A majority of multinational companies say Latin America is their most profitable emerging-market region, which bodes well for future investment in countries such as Mexico, according to a survey by Frontier Strategy Group, a firm that works with senior business executives that target emerging markets.
The firm's more than 200 multinational clients report average operating profit margin in the region 55% higher than in Russia, India and China, while 70% of those surveyed said Latin America is their most-profitable emerging market.
Demand-side factors in Latin America allow companies to sell at comfortable margins and realize economies of scale, as a growing middle class increasingly seeks more and better products.
Multinational firms are undergoing a "paradigm shift" in which emerging-market business units have expanded to represent a larger share of their earnings pie, said Ryan Brier, Frontier Strategy Group's practice leader for Latin America.
As those country operations grow, executives must make the case for greater levels of investment from headquarters so they can continue to expand top-line and bottom-line results. Frontier Strategy Group advises companies on how to enter and operate in emerging markets.
Most of its clients are in the health-care, industrial, consumer-goods and information-technology sectors.
The International Monetary Fund projects Latin America will show combined economic growth this year of 3.6%, similar to the rest of the world but far better than its projection for a 1.4% expansion in advanced economies.
The Frontier Strategy Group's report on Latin America pegs the region's annual consumer spending at $3.7 trillion, or $6,142 per capita, compared with $3.1 trillion and $2,344 per capita for China.
Economic growth and employment gains are seen further padding discretional incomes in the region, leading aspirational consumers to trade up in brand-name goods.
Meanwhile, government spending in Latin America outpaces that of China, India, the Middle East and North Africa, the report noted, planting the seeds for growth opportunities for health-care firms that hope to sell higher-margin products in countries where consumers are demanding better care.
The large governmental role in the region's health care also enables government institutions to negotiate stiff discounts for purchases, so health-care firms view Latin America's potential for generous margin expansion as more long-term.
In retail, consumer-goods companies see opportunity among Latin America's sizeable number of mom-and-pop retailers, since a limited number of players in the modern retail space enables the big stores to squeeze margins.
Mr. Brier said optimism is skewed toward the region's second-biggest economy, Mexico, aided by the country's overhaul agenda and improved manufacturing competitiveness, as well as toward Colombia, whereas the outlook for Brazil is less certain given a slowing economy, burdensome regulation and a generally high cost of business in the region's biggest economy.
Yet executives still see Brazil's long-term potential as promising, given the country's large youthful population and natural-resource potential. "Those that didn't follow the herd mentality and stampede into Brazil are more comfortable with their positions there now," said Mr. Brier.
foxbusiness.com
The firm's more than 200 multinational clients report average operating profit margin in the region 55% higher than in Russia, India and China, while 70% of those surveyed said Latin America is their most-profitable emerging market.
Demand-side factors in Latin America allow companies to sell at comfortable margins and realize economies of scale, as a growing middle class increasingly seeks more and better products.
Multinational firms are undergoing a "paradigm shift" in which emerging-market business units have expanded to represent a larger share of their earnings pie, said Ryan Brier, Frontier Strategy Group's practice leader for Latin America.
As those country operations grow, executives must make the case for greater levels of investment from headquarters so they can continue to expand top-line and bottom-line results. Frontier Strategy Group advises companies on how to enter and operate in emerging markets.
Most of its clients are in the health-care, industrial, consumer-goods and information-technology sectors.
The International Monetary Fund projects Latin America will show combined economic growth this year of 3.6%, similar to the rest of the world but far better than its projection for a 1.4% expansion in advanced economies.
The Frontier Strategy Group's report on Latin America pegs the region's annual consumer spending at $3.7 trillion, or $6,142 per capita, compared with $3.1 trillion and $2,344 per capita for China.
Economic growth and employment gains are seen further padding discretional incomes in the region, leading aspirational consumers to trade up in brand-name goods.
Meanwhile, government spending in Latin America outpaces that of China, India, the Middle East and North Africa, the report noted, planting the seeds for growth opportunities for health-care firms that hope to sell higher-margin products in countries where consumers are demanding better care.
The large governmental role in the region's health care also enables government institutions to negotiate stiff discounts for purchases, so health-care firms view Latin America's potential for generous margin expansion as more long-term.
In retail, consumer-goods companies see opportunity among Latin America's sizeable number of mom-and-pop retailers, since a limited number of players in the modern retail space enables the big stores to squeeze margins.
Mr. Brier said optimism is skewed toward the region's second-biggest economy, Mexico, aided by the country's overhaul agenda and improved manufacturing competitiveness, as well as toward Colombia, whereas the outlook for Brazil is less certain given a slowing economy, burdensome regulation and a generally high cost of business in the region's biggest economy.
Yet executives still see Brazil's long-term potential as promising, given the country's large youthful population and natural-resource potential. "Those that didn't follow the herd mentality and stampede into Brazil are more comfortable with their positions there now," said Mr. Brier.
foxbusiness.com
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