This brief is part of the Insights @ Center for Emerging Markets, a publication focused on cutting-edge ideas and advice for global leaders about emerging markets.
By Evodio Kaltenecker (Northeastern University) and Miguel Angel Montoya Bayardo (Tecnologico de Monterrey)
In short: In Latin America, multinational enterprises (Multilatinas) are increasingly using global cities as springboards for international expansion. Companies like Brazil's Embraer, Vale, and Natura, Mexico's CEMEX and Bimbo, and Argentina's Tenaris exemplify this trend, challenging the traditional view of multinationals originating solely from developed economies. Research by Evodio Kaltenecker and Miguel Angel Montoya Bayardo sheds light on the strategic importance of global cities in the internationalization of these firms.
Global cities, with their interconnectedness, cosmopolitanism, and advanced infrastructure, offer distinct advantages. Their relative policy independence allows them to adapt to global business needs, while diverse talent pools provide access to specialized skills and knowledge. These factors make cities like New York and Paris attractive to Latin American multinational enterprises—also referred to as Multilatinas—establishing a global presence. Since these cities are well-equipped to work with foreign companies, barriers to entry are lower than in other parts of a target country. This reduced entry barrier, combined with readily available professional services, minimizes the costs of operating in a foreign market. Additionally, Multilatinas, coming from comparatively weaker economies than those of multinational companies from advanced markets, have a greater need to leverage the internationalization resources available in global cities.
Kaltenecker and Montoya's study of the 100 largest Multilatinas reveals that these firms initially use global cities to build international recognition and legitimacy. They then tap into local knowledge and talent, gaining insights into international markets and adapting strategies. This new knowledge is then integrated into the global organization, fueling further expansion.
The research also reveals variations in strategies based on country of origin. Multilatinas from smaller Latin American economies are more likely to invest in global cities than those from larger economies like Brazil and Mexico, likely due to the latter's larger domestic markets and existing internal global cities. Interestingly, Mexican firms show a preference for joint ventures, possibly due to their proximity to the United States.
Managerial Implications
While market access remains the primary driver for Multilatinas investing in global cities, acquiring knowledge, financing, and talent is growing in importance. Many are still in the early stages of internationalization, suggesting significant potential for future investment.
This presents a substantial opportunity for city leaders. By actively courting Multilatinas, cities can attract valuable investment and stimulate growth. Targeted strategies, including language skills (Spanish and Portuguese) among business development officers, can significantly enhance a city's appeal.
At the same time, Multilatinas' managers must consider industry-specific strategies for choosing a global city. Manufacturing firms will have different priorities than service-oriented firms, and location decisions should reflect these industry-specific needs, such as whether access to talent, resources, or specific markets is most crucial. Furthermore, clarifying why a Multilatina seeks a particular market is critical.
Many Multilatinas underutilize knowledge spillovers, specialized talent pools, and access to global financial markets. For Mexican firms, given their preference for joint ventures, careful partner selection, knowledge sharing agreements, and planned exit strategies are vital for success. Finally, Multilatinas must consider how to manage their home country brand, overcoming potential negative perceptions or leveraging positive aspects of their home country's image through strategic PR, branding, and showcasing quality and innovation.
As Multilatinas expand internationally, global cities will continue to be crucial for their success, creating a mutually beneficial relationship driving economic growth and innovation. A nuanced approach to city selection and engagement, informed by industry dynamics and specific market objectives, will be essential for maximizing the potential of Multilatinas in global cities.
Original Work
Kaltenecker, E., & Montoya, M. A. (2023). Global cities and multilatinas: the search for global cities-specific advantages, establishment and ownership entry modes. Competitiveness Review: An International Business Journal, 33(3), 627-644.
Contact
If you are interested in learning more about this work, contact Professor Evodio Kaltenecker at e.kaltenecker@northeastern.edu.