Foreign Investment in Latin America and the Caribbean 2007 (Economic Commission for Latin America and the Caribbean)

209 Pages·2008·14.86 MB·English

by  United Nations

2007
Foreign
Investment
in latin america
and the caribbean
 Economic Commission for Latin America and the Caribbean (ECLAC)
Foreign Investment in Latin America and the Caribbean, 2007 is the latest edition of a series issued annually by the Unit on Investment
and Corporate Strategies of the ECLAC Division of Production, Productivity and Management. It was prepared by Alvaro Calderón,
Michael Mortimore, Márcia Tavares and Carlos Razo, with assistance from Sebastián Vergara, Fazia Pusterla, Silvia Navarrete and
Gilberto Elías. Contributions were received from consultants Mario Alberto Becker, Raimundo Beca, Martín Fransman, José Saul
de los Santos Gómez and Walid Hejazi.
ECLAC wishes to express its appreciation for the financial contribution received for the preparation of chapters II and III
from the European Commission’s Alliance for the Information Society (@LIS) in Latin America and the Caribbean programme. It
should be noted, however, that the views expressed in these chapters do not necessarily reflect the official views of the European
Union. ECLAC is also grateful to the government officials and corporate executives who were interviewed for the preparation of
this document.
Special thanks are due to the Mining Association of Canada, the Prospectors and Developers Association of Canada and the
Department of Foreign Affairs and International Trade of Canada for their assistance. The logistical support and substantive inputs
provided by the ECLAC subregional headquarters in Mexico, and particularly by Ramón Padilla, are also greatly appreciated.
The information used in this report has been drawn from a number of international agencies, including the International Monetary
Fund (IMF), the United Nations Conference on Trade and Development (UNCTAD) and the Organisation for Economic Co-operation
and Development (OECD), as well as from a host of national institutions, including central banks and investment promotion agencies
in Latin America and the Caribbean, and specialized press. A debt of gratitude is owed to the specialized journal, América economía,
which was the source of extremely valuable data on the operations of leading firms in the region.
Please send any comments or suggestions regarding this publication to Michael Mortimore (email: [email protected]).
Notes
The following symbols are used in tables in this edition of the Foreign Investment:
Three dots (…) indicate that data are not available or are not separately reported.
A dash (–) indicates that the amount is nil or negligible.
A point (.) is used to indicate decimals.
Use of a hyphen (-) between years (e.g., 2001-2005) indicates reference to the complete period considered, including the beginning
and end years.
The word “tons” means metric tons and the word “dollars” means United States dollars, unless otherwise specified.
References to annual rates of growth or variation signify compound annual rates, unless otherwise specified.
Individual figures and percentages in tables do not necessarily add up to the corresponding totals because of rounding.
United Nations Publication
ISBN: 978-92-1-121668-4
ISSN printed version: 1680-8649 ISSN online version: 1681-0287
LC/G.2360-P
Sales No.: E.08.II.G.11
Copyright © United Nations, June 2008. All rights reserved
Printed in Santiago, Chile
Applications for the right to reproduce this work are welcomed and should be sent to the Secretary of the Publications Board, United Nations Headquarters,
New York, N.Y. 10017, U.S.A. Member States and their governmental institutions may reproduce this work without prior authorization, but are requested
to mention the source and inform the United Nations of such reproduction.
Foreign Investment in Latin America and the Caribbean •  007 
Contents
Page
Abstract .................................................................................................................................................................................... 9
Summary and conclusions .............................................................................................................................. 11
Chapter I
Foreign direct investment and transnational corporations (TNCs) in Latin America and the
Caribbean ............................................................................................................................................................. 21
A. Introduction ...................................................................................................................................................... 21
B. Global context .................................................................................................................................................. 22
C. FDI inflows and transnational corporations in Latin America and the Caribbean .......................................... 25
1. Trends and features of FDI flows into Latin America and the Caribbean in 2007 ...................................... 25
2. Importance and distribution of non-financial TNCs in Latin America and the Caribbean .......................... 32
3. FDI from the point of view of corporate strategies ...................................................................................... 35
4. Conclusions .................................................................................................................................................. 54
D. Outward foreign direct investment and the trans-Latins .................................................................................. 55
1. Outward foreign direct investment flows in 2007 ........................................................................................ 55
2. The main trans-Latins .................................................................................................................................. 59
3. The main sectors in which trans-Latins invest ............................................................................................. 62
4. Conclusions .................................................................................................................................................. 69
E. Final considerations ......................................................................................................................................... 70
Annex.................................................................................................................................................................... 71
Chapter II
The information and communications technology hardware industry in Latin America:
investments and business strategies ........................................................................................................... 79
A. Introduction ...................................................................................................................................................... 79
B. Changes in the global industry ........................................................................................................................ 80
1. International systems of integrated production (ISIP) ................................................................................. 80
2. International systems of integrated production in the electronics industry .................................................. 81
C. Implications of the changes in the global industry .......................................................................................... 83
1. The change in ICT hardware industry trade patterns ................................................................................... 83
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2. From macro to micro: repercussions of the strategies of leading enterprises
in the ICT hardware sector ........................................................................................................................... 84
3. Repercussions on the telecommunications network segment ...................................................................... 90
D. The industry in Latin America: the experiences of Mexico and Brazil ........................................................... 93
1. Brief history of the ICT hardware industry in Mexico and Brazil ............................................................... 93
2. Current overview of the ICT hardware industry in Mexico and Brazil ....................................................... 95
3. Repercussions of global restructuring in the ICT hardware industry .......................................................... 100
E. Conclusions and policy implications ............................................................................................................... 103
Chapter III
Telecommunications operators: investment and corporate strategies in
Latin America and the Caribbean .................................................................................................................. 105
A. Introduction ...................................................................................................................................................... 105
B. Global market for telecommunications services: an industry in the throes of change .................................... 106
1. Erosion of traditional sources of income ..................................................................................................... 106
2. End to the industry’s traditional segmentation and the sudden emergence of new challengers
to the dominant operators ............................................................................................................................. 109
C. Operator’s response: opting for convergence? ................................................................................................. 111
1. Regional consolidation: search for economies of scale and components for integrated service provision . 112
2. Redefining the core business: convergence, connectivity, mobility and speed ............................................ 114
D. Latin America: operators gamble on mobility ................................................................................................. 123
1. Foreign operators and the mobile telephony boom ...................................................................................... 123
2. Companies reposition themselves: towards a regional duopoly? ................................................................. 125
3. Latin America and convergent services: the role of alternative companies ................................................. 130
4. Is there a market for mobile convergent services? ....................................................................................... 132
E. Conclusions ...................................................................................................................................................... 136
Chapter IV
Canadian FDI in Latin America and the Caribbean ................................................................................... 139
A. Introduction ...................................................................................................................................................... 140
1. Canadian development trajectories .............................................................................................................. 140
2. Canada as an FDI recipient and an outward investor ................................................................................... 141
3. The debate and changing policies on FDI and OFDI in Canada.................................................................. 145
B. The main corporate strategies associated with Canadian OFDI ...................................................................... 147
1. The main companies operating in Canada ................................................................................................... 147
2. The FDI internationalization strategies of Canadian companies ................................................................. 151
C. Canadian companies operating in Latin America and the Caribbean .............................................................. 159
1. Overview of case studies in Latin America and the Caribbean .................................................................... 163
2. Canadian companies seeking natural resources ........................................................................................... 164
3. Canadian companies seeking markets (national or subregional) ................................................................. 174
4. Canadian companies seeking efficiency through export platforms .............................................................. 181
5. Final reflections ............................................................................................................................................ 184
Annex.................................................................................................................................................................... 185
Bibliography ........................................................................................................................................................ 191
ECLAC publications .......................................................................................................................................... 205
Tables
Table I.1 Global distribution of net FDI inflows in the world, by groups of recipient countries, 1992-2007............... 24
Table I.2 FDI inflows to Latin America and the Caribbean, by recipient country, 1993-2007 ..................................... 27
Table I.3 Complementarities between the Royal Bank of Canada and RBTT financial group ..................................... 40
Foreign Investment in Latin America and the Caribbean •  007 
Page
Table I.4 Expansion of the network of the main new participants in the Mexican banking system ............................. 41
Table I.5 10 largest transnational exporters in Mexico, 2006 ....................................................................................... 51
Table I.6 El Salvador: vertical integration of the clothing and apparel sector .............................................................. 53
Table I.7 Central America and the Caribbean: diversification of efficiency-seeking FDI ............................................ 53
Table I.8 Brazil, Chile, Colombia: OFDI destinations, 2007 ........................................................................................ 58
Table I.9 The largest non-financial companies and groups of Latin America and the Caribbean,
in terms of sales, with investments outside their countries of origin ............................................................. 60
Table I.10 Trans-Latins: proportion of sales made by subsidiaries abroad, in and outside Latin America
and the Caribbean (2006 figures) ................................................................................................................... 60
Table I.11 Trans-Latins that figure among the largest companies in individual countries .............................................. 61
Table I.12 PDVSA: refining capacity expansion projects ............................................................................................... 63
Table I.13 Gerdau’s investments: 1997-September 2007 ................................................................................................ 65
Table I.14 Sales volume and ranking in the cement, pre-mixed concrete and aggregates market
of the United States ........................................................................................................................................ 66
Table I.15 Cemex: standing in the main segments of the global value chain after the acquisition of Rinker ................. 66
Table I-A-1 Latin America and the Caribbean: net inflows of foreign direct investment, by country
and subregion, 1998-2007 .............................................................................................................................. 72
Table I-A-2 Latin America and the Caribbean: net inflows of foreign direct investment, by destination sector,
1998-2007 ...................................................................................................................................................... 73
Table I-A-3 Latin America and the Caribbean: net inflows of foreign direct investment, by country of origin,
1998-2007 ...................................................................................................................................................... 75
Table I-A-4 Latin America: top 60 non-financial transnational corporations, by consolidated sales, 2006 ...................... 77
Table I-A-5 Latin America and the Caribbean: net flows of outward foreign direct investment, by country,
official figures, 1998-2007 ............................................................................................................................. 78
Table II.1 International trade in ICT products ................................................................................................................ 84
Table II.2 The 10 largest producers of ICT goods, 2005-2006 ....................................................................................... 85
Table II.3 Revenue concentration of the top 10 CMs (EMS and ODM) in 2006 ........................................................... 88
Table III.1 Largest mergers and acquisitions in the telecommunications sector, 2003-2007 .......................................... 112
Table III.2 Leading European operators: main targets of their internationalization strategy, 2007 ................................. 113
Table III.3 Main operators: technology path of advanced mobile communications (3G) in the market of origin .......... 122
Table III.4 América Móvil, Telefónica and Telecom Italia: operations in Latin America, December 2007 .................... 125
Table III.5 Latin America: technology path of the main operators’ advanced mobile communications ......................... 134
Table IV.1 Sectoral distribution of the top 300 firms operating in Canada, by revenue, 2006 ........................................ 147
Table IV.2 Canadian global leaders, 2006 ....................................................................................................................... 150
Table IV.3 Stocks of Canadian OFDI in Latin America and the Caribbean, 1970-2007 ................................................. 160
Table IV.4 Principal Canadian companies with investments in Latin America and the Caribbean, 2003,
with acquisition update to end 2007 ............................................................................................................... 161
Table IV.5 Presence of Canadian mining companies in Latin America and the Caribbean, by assets, 2006 .................. 167
Table IV-A-1 Canada’s top 300 companies, by revenue, 2006 ............................................................................................ 186
Figures
Figure I.1 Latin America and the Caribbean: flows of foreign direct investment and outward
foreign direct investment, 1993-2007............................................................................................................. 22
Figure I.2 FDI inflows as a proportion of GDP, developing regions, 1990-2007 ........................................................... 25
Figure I.3 OFDI from developing countries and transition economies, 1990-2007 ....................................................... 25
Figure I.4 Latin America and the Caribbean: net FDI inflows by subregion, 1990-2007 .............................................. 26
Figure I.5 Latin America and the Caribbean (selected countries): ratio of net FDI inflows to GDP, 2005-2007........... 27
Figure I.6 Latin America and the Caribbean: sectoral distribution of FDI inflows, 2007 .............................................. 30
Figure I.7 Latin America and the Caribbean: origin of FDI, 1998-2007 ........................................................................ 30
Figure I.8 Latin America and the Caribbean: sales of the 500 largest firms, 1990-2006 ............................................... 32
Figure I.9 Latin America and the Caribbean: shares of TNCs and local firms in the sales of the
500 largest firms, 2006 ................................................................................................................................... 33
Figure I.10 Latin America: sectoral distribution of the sales of TNCs, 2006 ................................................................... 33
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Figure I.11 Exports of the 200 largest export firms, by type of ownership, 2006 ............................................................ 34
Figure I.12 Sectoral distribution of the exports of the TNCs among the 200 largest export firms,
2002, 2004 and 2006 ...................................................................................................................................... 34
Figure I.13 Argentina and Brazil: production and export of the automotive industry, 1996-2007 ................................... 37
Figure I.14 Generating capacity of private operators in Mexico ...................................................................................... 42
Figure I.15 FDI flows in mining and the exploration and production of hydrocarbons: countries
for which data are available ............................................................................................................................ 45
Figure I.16 FDI flows in mining: countries for which data are available ......................................................................... 46
Figure I.17 FDI flows in exploration and production in the hydrocarbons sector: countries for which
data are available ............................................................................................................................................ 46
Figure I.18 Mexico: motor vehicle production and exports .............................................................................................. 51
Figure I.19 Mexico: motor vehicle production and exports by company ......................................................................... 52
Figure I.20 Latin America and the Caribbean: net flows of OFDI, 1990-2007 ................................................................ 56
Figure I.21 Latin America and the Caribbean: net OFDI flows, main investor countries, 2003-2007 ............................. 56
Figure I.22 Latin America and the Caribbean (selected countries): ratio of net OFDI to GDP, 2006-2007..................... 56
Figure II.1 Value added in an electronics industry supply chain...................................................................................... 82
Figure II.2 Global production networks in the electronics industry ................................................................................. 82
Figure II.3 Market shares in United States imports of network and telephony equipment .............................................. 91
Figure II.4 Mexico: exports and imports of ICT goods.................................................................................................... 95
Figure II.5 Mexico: sector structure of ICT hardware industry exports, 2000-2006 ....................................................... 95
Figure II.6 Mexico: foreign direct investment in the ICT hardware industry (average 2000-2006) ................................ 96
Figure II.7 Mexico: main geographic clusters in the ICT hardware industry, by sector specialization ........................... 96
Figure II.8 Brazil: international trade in ICT goods ......................................................................................................... 97
Figure II.9 Trend of FDI in manufacturing and in the ICT hardware sector as a percentage of the total ........................ 98
Figure II.10 Brazil: geographic distribution of the main ICT hardware producers............................................................ 99
Figure III.1 Telecommunications service subscribers worldwide, by segment, 1997-2007and projections
for 2008-2011 ................................................................................................................................................. 106
Figure III.2 World market for telecommunications services, income by segment, 2002-2007
and projections for 2011 ................................................................................................................................. 107
Figure III.3 Leading world markets for telecommunications services, by income, 2002-2007
and projections for 2011 ................................................................................................................................. 107
Figure III.4 Average revenue per user from voice and mobile telephony services in the United States,
Japan and the European Union, 2002-2006 ................................................................................................... 107
Figure III.5 Penetration of mobile telephony, by region, 2004-2007 and projections for 2011 ........................................ 108
Figure III.6 Leading telecommunications companies, by sales, 2006 ............................................................................... 109
Figure III.7 World’s ten leading operators: sales by market, 2006 .................................................................................... 113
Figure III.8 World’s ten leading operators: sales by segment, 2006 .................................................................................. 114
Figure III.9 Traffic growth: need for new networks .......................................................................................................... 116
Figure III.10 Broadband access worldwide, by technology, 2000-2010 ............................................................................. 117
Figure III.11 Broadband access per 100 inhabitants, by technology, in some developed countries, June 2006 ................. 118
Figure III.12 Costs of the various technologies for delivering convergent services ............................................................ 120
Figure III.13 Mobile telephony subscribers worldwide, by technology, 1995-2007 ........................................................... 120
Figure III.14 Subscribers to third-generation mobile telephony worldwide, by technology, 2003-2007
and projections for 2008-2012 ....................................................................................................................... 120
Figure III.15 Selected developed countries and Latin America: mobile telephony subscribers worldwide,
by technology, 2007 ....................................................................................................................................... 121
Figure III.16 Evolution of broadband Internet access technologies, from fixed and mobile platforms, 1995-2010 ........... 122
Figure III.17 Users of fixed and mobile broadband worldwide, 2005-2012 ....................................................................... 123
Figure III.18 Latin America: telecommunications service subscribers, by segment, 1997-2006
and projections for 2007-2010 ....................................................................................................................... 124
Figure III.19 Latin America: telecommunications services market, revenues by segment, 2002-2010 .............................. 124
Figure III.20 Latin America and the Caribbean: mobile telephony subscribers, by technology, September 2007 ............. 124
Foreign Investment in Latin America and the Caribbean •  007 7
Page
Figure III.21 Latin America: share of the leading operators in the main regional markets, by segment, 2007 .................. 128
Figure III.22 The innovation-based virtuous circle ............................................................................................................. 136
Figure IV.1 Canada: FDI and OFDI stocks, 1971-2007 .................................................................................................... 142
Figure IV.2 Canada: FDI stock patterns, 1970-2007 ......................................................................................................... 142
Figure IV.3 FDI into Canada, by sector ............................................................................................................................. 144
Figure IV.4 OFDI from Canada, by sector ........................................................................................................................ 144
Figure IV.5 Exposures of Canadian banks, by region, 1994-2004 .................................................................................... 152
Figure IV.6 Real price index of crude oil and metallic minerals, 1948-2006 ................................................................... 153
Figure IV.7 Long-term real international price evolution of gold, copper, zinc and nickel .............................................. 154
Figure IV.8 Canadian companies’ share of mining exploration in Latin America, 2002-2007 ......................................... 166
Figure IV.9 Barrick Gold’s project pipeline, 2007 ............................................................................................................ 170
Figure IV.10 Teck Cominco’s project pipeline, 2007 .......................................................................................................... 172
Figure IV.11 Principal commercial banks in the Caribbean, by total assets, 2006 ............................................................. 175
Boxes
Box I.1 X-ray of the main mergers and acquisitions in 2007 ..................................................................................... 23
Box I.2 Largest cross-border transactions in Latin America and the Caribbean in 2007 ........................................... 28
Box I.3 Foreign investment promotion policies in Latin America and the Caribbean –
new developments in 2007 ............................................................................................................................. 31
Box I.4 Steel: the double draw of resources and markets ........................................................................................... 36
Box I.5 Fuel distribution: transnational corporations head for the door ..................................................................... 48
Box I.6 Main acquisitions by trans-Latins outside their countries of origin ............................................................... 57
Box II.1 Success based on reinventing oneself: IBM ................................................................................................... 86
Box II.2 Hewlett-Packard (HP): from manufacturing to services ................................................................................ 86
Box II.3 Alliances, mergers and acquisitions as a way to acquire strategic assets and achieve
synergies in R&D activities ............................................................................................................................ 89
Box II.4 The global semiconductor market and its typology ....................................................................................... 90
Box II.5 The new major competitors in the telecommunications equipment market: Huawei and ZTE ..................... 92
Box II.6 FDI attraction policy in the ICT hardware industry of Costa Rica ................................................................ 93
Box III.1 The technological path of mobile telephony .................................................................................................. 119
Box III.2 Two smaller leaders in a land of giants: Millicom and Digicel lead in Central America
and the Caribbean ........................................................................................................................................... 126
Box III.3 Telefónica in Brazil: a battle for the regional market ..................................................................................... 129
Box III.4 VTR: challenging the leaders ......................................................................................................................... 131
Box IV.1 Latin American and Caribbean investments in Canada .................................................................................. 143
Box IV.2 Handling risk in the extractive industry: the case of mining .......................................................................... 152
Box IV.3 The double whammy in the Canadian mining industry since 2001 ............................................................... 156
Box IV.4 Canadian mining at the forefront of global issues facing the mining industry .............................................. 157
Box IV.5 EnCana and Ecuador: from perfect match to perfect storm? ......................................................................... 165
Box IV.6 Canadian mining companies pursue El Dorado in Latin America and the Caribbean ................................... 168
Box IV.7 Pascua Lama: litmus test for Barrick Gold’s commitment to responsible mining ......................................... 170
Box IV.8 Canada and Chile connect .............................................................................................................................. 174
Box IV.9 Pension plan internationalization via OFDI: managing risk in the financial services sector ......................... 176
Maps
Map III.1 Latin America and the Caribbean: advance of third-generation telephony among operators
of the GSM family, December 2007 .............................................................................................................. 135
 Economic Commission for Latin America and the Caribbean (ECLAC)
Acronyms and abbreviations
ADSL Asymmetric Digital Subsciber Line ISI import/substitution industrialization
ARPU average revenue per user ISIP international system of integrated
BPO business process outsourcing production
CAFTA-DR the Dominican Republic - Central America ITU International Telecommunication Union
- United States Free Trade Agreement LCD liquid crystal display
CDMA Code Division Multiple Access MIGA Multilateral Investment Guarantee
CM Contract Manufacturer Agency
COMTRADE United Nations Commodity Trade MVNO mobile virtual network operator
Database NAFTA North American Free Trade Agreement
CRT cathode ray tube OAS Organization of American States
DTH direct to home OECD Organisation for Economic Co-operation
EBITDA earnings before interest, tax, depreciation and Development
and amortization OEM original equipment manufacturer
FDI foreign direct investment OFDI outward foreign direct investment
FTAA Free Trade Area of the Americas PDA personal digital assistant
GATT General Agreement on Tariffs and Trade PDC personal digital cellular
GDP gross domestic product PTO public tender offer
GPRS General Packet Radio Service SMS short message service
GSM Global System for Mobile TDMA Time Division Multiple Access
Communication TNCs transnational corporations
HDTV high-definition television UNCTAD United Nations Conference on Trade and
ICSID International Center for Settlement of Development
Investment Disputes VDSL2 Very High Speed Digital Subscriber Line
ICT information and telecommunications VoD video on demand
technologies VoIP Voice over Internet Protocol
IFDI inward foreign direct investment WiMAX Worldwide Interoperability for Microwave
IMF International Monetary Fund Access
IP Internet Protocol WTO World Trade Organization
IPTV Internet Protocol television
Foreign Investment in Latin America and the Caribbean •  007 
Abstract
Latin America and the Caribbean received record levels the evolution of ICT hardware and telecommunications
of foreign direct investment (FDI) in 2007, with inflows services industries in the context of the technological
surpassing the US$ 100 billion mark for the first time ever. changes that have generated convergence among ICT
This development is all the more significant because the services and have had impacts both on the industrial
previous record was set in 1999 in the context of one-off organization of manufacturing and on the market structure
privatizations. The upsurge in investment was fuelled mainly and incentives for telecommunications operators. These
by market-seeking transnational corporations (TNCs) chapters provide insight into the challenges involved
intent on taking advantage of growth in local demand in maximizing the benefits of FDI in industries subject
for goods and services and by natural-resource-seeking to rapid technological change, where the regional
companies against a backdrop of buoyant global demand. strategies of transnational corporations are shaped by
Meanwhile, despite lower levels of outward FDI from the a combination of global strategies and trends in local
regions’ transnationals (trans-Latins), new companies policy and regulation. The Canadian experience is
in different industries are investing outside their home relevant both because of the country’s increasing role
countries, while some of the traditional trans-Latins are as an investor in the region in a wide range of sectors
taking their foreign investments to new levels. —from mining to autoparts to finance— and because in
This report provides an overview of FDI flows to many ways it represents a parallel to the Latin American
and from the region in 2007 and of the recent activities and Caribbean region’s own corporate evolution owing
of transnationals in the region and of trans-Latins outside to the existence of a number of seldom-recognized
their home countries (chapter I). It further explores similarities (notably, a strong natural-resource base and
three topics: investment in hardware for information a heavy reliance on the United States economy). Within
and communication technologies (ICTs) (chapter II); this context, the slowdown of the United States economy
investment in telecommunications services (chapter presents an opportunity for officials and investors from
III); and Canadian investment in Latin America and Canada and from Latin America and the Caribbean to
the Caribbean (chapter IV). Chapters II and III describe reevaluate their relationship.