In Latin America, local partners can be a blessing or a curse. The wrong ones can significantly raise the risk of exposure to corruption and malpractice and impose enormous costs on a business, both financially and reputationally. The right partners can open doors to lucrative markets and help foreign companies navigate local operational challenges which can be overwhelming for foreign companies seeking to penetrate regional markets.
A partner at an international private equity company with investments across Latin America explained, “Working with local partners is a necessary headache for many of our portfolio companies operating in Latin America. We frequently find red flags but some may be 10 years old, how do you know if these are ‘one-offs’ or if there is a culture of poor behaviour at the firm? You need to go beyond open source research and actually speaking to key industry stakeholders, this is where corporate intelligence firms can add a lot of value to our businesses.”
“Working with local partners is a necessary headache for many of our portfolio companies operating in Latin America. We frequently find red flags but some may be 10 years old, how do you know if these are ‘one-offs’ or if there is a culture of poor behaviour at the firm?”
Partner, international private equity firm, New York
Our CEO, Elizabeth Deheza highlighted that from the perspective of establishing a sound understanding of commercial reputation and partner exposure, corporates and investors alike are increasingly incorporating environmental, social and governance (“ESG”) frameworks into their decision making processes. She commented, “Whether they call it ESG or not, all of our clients are looking at environmental, social and governance matters whenever they look to partner with, invest in or acquire businesses in Latin America. You need to understand deeply how your counterparty runs their business to ensure it’s a good fit with your firm and ESG is a reasonable framework to start with.”
The CEO of an international industrial technology business affirmed, “In Latin America it’s really important to understand who you’re working with. We spend a lot of time and resource understanding the reputation and operating track record of our local partners. Getting this wrong can be very expensive further down the line … we’ve learned the hard way! Also knowing who to avoid in the early stages of market entry can save huge amounts of time.”
“It’s really important to know who you’re working with. We spend a lot of time and resource understanding the reputation and track record of our local partners. Getting this wrong can be very expensive further down the line …”
CEO, international industrial technology business, Miami
And this time and resource spent on ESG risk management appears to be working. Indeed, companies with strong processes to measure, manage and communicate ESG performance outperformed their peers financially over multi-year timeframes by as much as 40%. It is not surprising, therefore, that global investors are starting to mandate ESG disclosures and threatening to act against boards that do not comply.
Elizabeth said that businesses must “…demonstrate a commitment to taking ESG seriously and to the importance of spreading knowledge of ESG performance data internally and among key stakeholders. Crucially, data – it needs to be credible, reliable and understandable. There is no point having reams of obscure data points if you have no context and no confidence to act upon it – this is where we can help.”