%

Ecuador 2,45% 33,00%

Chile 11,36% 27,90%

The tax rate average in Brazil is 69%. In LA the average is 55,38%

Source: World Bank (2015)



Trade Tariffs

Bellow Average

102 Foreign Subsidiaries

Above Average


FDI Location

Puerto Rico (1,3%)

Peru (1,8%)

Costa Rica (3,9%)

FDI Location

Venezuela (12,4%)

Argentina (10,5%)

Bolivia (8,8%)

Average

6,43%

Source: WEForum (2015)



Strenght of Investor Protection

Bellow Average


Above Average


FDI Location

Venezuela (2,3)

El Salvador (3,0)

Costa Rica (3,0)

FDI Location

Colombia (8,3)

Peru (7,0)

Puerto Rico (7,0)

Average

5,2




Quality of Infrastructure Bellow Average


Above Average


FDI Location

Venezuela (2,6)

Paraguay (2,7)

Argentina (3,0)

FDI Location

Panama (5,0)

Puerto Rico (4,9)

Chile (4,7)

Average

3,82%




Corruption Bellow Average


Above Average


FDI Location

Venezuela (16,5)

Paraguay (20,5)

Dominican Republic (27,3)

FDI Location

Chile (72,3)

Uruguay (70,6)

Costa Rica (50,9)

Average

36,54

Source: Heritage Foundation (2015)



Capacity for Innovation Bellow Average


Above Average


FDI Location

Venezuela (2,8)

Paraguay (3,1)

Peru (3,4)

FDI Location

Puerto Rico (4,9)

El Salvador (4,4)

Costa Rica (4,3)

Average

3,74




Highlights

– 55 % of Brazilian FDI in LA are located in

higher economic development level

countries (by income). E.g.: Chile (11%)

– Only 4% of Brazilian FDI in LA are located in

lower economic development level countries

(by income)



Highlights

– 60% of Brazilian FDI are located in countries

with lower level of Political Risk than Brazil

– Inflation average in LA countries is 8,55% vs.

7,7% in Brazil



Highlights

Most part of Brazilian FDI in LA are located in:

Largest consumer markets,

Higher tax rates,

Poor infrastructure,

Poor capacity for innovation,

Higher corruption level.



Quem somos?


Conclusions



Research and Empirical Gaps

– What is the real importance of institutions in the

internationalization process of Brazilian firms?

– Which criteria are behind the entry mode choice of

Brazilian multinationals (managerial mindset)?



Contact

Gabriel Vouga Chueke

Email

[email protected]

Website

observatorio.espm.br

Documents

Monitoring Brazilian FDI in Latin America - ESPM · OBSERVATÓRIO DE MULTINACIONAIS BRASILEIRAS DA ESPM BRAZILIAN MULTINATIONALS OBSERVATORY About us A Research Center which seeks