Latin American Multinationals Challenged by HR Issues

Consequent to their rapid rise in recent years, Latin American multinational companies (MNCs) face many workforce challenges in foreign markets, especially when expanding via mergers and acquisitions, according to a recent survey report.

Global professional services consultancy Towers Watson’s 2013 survey of Latin American MNCs reveals companies’ great appetite for entering new markets, though obstacles abound. The most vexing workforce issues companies cited with their overseas operations were recruiting talent and a frequent lack of sophisticated succession planning.

“Despite their quick growth, Latin American multinationals still face many barriers,” the report said. “These MNCs need to focus more on their HR strategies, especially when they expand via [mergers and acquisitions], which pose particular HR risks. Also, talent management among those wishing to advance to the next internationalization stages should be more consistent globally, and their succession planning, which can jeopardize the viability of a company if a key operational position goes vacant, still has a long way to go.”

The 2011-12 survey included responses from 33 MNCs in eight countries: Argentina, Brazil, Chile, Colombia, the Dominican Republic, Mexico, Peru and Uruguay. The selected companies have, on average, more than 25,000 workers and collectively employ 840,000 people.

‘Seizing Opportunities’ in the Global Market

Latin American MNCs have entered foreign markets that seemed out of reach a few decades ago, according to Towers Watson. “While Western economies have been keeping a watchful eye on Asian multinational companies, Latin American MNCs have been sharpening their skills in the global arena and are poised to become fierce competitors,” the report said.

Latin American MNCs have operations in 13 countries, on average. Specifically, about 69 percent of respondents reported having a presence in North America, and 60 percent reported having facilities in Western Europe.

Brazilian multinationals have operations in the most countries, followed by Argentinean and Mexican MNCs. The most widespread type of operation worldwide is sales, according to survey results.

Eighty-eight percent of respondents plan to explore new markets over the next three to five years, despite current financial troubles in Europe and the slow economic recovery in the U.S. Although Latin American MNCs are ready to enter new markets, the desire to further expand within the region is still high. Those with plans to expand were asked to identify their target countries, choosing more than one option if applicable: 67 percent intend to expand in Latin America, 30 percent to Asia-Pacific, 18 percent to Africa and 15 percent to Europe.

“Asia is expected to be very attractive to Latin American MNCs for exploration and development because of its large markets and natural and human resources,” the report noted. “Moreover, many Asia-Pacific countries are eager to attract foreign investment, and many Latin American companies have taken advantage of the financial and tax incentives being offered in these countries.”

HR Challenges

The survey found that from an HR perspective, mergers and acquisitions are the most challenging entry mode, garnering 55 percent of total responses. This reflects the difficulties of cultural and organizational integration.

Latin American companies will need to bridge a significant cultural gap to succeed, particularly in Asia and Africa, Towers Watson said. “It can be argued that Latin American MNCs as well as Asian MNCs have an advantage in Africa over competitors from developed countries because of their experience with similar government, political and economic systems and environments.”

Easier entry modes include Greenfield investments—in which a parent company creates a completely new enterprise as a subsidiary or expands its own firm—which do not require companies to adapt to established organizational cultures; and joint ventures, the “safest mode of entry when the company does not know its target market well, which can easily be remedied by creating a strategic alliance with local companies.”

Respondents perceived Asia and Africa to be very challenging because of their geographical vastness and cultural and linguistic differences. They cited not only the difficulty in finding employees willing to work in and travel to these regions but the challenge of locating qualified local workers.

Even though HR assigns high importance to cross-cultural understanding, these efforts have yet to yield beneficial results, according to respondents.

While Latin America is generally considered an easy region to do business in, within the region, Brazil is the most difficult country to enter, survey results reveal, primarily because of its complex legal framework and high costs.

The most common workforce obstacle to international growth is lack of succession planning (cited by 57 percent of respondents), followed by the loss of talent in key skill areas (cited by 42 percent). Other HR challenges Latin American companies mentioned include the following:

• Aggressive recruiting from competitors (33 percent).
• Inability to attract necessary talent (27 percent).
• Inability to pay at competitive levels (18 percent).

At the bottom of the scale, only 6 percent regard disengagement among workers or an inability to use incentives to reward performance as challenging areas.

Curiously, while a slim majority of surveyed companies said they involve their HR function in identifying and mitigating workforce risks—including succession planning, executive compensation design, talent retention and quality assurance—only 12 percent reported that HR directors and executives are full members of the standing risk committee. In about 15 percent of these companies, HR directors and other executives participate in local and international risk management decisions only in specific areas, such as occupational safety and training.

“Although they face many challenges, Latin American multinationals have performed very well in recent years, achieving global recognition,” Towers Watson concluded. “MNCs from the developed world are aware of the threat they pose and view their increasing strength as a near-term challenge.”

Roy Maurer is an online editor/manager for SHRM.

Follow him @SHRMRoy

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