Latin America has had some success with its policies to attract foreign direct investment. Even in the midst of an uncertain environment, Brazil is ranked between 5th and 7th position and Mexico around 10th among countries receiving the most direct investment in the world.

One could argue that government policies offering tax exemptions and other incentives as well as governmental agencies like ProMexico, ProChile and Invest in São Paulo have been successful. As a result, all major multinationals are in the region. For Coca-Cola, Mexico has consistently been the number two market in the world outside the US. The same is true for Wal-Mart. Citi’s profits in Mexico helped the bank to survive after the Global Financial Crisis.

In spite of what some believe it is a protectionist economy, western multinationals from United States and Europe have been doing business in Brazil for many decades and in some cases for more than a century. However, how important is it for a country to have a big and innovative local private sector to sustain its economic growth? And, as I believe, if the answer is yes, how big is the local private sector in Latin America, the 'Global Latinas' I have been studying for the last 20 years. If we look at the Fortune Global 500 rankings, the data is quite telling:

- Ten of the 50 biggest companies in the world are from emerging markets: half from China, two from Russia and South Korea (Samsung is ranked 15), Brazil (Petrobras is ranked 28) and Mexico (Pemex is ranked 39) are represented by one company each.

- 95 Chinese multinationals represent almost 20% of the ranking (the US has 128 ranked companies), there are only 13 Latin American multinationals in the same ranking (see list below): seven from Brazil, three from Mexico, and one from Chile, Colombia and Venezuela (see list below).

- As a sign of the times, the most profitable company in the world is Sinopec, the Chinese oil company with profits at the end of 2014 of $164 billion.

List of Latin American companies in Global Fortune 500 published in July 2015
List of Latin American companies in Global Fortune 500 published in July 2015

And is there a correlation between the size of the economy and the number of companies in the Fortune 500 ranking? In the graph below we see a positive correlation in the six biggest economies in the world. At the same time, it is evident that Latin America, as a region, does not have a sufficient number of big companies proportional to the size of its economy. China’s nominal Gross Domestic Product (GDP) is about $10 trillion with 98 companies in the Fortune ranking while Latin America, with a GDP of about $5 trillion, should have around 45 companies, almost four times what they actually have. Even Brazil, considered by many experts as a sort of state capitalism protecting its own ‘national champions’, a two trillion economy, should by this comparison have about 20 companies. In reality, it has only seven.

GDP nominal (left axis) versus number of companies in Global 500 (right axis) published in July 2015
GDP nominal (left axis) versus number of companies in Global 500 (right axis) published in July 2015
Image: Author, based on data from World Bank and Global Fortune 500 ranking published in July 2015

Is this a temporary situation, the result of a stage of development, which will improve over time? The figure below shows otherwise for Brazil and Mexico. Over the last ten years, with the growth of its economy, the number of companies from China in the Fortune Global 500 list has multiplied by five. Companies from Brazil and Mexico have either decreased as in the case of Mexico or stayed almost the same, as has happened in Brazil.

We could go further back and look at 1987, when 14 (one more than in 2015) Latin America companies were represented in the classification: six from Brazil (Petrobras ranked 26, CVRD, currently Vale, Ford Brasil, Industrias Votorantim, General Motors do Brasil, Siderurgica Nacional), three from Mexico (Pemex, Grupo Alfa, Chrysler de México), two from Venezuela (Petróleos de Venezuela and Sidor), one from Argentina (Yacimientos Petrolíferos), Chile (Codelco) and Colombia (Empresa Colombiana de Petróleo).

List of companies from China, South Korea, India, Brazil and Mexico in Global 500 published in July 2015
List of companies from China, South Korea, India, Brazil and Mexico in Global 500 published in July 2015
Image: Author, based on data from Global Fortune 500 ranking published in July 2015

As we can see from the data above, Latin America does not have enough local big companies proportional to the size of its economy. Both citizens and also the private sector in the region complain about the monopolistic power of the big Latin American companies. The figures below corroborate this claim. In the Fortune global ranking, the ten biggest companies represent 26% of the revenues of the 100 biggest companies, which is already a lot. But in the América Economía classification the 10 biggest Latinas concentrate 40% of the total sales of the 100 biggest.

Image: Author based on data from Global Fortune 500 ranking published in July 2015
Image: Author based on data from América Economía data published in July 2015.

As a firm believer in the need for a strong and competitive private sector for the development of any nation, it is evident that Latin America needs to do more to develop its local private sector. Recently, I was moderating a panel with technology business leaders from the region and one of them complained about the fact that her success, her creation of jobs in the region was not always prized and celebrated as compared to when a western multinational opened a new research and development centre in her country.

As government policies for attracting foreign direct investment bore fruit, it is now time to consider the need for creating a strong, competitive, local private sector. As the companies grow with their economies, the economies also grow triggered by the dynamism and innovation of the local sector. It is time to tend to them as well.

The World Economic Forum on Latin America is taking place in Medellin, Colombia from 16 to 17 June.