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Accenture Outlook the Will to Win Latin America

Accenture Outlook the Will to Win Latin America

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Published by: Accenture on Jun 25, 2012
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08/22/2012

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The journal o high-perormance businessThis article originally appearedin the 2012, No. 2, issue o 
Emerging Markets | Latin America
The will to win
 By Carlos Niezen, Tomas Rodriguez and Omar Diaz Flores
Latin America’s best companies have a simple strategyor consistently proitable growth: a single-minded ocuson what they do best and a deep-seated conidence intheir own capabilities.
accenture.com/outlook
 
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Outlook 2012
Number 2
Double-digit returns on equity,similarly stellar returns to shareholders,exponential growth in revenues—thisis not the sort o perormance usuallyassociated with Latin Americancompanies. These days, however, theregion’s best players are on a roll.Take Chile’s Falabella. In the pasttwo decades, the Santiago-basedmultiormat retailer has expandedaggressively beyond its relativelysmall home market, replicating ahighly successul domestic businessmodel in Peru, Colombia and Argentina. And with annual revenue in excesso $10 billion, Falabella has returneda whopping 27 percent to shareholdersover 10 years. Yet such success stories are still rarein Latin America. Despite enviableexpansion—the region has managed tomaintain an average annual growthrate o 5.3 percent since the nancialcrisis o 2008–09, considerably better than the United States, with 2.4 percent,or Europe, with just 1.7 percent—mostdomestic companies have ailed to protconsistently rom the boom.In a recent study o more than 500businesses across multiple industriesand six Latin American countries(see sidebar, page 7), Accenture oundthat only 1 in 20 managed to growrevenues consistently year on year between 2000 and 2010 (see chart,page 3).So what, exactly, makes companiessuch as Falabella dierent?Our research suggests that the region’swinners—those that post high protsand revenue growth year ater year—are not necessarily the biggest intheir industry; nor are they alwaysmarket leaders. You won’t nd themconcentrated in a particular countryor industry, or among the elite rstmovers in a market. What our research shows insteadis that management perormance(rather than more common driverso protability, such as industrystructure or public policy in their home countries) has by ar the mostsignicant impact on revenue growthor Latin America’s most successulcompanies (see chart, page 5). Andthese companies not only have a keendesire to become No. 1, they also inspirethe condence in their organizationsand partners to pull it o.Top players have ar bolder and moreambitious growth objectives thantheir competitors. Revenue growth,or example, is our times moreimportant to them than cost reduction,according to our research. They arealso much more proactive in realizingtheir ambitions, aggressively acquiringcompanies elsewhere in the region thatcan help them grow.Their businesses perorm outstandinglywell—witness, or instance, the averageROIC o 24.4 percent that the top 5percent o companies have generatedover 10 years, signicantly higher thanthe rest. Their operating models, too, arestreamlined and ecient thanks largelyto their willingness to embrace processautomation and new technologies.
Replicating success
These companies grow by taking thesuccessul ormula that has put themin the pole position in their homemarkets and replicating it across newormats, products and geographies.That relatively simple strategy maynot make them outstanding innovatorsby global standards, but it does putthem well ahead o the pack.There are, to be sure, internationallyrecognized innovators in Latin America.Take the Brazilian aircrat maker Embraer, whose strategy o sharingdevelopment risk with overseas partnersrom more mature markets in returnor a share o revenues has become theglobal standard in aeronautics.Even so, our research suggests thatmost Latin American players remain
 
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mired in a less aggressive and morerandom growth strategy, as well as inthe deensive, cost-cutting mindseto the 1980s and 1990s—decadesroiled by sovereign debt crises,hyperinfation and slumping growth. Winning companies, by contrast,have moved on.For example, our research showsthat the region’s leading companieshave leveraged M&A aggressively,pursuing an average o almost twotransactions annually during the10-year period under study, toexpand not only geographicallybut also in terms o their oerings.They are, urthermore, very good atpost-merger integration, absorbingacquisitions into the existing businesssmoothly and then systematicallyintroducing the newcomers to their growth-driven ethos. At Grupo Nutresa, or instance, anenergetic and expertly managedM&A strategy—between 2004and 2007, the Colombian oodproducer has made no ewer thaneight acquisitions and completedthree mergers—has been key to thedevelopment o its successullydiversied product portolio (seesidebar, page 6). We also ound, however, that leadingplayers take care not to jeopardizethe ocus on their protable corebusiness. And in dicult marketconditions, they move switly to shedunproductive assets in the interesto maintaining eciency. Consider how quickly, despite labor unionopposition, the Brazilian steelmaker Gerdau responded to the 2009
Source: Capital IQ Data; IMF; Accenture analysis
Base year: 2000
529
Five years of growth
116
Seven years of growth
91
10 years of growth
27
22%Worldfinancialcrisis17%5%
Underperforming
In spite of a decade of low inflation and strong GDP growth, few companies inLatin America achieved consistent growth from 2000 to 2010. In fact, only 5 percentof the companies Accenture studied grew every year, only 17 percent grew forseven years—and only 22 percent grew for even five years.
Number of companies in Latin America with constant real growth, base year 2000
(Continued on page 5)

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