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Corporate responsibility is very much on the agenda of Latin America’s business sector, but the region is still searching for an approach that resonates with local realities
Latin America likes a revolution from time to time. That said, the political landscape is less febrile today than at any time for several decades. Nations that once ping-ponged from coup to coup are learning to accommodate democracy.
Populism is still rife, but the recent passing of Venezuela’s charismatic leader Hugo Chavez marks a symbolic blow to the more extreme form of personality politics.
A more stable political environment has given Latin America’s economies the conditions they need to start growing. The region’s leaders, such as Chile, Mexico and especially Brazil, are capitalising on long-running market reform programmes that are now coming to fruition. Others, such as Uruguay and Colombia, are newer to the game and rising fast.
Thanks to a sustained commodity boom and vigorous demand from Asia, Latin America has survived relatively unscathed from the 2008 banking crisis and its repercussions. While the yo-yo days of boom and bust are perhaps not banished for ever, steady growth is the current story for most countries. The region as a whole is expected to record a GDP growth rate of around 3.5% in 2013, according to the World Bank. Not quite the stellar 6% of 2010, but healthy all the same compared with the world’s sluggish developed markets.
Foreign investors started to pay serious attention to the region in the 1990s and continue to do so. Central America has long been the backyard for North American companies, particularly export-led industries such as textiles and agricultural commodities. The remainder of the region has begun to prosper in recent years on the back of investor interest in emerging markets. In 2012, Latin America and the Caribbean received a record $173bn of foreign direct investment, up 6.7% on the previous year. Leading the charge is the extractive industry, which has benefited resource-rich countries such as Chile, Peru, Brazil and El Salvador enormously.
All of this helps explain Latin America’s latest revolution: corporate responsibility (“RSE”, to give it its commonly-used Spanish and Portuguese acronym). It’s everywhere. There are endless conferences dedicated to the subject, frequent op-eds in the newspapers, pages and pages on corporate websites, and the emergence of numerous corporate responsibility organisations.
Bar a few regional exceptions, such as cosmetics firm Natura in Brazil and cement giant Cemex in Mexico, it is generally foreign-owned multinational corporations that are setting the pace. National companies are catching up fast, though. The UN Global Compact, for instance, counts six Latin American states (Brazil, Mexico, Colombia, Argentina, Peru and Panama) in its top 20 countries by member participants.
In vogue, but not in sync
But is corporate responsibility a fad? Perhaps. The concept is relatively new in the region, so some hype and excitement around it is only natural. To be clear: corporate responsibility is “new” in its guise as a serious strategic proposition for business management. As a vehicle for corporate philanthropy, Latin America has a long history, thanks in large part to religious (predominantly Catholic), cultural (predominantly paternalistic) and business (predominantly family-owned) factors.
A number of commentators argue that the corporate responsibility bandwagon is getting ahead of itself. “There’s a huge gap between rhetoric and reality, as much at the market level as the company level,” says Antonio Vives, former head of the Inter-American Development Bank’s corporate responsibility programme and now a consulting professor at Stanford University. The current flurry of activity hides a phase of “maximum confusion”, he says.
This certainly seems to be the case in terms of standardisation. Latin American businesses now face emerging national regulations, such as those in Brazil, Mexico and Colombia, as well as new local and municipal standards as in Quito, Ecuador. These are interwoven and often overlain by national norms, such as the Ethos Corporate Social Responsibility Indicators in Brazil, as well as the ever more widespread stock of international standards, such as SA8000, the Global Compact and, most recently, Sistema B (Latin America’s version of B Corporation).
To tar the whole of the region with the same brush would be a mistake, however. All the 20 republics that make up Latin America are at different stages of implementation.
Out in front are the region’s largest economies: Brazil, Mexico, Chile and Argentina. This is to be expected given their links with global markets. For smaller players, such as Bolivia, Guyana and Paraguay, corporate responsibility remains very much a novelty.
Different business cultures play a distinguishing role, too. Central America, for instance, is heavily influenced by US management practices. Issues of political economy are important. The power of Venezuela’s public enterprises, such as PDVSA, means the corporate responsibility agenda tilts strongly towards state priorities. In Argentina, meanwhile, the sovereign debt crisis of 2001 has popularised alternatives to corporate responsibility, such as social enterprise and cooperativism.
When comparing the Latin American corporate responsibility scene with that of western developed markets, one notable difference is the factors driving the movement.
Of course, some are universal, particularly with respect to retaining and attracting talent. Latin America’s most successful businesses are clocking the importance of the “sweet spot” between quality, productivity and labour costs, says Marc de Sousa, managing partner of Mexico-based advisory firm ES Global Consulting.
But compared with the US or Europe, pressure from media, investors, consumers and NGOs is far weaker, while companies operating in Latin America very often have to negotiate a more interventionist state and more powerful trade unions than their North American and European counterparts.
All to play for
Clear opportunities lie ahead for those that get it right. Early pioneers are already seeing considerable benefits, particularly in the reputation stakes. The corporate responsibility programmes of Brazilian healthcare products brand Boticario, for instance, earns the company a place in WPP’s prestigious Top 50 Most Valuable Latin American Brands ranking. “Building a brand in Latin America is about investing in the future of a region,” the WPP study concludes.
While poverty is gradually reducing in the region (the middle class grew by 26% between 2006 and 2011), a substantial disparity still exists between rich and poor. Linking corporate responsibility to business models that focus on low-income consumers is therefore a commercially savvy move, as much as a socially responsible one.
Cemex’s much-lauded Patrimonio Hoy programme, which sees the cement company provide credit for homebuilding materials, is illustrative of this market-minded trend.
As with any young movement, challenges as well as opportunities await. To date, the corporate sector – either collectively or individually – has done much of the running on its own. In future, greater collaboration with government and civil society will be necessary. It will require the building of trust on both sides of the table for that to happen.
Last but not least is the SME sector. Small businesses account for more than 90% of the private sector in most countries in the region, notes Fabrice Hansé, executive director of Forum Empresa. While progress on corporate responsibility among large companies is welcome, he says, it’s a “drop in the ocean” compared with the hundreds of thousands of firms in their supply chains and beyond.
When it comes to corporate responsibility, the direction of travel is very much set. Its importance will only grow in Latin America. Its influence, on the other hand, remains a matter of uncertainty. Conforming to global best practice is clearly essential, but so too is an appreciation for the realities on the ground. Entwine the two in a Latino version of responsible business and a true revolution could unfold.
Latin America and Caribbean: key facts
Total population: 581.4 million
Urban population: 79%
Total GDP: $5.35tr (2012)
GDP growth: 3.3%-3.5% (2013 projected)
Average per capita income: $9,025
Life expectancy: 74 years
Source: World Bankcorporate responsibility Latin America Oliver Balch South America sustainability sustainable business