Multinationals in Latin America

Case Studies

L. Liberman, S. Garcilazo, E. Stal, L. Liberman, S. Garcilazo, E. Stal

• Publisher: Palgrave Macmillan
• Year: 2016
• Print ISBN: 9781137024091
• eBook ISBN: 9781137024107
• Topic: Business
• Subtopic: Business Strategy
• Index: Business

The book deals with cases about the impact of, and interaction between, the different Latin American cultural, economic, legal, and political settings on activities, strategies, structures and decision-making processes of MNCs. The cases focus on business processes, settings and organizational behavior in Latin America.

1

Martifer: Analyzing the Business Opportunity to Internationalize in an Emerging Economy

Mário H. Ogasavara, Artur G. de Oliveira and Welynadia R. Pereira

These are challenging times. In the past two years we have laid the foundations for future profitable growth. We are now ready to take a “New Step” forward. The future is now!

Carlos Martins, Chairman of Martifer Group

Introduction

It is a sunny afternoon in the summer of 2010. Jorge Martins is admiring the beautiful view from the balcony of his hotel. He is not, however, on vacation but is on a business trip in Brazil. Like the motion of the sea below him, Jorge finds himself mulling over the business opportunity that he has identified. He keeps coming back to the same point: Is this the time to expand Martifer’s business operations in Brazil? Martins is currently the CEO of the Martifer Group, a Portuguese multinational company that has operations in metallic construction, renewable energy (solar, wind and biofuels), agricultural projects and shipbuilding.

Martins is visiting Brazil to supervise the local subsidiary of Martifer Renewables (M-Renewables), a subsidiary of the Martifer Group (hereafter Martifer) that operates in the metallic construction sector. M-Renewables enjoys a good reputation and is considered to be one of the leading companies in the European market. Martifer started its operations in Brazil six years ago through a strategic alliance with a local partner in the wind energy sector. The Brazilian subsidiary, which is located in Fortaleza, a city in the state of Ceara (northeastern region), has always received direct support from the Portuguese headquarters. This has included not only financial aid but the placement of Portuguese expatriates to establish and run its operations.

Martins looks at his watch. It is time to call his brother, Carlos, the chairman of Martifer, to discuss the many daily issues related to M-Renewables. He also wants to share his ideas about the new business opportunity in Brazil. In recent times the country has received much attention from international investors, especially after the spread of the term “BRICs economies” (referring to Brazil, Russia, India and China). Furthermore, in the next few years, Brazil will be the host of some of the most important sporting events in the world: the FIFA World Cup in 2014 and the Olympic Games in 2016. Additionally, many large infrastructure projects have just been approved by the Brazilian government under the Program to Accelerate Growth.

In the early 1990s, Jorge and Carlos Martins had a dream of creating their own business in the metallic construction sector. However, they lacked the funding to pursue it so they decided to take the risk and funded the start-up with a loan of 10,000 escudos (€50,000) from a Portuguese bank by mortgaging their own houses. This initial capital was used to create Martifer in 1990. A year later the founders applied for a young entrepreneur program and obtained a grant of 12,000 escudos (€60,000). The brothers’ venture quickly grew into one of the largest Portuguese corporate groups and made the Martins brothers among the wealthiest in Portugal. Currently they each hold 0.20% and the Martifer Group (I’M SGPS) 41.76%, while the remaining shares are distributed between a Portuguese multisector company, Mota-Engil SGPS (37.51%), and a number of smaller shareholders.

While waiting for his brother to answer the phone, Carlos considers the business opportunity he has identified. M-Renewables had accumulated considerable operational experience in the wind power sector in Brazil. As a result, Carlos believes the entry mode of this new venture could be different. There are some aspects, however, that could be implemented in the same way as the first subsidiary. The local staff could again be trained by a Portuguese team who thereafter would also be charged with the management of the local operation. The Portuguese staff would facilitate the communication with headquarters while the local subsidiary would be subordinated to the parent company.

Martins remembers the recent changes that have been implemented by Martifer. For example, in order to achieve a robust financial position and adapt an “asset light” strategy, in February 2010, M-Renewables sold 50% of its share capital in Wind Park Penha (Gardunha Ltd) to the Galp Energia Group. A month later, Martifer sold 11% of its stake in the subsidiaries PRIO SGPS (Prio Foods) and PRIO Advanced Fuels SGPS (Prio Energy) to Severis SGPS. In April 2010, Martifer announced that the corporate group strategy would focus on metal construction and renewable energy (wind and solar).

Undoubtedly the potential growth of the infrastructure sector, facilitated by the world’s most important sports events (FIFA World Cup and Olympic Games) and the government infrastructure projects, indicates a demand for services related to metallic construction. This is an industry sector where Martifer has a significant market share in Europe but it is an area unexplored in Brazil. This new venture could be a good business opportunity.

There are, however, some challenges. The first is related to the required initial capital for the project. The company’s policy states that the head office will not provide any financial support for foreign subsidiaries in order to create new business ventures. Martins must look for a new source of finance to develop and start this project. Second, although Martifer has been operating a subsidiary in Brazil for six years, it does not have a strong relationship with the Brazilian banks because all prior financial support for investments has been provided by the headquarters. Third, Martifer has been restructuring some of its assets in Portugal (“asset light” strategy). This may cause some financial institutions to believe that the company has some financial concerns. Fourth, the Brazilian subsidiary does not have sufficient autonomy and the management team is composed only of Portuguese expatriates, which creates some barriers to negotiation with Brazilian financial institutions. Fifth, although Brazil was a former Portuguese colony and they share the same language, the experience in the country has shown that Brazil and Portugal do not share exactly the same cultural values. Thus there is a need to make many adaptations to fit the language, customs, public policies and suppliers, and to understand the complicated tax incentive laws.

In addition to the challenges directly related to the establishment of the new venture, during 2010, many European countries faced a severe economic crisis and many were concerned with the possibility of a long period of recession in the region. With globalization, an economic crisis in one country may directly or indirectly impact another. Most notably under the spotlight are Portugal, Italy, Ireland and Spain, which have suffered in particular with high unemployment and debt.

There are many questions. How could Martifer raise enough capital to start this new venture in Brazil? Is there a way to convince shareholders to change Martifer’s policy in order to receive financial support? To what extent could the economic difficulties in Portugal affect the decision to invest in this new venture? If it is not possible to get funding from the headquarters, how could it establish sufficient trust from the Brazilian banks, especially in light of its weak relationship with them and the potentially “bad sign” of an “asset light” strategy in Europe? How could it deal with the financial constraints? What would be a good strategy for entering the market? Or would it be time to give up, concentrate on other operations and lose the opportunity?

Martifer’s background

In February of 1990, Martifer was established as a limited company with an initial capital of 4.5 million escudos (€22,500) by brothers Carlos and Jorge Martins. It started business in the metal construction sector in the industrial zone of Oliveira de Frades, Portugal, where it still operates. At the end of the first year of activity, it had 18 employees and net sales of €240,000. In May of 1998, Martifer was converted into a corporation, and its social capital was held by Martifer and Engil SGPS. During the World Expo (1998) in Portugal, it participated in several projects, such as the Vasco da Gama Tower.

Aiming to become one of the leading companies in the metallic construction sector, in 1999, Martifer started the internationalization process by establishing its first foreign branch in Spain. But it was early in the 21st century that the company intensified its presence in the international markets. In February of 2003 it inaugurated a new plant in Poland, a subsidiary of the main office, again using Portuguese expatriates to manage the local operations.

A year later, Martifer announced its diversification strategy. It launched Martifer Energy (M-Energy) and began manufacturing equipment for renewable energy. This new business was also installed in the industrial area of Oliveira de Frades and specialized in manufacturing steel towers for wind turbines. In November 2004, Martifer SGPS (known as the Martifer Group) was created to manage the group’s corporate activities.

In 2005, M-Energy extended its operations to Central Europe, establishing units in Romania, the Czech Republic and Slovakia. In the same year, Martifer changed its strategy of entering new international markets (through subsidiaries) by entering into a joint venture with the German REpower Systems AG, one of the largest wind power equipment producers. In June 2005, REpower Portugal was created with a Martifer equity participation of 25.4%. This German-Portuguese subsidiary aimed to explore the market for windfarm construction, providing services and assembling wind turbines. In August of the same year, Martifer created a company called M-Renewables, with the main pu...

Table of contents

• Cover
• Title Page
• Copyright
• Contents
• List of Figures
• List of Tables
• Preface
• Acknowledgments
• Notes on Contributors
• Introduction
• 1. Martifer: Analyzing the Business Opportunity to Internationalize in an Emerging Economy
• 2. Beauty Competition in Central America: Zermat vs Avon
• 3. TOTVS Franchises in Latin America: Innovation and Internationalization
• 4. Natura and the Development of a Sustainable Supply Chain in the Amazon Region
• 5. Resolving Disputes in Different Cultures – the Diplomatic Way
• 6. A Chef’s Dream
• 7. World-Class Medical Tourism in Colombia
• 8. Soy-Based Beverages in Latin America
• Teaching Notes
• Index