Vol. 2 No. 2 (2008)

Welcome to the third issue of the Journal of Globalization, Competitiveness and Governability in the Latin American Region!

A number of events have taken place since the last issue, once again showing the growing interrelation between the world’s various geographical areas.

We have witnessed rising food prices with great concern. These are due to a number of factors, such as higher energy and fertilizer prices, higher demand for biofuels, the gap between supply and demand, and the fall in productivity. According to figures released by the Inter-American Development Bank, the growth in demand for energy in Latin America and the Caribbean could reach 76% by 2030. Experts are suggesting that an investment of 1,600 million dollars would be required in order to meet this demand. In addition, energy production would have to grow by 145%. Thus, in Mexico, for example, the demand for electricity will grow at an annual rate of around 6% between now and 2013, requiring an investment of 5,500 million dollars per year to increase electricity generation capacity.

With regard to the region’s 16 countries which are net importers of oil, the rise in the price of hydrocarbons poses an additional challenge, since not only does it affect local economies and production costs but it also weakens competitiveness. At the same time, producers are obtaining lower productivity from their hydrocarbons deposits, and are thus at risk of becoming consumers. In addition, the slowdown in the US economy has had serious repercussions not only in Latin America – especially in relation to its exports – but worldwide. In relation to this, it is worth remembering that the United States has a trade deficit, since it is the largest importer worldwide.

On a different matter, the US election campaign provides a unique opportunity to speculate on possible changes to that country’s policy regarding this region. The relationship between the United States and Latin American has indeed been mentioned several times in the candidates’ speeches, and this topic is a matter of consideration for their foreign policy teams and advisors. There are still certain important matters to be decided in the relationship between the next administration and the region. These include, among others, some Free Trade Treaties, the demand for a fixed seat for Latin American countries in the United Nations Security Council, and the direction to be taken by the migration reform.

The third issue of our magazine appears with the world in this state. It is comprised of eight very different articles. In theirs, Esteban García Canal, Mauro Guillén, Pablo Sánchez Lorda and Ana Valdés Llanesa provide an in-depth analysis of the evolution of the international growth undergone by Spanish companies towards Latin America. Their study is based on a systematic database promoted by the Spanish Foreign Trade Institute (ICEX) which includes information broken down by company and ranging a broad time period (1986-2007). It examines time, sector and geographic patterns based on the type and aim of operations and on the participation of members or collaborators. The study shows that this region has not lost its appeal to Spanish companies. In addition, the authors show that Latin America has been a destination not only for large companies competing in regulated sectors but, rather, that the companies conducting business in this area form a more heterogeneous group than one might think.

In the second article, Martin Mullins, Finbarr Murphy and John F. Garvey assess the relationship between the State in emerging economies (in the specific case of Brazil) and the financial markets. They claim that access to a more dynamic financial market reduces a country’s political risk by minimizing the probability of crisis in that sector. Financial systems in Latin America suffer from a very high degree of vulnerability. Debt is seen as a political element in which investors are concerned about the gaps between politics and debt markets. The authors argue that the use of financial instruments plays a significant role in reducing market volatility. They refer in particular to Credit Default Swaps, which aim to limit investors’ credit risk. The results can be confirmed by observing the volatility and yield of Brazilian Government bonds between 1997 and 2008. For the purposes of this article, the said institution’s intervention comprises loans for public administration reforms and country strategies drawn up from the 1990s. One of the core arguments of this work is that the “appropriation” of reforms relies not only on government authorities’ willingness to take some public policy decisions but that there are also other variables, such as the State’s tax and financial situation, the bureaucratic aspect of its structure and the relations between the state apparatus and other actors. Finally, the success of the World Bank’s assistance to countries turns around the implementation of institutional reforms and their long term sustainability.

José de la Torre examines the evolution, characteristics and challenges of the corporate governance system in Latin America. According to him, globalization and the Latin American economies’ liberalization and privatization processes of the 1990s had an impact on the context in which the companies in the region conducted themselves. Thus, having started their activities in isolation from the firms established in neighboring countries, they were forced to adapt to the global and regional market integration policies. To that end, they undertook transformation processes which determined their future with regard to ownership, corporate governance and organizational structures. This study compares these evolution processes in multinational and multiLatin companies. It concludes that multiLatin companies must increase their management development investment in order to maintain their competitiveness and successfully meet the challenges of globalization.

In “Silent Revolution: An Early Export from Pinochet’s Chile”, Felipe Moreno describes the “Chilean economic miracle”, based on the reforms put in place by the “Chicago Boys”, and their export to other countries. Following his rise to power, Pinochet put in place an economic reform movement – later known as “neoliberalism” – based on opening up the economy, privatizing State-owned companies, and less government control over private activities. Some people claim that a free society led by the market must be born of an authoritarian regime. However, both the implementation of the free market model and the return to democracy are responsible for turning Chile into a model of balance worldwide. Indeed, in spite of the impact of fluctuating international crises, Chile has managed to grow even during difficult times.

In their article, Manuel Suarez-Barraza and Juan Ramis-Pujol present the second part[1] of a piece of qualitative research which seeks to answer the following question: How do you achieve sustainable Continuous Process Improvement (CPI) in Public Administrations? On this occasion, the authors answer with other questions: What paths of sustainability can be seen? And what enhancing and inhibiting factors can influence the evolution of the various paths of sustainability? The article refers to the study of four Spanish town councils which – like all other public administrations – are not only facing the challenge of embarking on modernization processes but must also sustain those reforms in time so that they may have a positive impact on their day-to-day management.

Roberto Fernández Gago, on his part, looks at the issue of Corporate Social Responsibility (CSR), assessing the relationship between this and Corporate Strategy. Specifically, he shows the extent to which CSR is an integral part of business strategy both at corporate level and at business level. The author concludes that the strategic view of CSR is based on the idea that, although socially responsible behavior undoubtedly involves short term sacrifices, it also results in long term gains. Using data on the social awareness of Spanish citizens and companies operating in Spain, he provides evidence of the benefits of including CSR in corporate strategy.

Finally, Rebeca Vidal questions the nature of entrepreneurship in Latin America. After reviewing the relationship between entrepreneurship indicators (taken from the Global Entrepreneurship Monitor) and the institutional environment for doing business (taken from the World Economic Forum), she establishes trends on the potential increase in competitiveness levels in the Latin American region. She also analyses the main challenges faced by these countries to achieve greater competitiveness in their business models.