The crisis in Europe in recent years has revealed a series of events and consequences that Latin America should take into account for the future. One of the main lessons that we must learn from is how the internationalization of small and medium-sized companies following the crisis is saving the weakened business fabric of countries such as Spain, Portugal and Greece...were it not for the exporting spirit of these economies, the impact of the crisis would have been even greater than it is today.
We can also affirm that the impact of the recession would not have been so painful if the majority of the business fabric had been prepared to export when the crisis initially started and not only the few pioneering companies that invested beforehand. Faced with this situation, Latin America must not forget these lessons for the future and must apply them starting today in order to have a medium/long term business fabric made up of competitive small and medium sizes enterprises that know how to efficiently manage periods of economic recession by diversifying risks and opening new markets.
The European experience proves that companies that had developed their internationalization strategies prior to the fall of domestic demand were able to survive, and many others would have been saved from shutting down had they adopted these strategies when their economic cycle was favorable. However, during the boom it was understandable that they got carried away making short-term rather than long-term investments. In other words, the business culture discouraged exports, wrongly interpreting the argument that injecting capital for internationalization was an expense, when it was actually an investment. Is it possible for Latin America to learn from this lesson going forward?
The current times of economic growth in Latin American are the best for adopting these mechanisms with caution, without forgetting that times of economic prosperity are followed by recession, and when it arrives, it’s best to be prepared by adopting risk diversification policies and concentrating not only on domestic customers.
The reader may wonder if these statements only suit large companies with great power of negotiation and sufficient billing to invest in these processes, however this can be carried out by any company, where size and billing volume is not as important as a proactive and innovative mentality. Understanding the importance of internationalization is essential for opening new markets and seeking marketing channels that have not been explored to date as a way out of future economic recessions and also as a way of improving competitiveness and consolidating a national image.
Another important factor to keep in mind from the European experience is that the effort of investing in internationalization has to be made before the storm arrives. We must not let ourselves be led by the urge of favoring exports only when the domestic market shrinks and neglect it when the domestic market recovers. This concept must be changed to adopt a business culture that promotes investment in internationalization, not as an expense but as a future benefit.
Latin American companies are now on time to address this change in mentality. We all know that the model in Latin America is for openness but only for a few sectors and that others do not have either the tools or the institutional support to face this change, and this is why the European case should serve as a model. We must not repeat these errors and once and for all promote internationalization as a sustainable long-term tool so that our economies, apart from substantially improving competitiveness and increasing sales, can be prepared for future economic recession.
The question in the coming years will be: Will lessons be learned? Will Latin American companies allocate resources to develop coherent long-term export strategies in addition to promoting products that provide added value, or we will act as some European countries did when the situation was already critical?
The search for alternatives and solutions should start today...
By Antonio García Pinto, MBA and Master's in International SME Management, has developed his professional career supporting the internationalization of businesses, especially SMEs, facilitating their training and access to international markets. He is currently a consultant with the Integration and Trade Division of the IDB (Inter-American Development Bank).