This article originally appeared in the 2012, No.

2, issue of

The journal of high-performance business

The will to win
By Carlos Niezen, Tomas Rodriguez and Omar Diaz Flores

Emerging Markets | Latin America

Latin America’s best companies have a simple strategy for consistently profitable growth: a single-minded focus on what they do best and a deep-seated confidence in their own capabilities.

Double-digit returns on equity, similarly stellar returns to shareholders, exponential growth in revenues—this is not the sort of performance usually associated with Latin American companies. These days, however, the region’s best players are on a roll. Take Chile’s Falabella. In the past two decades, the Santiago-based multiformat retailer has expanded aggressively beyond its relatively small home market, replicating a highly successful domestic business model in Peru, Colombia and Argentina. And with annual revenue in excess of $10 billion, Falabella has returned a whopping 27 percent to shareholders over 10 years. Yet such success stories are still rare in Latin America. Despite enviable expansion—the region has managed to maintain an average annual growth rate of 5.3 percent since the financial crisis of 2008–09, considerably better than the United States, with 2.4 percent, or Europe, with just 1.7 percent—most domestic companies have failed to profit consistently from the boom. In a recent study of more than 500 businesses across multiple industries and six Latin American countries (see sidebar, page 7), Accenture found that only 1 in 20 managed to grow revenues consistently year on year between 2000 and 2010 (see chart, page 3). So what, exactly, makes companies such as Falabella different? Our research suggests that the region’s winners—those that post high profits and revenue growth year after year— are not necessarily the biggest in their industry; nor are they always market leaders. You won’t find them concentrated in a particular country or industry, or among the elite first movers in a market.
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(rather than more common drivers of profitability, such as industry structure or public policy in their home countries) has by far the most significant impact on revenue growth for Latin America’s most successful companies (see chart, page 5). And these companies not only have a keen desire to become No. 1, they also inspire the confidence in their organizations and partners to pull it off. Top players have far bolder and more ambitious growth objectives than their competitors. Revenue growth, for example, is four times more important to them than cost reduction, according to our research. They are also much more proactive in realizing their ambitions, aggressively acquiring companies elsewhere in the region that can help them grow. Their businesses perform outstandingly well—witness, for instance, the average ROIC of 24.4 percent that the top 5 percent of companies have generated over 10 years, significantly higher than the rest. Their operating models, too, are streamlined and efficient thanks largely to their willingness to embrace process automation and new technologies.

Replicating success
These companies grow by taking the successful formula that has put them in the pole position in their home markets and replicating it across new formats, products and geographies. That relatively simple strategy may not make them outstanding innovators by global standards, but it does put them well ahead of the pack. There are, to be sure, internationally recognized innovators in Latin America. Take the Brazilian aircraft maker Embraer, whose strategy of sharing development risk with overseas partners from more mature markets in return for a share of revenues has become the global standard in aeronautics. Even so, our research suggests that most Latin American players remain

What our research shows instead is that management performance

In spite of a decade of low inflation and strong GDP growth, few companies in Latin America achieved consistent growth from 2000 to 2010. In fact, only 5 percent of the companies Accenture studied grew every year, only 17 percent grew for seven years—and only 22 percent grew for even five years.
Number of companies in Latin America with constant real growth, base year 2000


World financial crisis


91 27

Base year: 2000

Five years of growth

Seven years of growth

10 years of growth

5% Source: Capital IQ Data; IMF; Accenture analysis

mired in a less aggressive and more random growth strategy, as well as in the defensive, cost-cutting mindset of the 1980s and 1990s—decades roiled by sovereign debt crises, hyperinflation and slumping growth. Winning companies, by contrast, have moved on. For example, our research shows that the region’s leading companies have leveraged M&A aggressively, pursuing an average of almost two transactions annually during the 10-year period under study, to expand not only geographically but also in terms of their offerings. They are, furthermore, very good at post-merger integration, absorbing acquisitions into the existing business smoothly and then systematically introducing the newcomers to their growth-driven ethos.

At Grupo Nutresa, for instance, an energetic and expertly managed M&A strategy—between 2004 and 2007, the Colombian food producer has made no fewer than eight acquisitions and completed three mergers—has been key to the development of its successfully diversified product portfolio (see sidebar, page 6). We also found, however, that leading players take care not to jeopardize the focus on their profitable core business. And in difficult market conditions, they move swiftly to shed unproductive assets in the interest of maintaining efficiency. Consider how quickly, despite labor union opposition, the Brazilian steelmaker Gerdau responded to the 2009
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Banco Compartamos: Doing well by doing good
Founded in 1990 as a nonprofit dedicated to aiding rural communities in the Mexican states of Chiapas and Oaxaca, Banco Compartamos has not only grown into the largest microfinancier in Latin America—it has also become one of the region’s most profitable companies. With annual revenue growth of 85 percent over the past decade, the bank even managed to generate an ROE of more than 40 percent in the challenging period between 2008 and 2010. The secret of Compartamos’s success: A conviction that serving those with low incomes can be commercially compelling—an innovative, and self-sustainable, approach to proving its point. Throughout the 1990s, Compartamos (“Let’s share” in Spanish) was largely reliant on funding from private Mexican sources—a deeply frustrating situation for the organization’s leaders. The hunger for credit among the populations they worked with was intense, yet largely ignored by traditional banks. Women in particular—the mainstay of farming, food trading and handicrafts in Mexico’s villages—were woefully underserved. Determined to expand the range of financial products available to these people, Carlos Danel and Carlos Labarthe—who had begun their tenure as volunteers and would become co-CEOs of Compartamos—turned the organization into an SOFOL, a non-deposittaking financial services company, in 2000. In 2001, Compartamos became the first microcredit lender in the world to issue debt in the capital markets. The move certainly helped Compartamos achieve much faster and more sustained growth. Its client base mushroomed dramatically (from 64,000 to 616,528—or 961 percent) between 2001 and 2006, and so did its ROE. But Compartamos didn’t stop there. In 2006, it gained a commercial banking license, adding savings accounts and insurance products to its existing range of working-capital loans. Despite the rapid growth and despite the constituency it serves, Compartamos has maintained a relatively low non-performing loan ratio. It has achieved this largely by focusing on groups of relatively responsible female clients within a mutual lending structure. If a single individual can’t repay the loan, the other members of the group cover for her—and are incentivized to do so because the bulk of Compartamos’s loans are for working capital: If borrowers don’t pay back their loans, their businesses will likely go under. In 2007, the bank went public—the first Latin American microfinance institution ever to do so. The IPO was a staggering success, raising $450 million from a remarkably wide variety of Mexican and international investors. Since then, the Mexico Cityheadquartered institution has gone from strength to strength. With more than 2 million customers for its consumer loans and business, home improvement and customized life insurance products, Compartamos is steadily expanding its market share both within Mexico and in other parts of Latin America, forming alliances with more mainstream banks and convenience stores to widen its reach through a holding company. What’s more, it boasts an annual cost per client significantly below the Latin American average. To top it all, Carlos Danel and Carlos Labarthe remain on the company’s leadership team—outstanding examples of the leadership that distinguishes Latin America’s best companies (see story).
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Why management matters
In the past decade, management performance had the greatest impact on revenue growth in Latin America, accounting for 65 percent of the spread in revenue growth among companies. The country where a company was located accounted for a mere 9 percent of growth spread; a company’s industry accounted for slightly more than one-quarter of the difference.
Average contribution to revenue growth spread among companies in Latin America (%)
100%=4240 Country performance Industry performance 9% Spread among different countries’ annual growth rates Spread among industries within the same country


Management performance


Spread among companies within the same market and industry

Percent of contribution to revenue growth spread
Source: Accenture analysis

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downturn by suspending production at three of its mills in North America, where the company is the secondlargest producer of mini-mill long steel—the bars, rods, wires, rails and tubes that reinforce construction materials. Latin American players are accustomed to tough times, and the best companies have been quick to identify and capitalize on opportunities presented by the continent’s turbulent histor y. Case in point: Peru’s MODASA (Motores Diesel Andinos), which began as a government initiative to support indigenous bus manufacturers back in the 1970s,

when the country was facing not only slumping GDP growth and hyperinf lation but also a serious threat from the Shining Path insurgency. A bombing campaign by the group came close to crippling the county’s power supplies but also created brisk demand for electrical generators—a demand that MODASA moved speedily to meet, selling the machines faster than the terrorists could blow them up. The company, which subsequently shed government ownership and bought out its original Swedish and British partners, is just as resourceful today. Its MODAGAS division, for example, converts cars and other vehicles to run on natural gas.
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Grupo Nutresa: Shopping for growth
During the past decade, Grupo Nutresa has generated annual returns to shareholders of more than 32 percent and a ROE of 15 percent—all thanks to the sort of simple, yet relentless, growth strategy that has fueled the profitability of most of Latin America’s leading players in the same period (see story). What distinguishes the Colombian food producer, however, is its aggressive use of M&A as a driver of revenue growth—not only geographically but also in terms of its product portfolio. In an international expansion drive initiated in the 1990s with the opening of marketing and distribution offices in Ecuador and Venezuela, Nutresa has gobbled up dozens of other food makers—an ice cream manufacturer in the Dominican Republic and a cookie company in the United States among them. Originally a chocolate maker, Nutresa actually began to diversify its portfolio domestically in 1933, when it took a stake in a local biscuit manufacturer and began selling a brand of roasted ground coffee. By the 1960s, Compañía Nacional de Chocolates, as it was then still known, had entered the Colombian processed meat sector as well. And the purchase of a pasta company in the 1990s positioned Nutresa as a powerful player in the burgeoning food industry of Latin America’s fourth-largest economy. Tactical product diversification and strong domestic positioning paved the way for the company’s later expansion beyond Colombia, which has accelerated during the last decade. Between 2004 and 2007, for example, Nutresa made eight acquisitions and undertook three mergers—almost half of the deals outside Colombia. Since then, moreover, it has scarcely paused for breath, despite currency devaluations, regional trade disputes, domestic drug wars and the global financial crisis. Today, Nutresa’s six business divisions—cold cuts, biscuits, chocolates, coffee, pastas and ice cream—run more than 30 manufacturing plants in eight countries and distribution networks in 12. Not bad for a business that began life as a cottage industry in Medellín, back in the 1920s. And Nutresa isn’t finished yet. Already dominant domestically, with a consolidated processed foods market share of 61 percent, the company aims to dramatically increase its foreign business, which currently accounts for just between 20 percent and 40 percent of total sales. By 2013, indeed, Nutresa wants to triple its 2005 sales levels overall. And analysts expect its quest for acquisitions, especially in the large and promising Mexican and US markets, to continue.

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For further reading
“Brazil on the move,” Outlook 2010, No. 3 For this article and other related content, please visit

About the research
Our groundbreaking research involved quantitative analysis of the 529 public companies that had complete and available financial information for the period from 2000 to 2010 across all industries in Argentina, Brazil, Chile, Colombia, Mexico and Peru. To identify the highly profitable growth companies—those with real revenue growth rates of 9 percent annually and profit margins above their industry average— we analyzed their revenues, EBIT, ROIC, ROE and total return to shareholders (TRS), taking into consideration each company’s industry sector, especially for profitability indicators. We supplemented this quantitative analysis with a survey of more than 120 shareholders and company executives, and we compared the answers of the highly profitable growth companies with those that did not make the grade across a range of topics, including performance goals, confidence about reaching them, growth perspectives, M&A and their current levels of performance. Also, using publicly available sources, we compiled a “strategic moves” database of more than 18 highly profitable growth companies and analyzed their activities during the past decade across more than 200 such moves.

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Meanwhile, by identifying a unique market niche—the more than 14 million low-income and predominantly female rural Mexican households that mainstream financial services providers have overlooked—and developing low-risk products aimed directly at that niche, Banco Compartamos has carved out a position as one of Latin America’s leading microfinanciers. In the process, it has generated one of the highest ROEs in the region: more than 50 percent (see sidebar, page 4).

As their businesses grow in complexity, leading companies will need to develop even sharper objectives and learn how to make much greater use of outsourcing and state-of-the-art performance measurement to help simplify their operations. Their achievements to date, and the experience that underpins them, have given them a head start.

About the authors
Carlos Niezen is a senior executive in Accenture Strategy. He is based in Mexico City. Mexico City-based Tomas Rodriguez is a senior manager in Accenture Strategy. Omar Diaz Flores is a senior manager in Accenture Strategy. He is based in Mexico City.

Copyright © 2012 Accenture All rights reserved. Accenture, its logo, and High Performance Delivered are trademarks of Accenture.

As more and more sophisticated multinationals seek to exploit Latin America’s huge potential, even the best local players will need to raise their game. Identifying new niches and customer segments will become more critical than ever as markets mature and more competitors enter. Outstanding due diligence to effectively evaluate M&A opportunities will remain an equally important skill.

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