Multinationals no longer considering Argentina are looking at neighboring countries

RIO DE JANEIRO, BRAZIL – Due to the crisis and inflation, the Argentine market is losing ground in the organization charts of many multinationals, which are now looking to another country to set up their regional headquarter.

In late September last year, Coca-Cola announced a reorganization of its structure throughout the region that involved moving the southern cone offices from Buenos Aires to Rio de Janeiro, Brazil.

Argentina had been the multinational beverage company’s regional headquarters for many years for its business in Uruguay, Paraguay, Chile, Bolivia and even Peru, in addition to the local market. Now, regional decisions will be taken from Brazil, since the neighboring country became part of the new internal division.

Coca-Cola’s decision came as a surprise, but it is not an isolated event. With years of recession, macroeconomic uncertainty and several devaluations, Argentina has been losing ground as a market within multinationals’ organization charts.

“Today, many companies such as Falabella are being sold and leaving the country and other regional headquarters are relocating abroad,” says Andrés Hatum, professor at the Business School of Di Tella University.

Over the past 15 years, offices in Buenos Aires have migrated to Santiago (Chile), São Paulo (Brazil) or Bogotá (Colombia), according to headhunters and academics. “This process was hastened by the pandemic. It is not surprising that last year’s gross investment was one of the lowest in history,” observes Roberto Vassolo, professor at the IAE Business School of the Austral University.

“Faced with the uselessness of a tax system that is becoming unfeasible, companies end up leaving, although they don’t do it quickly because the decision to set up a plant takes years,” he emphasizes.

“If you are in a regulated sector like utilities, tariffs become unfeasible due to inflation. If you are in an export sector such as agriculture, they disrupt your operations through withholdings,” continues Vassolo’s assessment. The companies that decided to abandon their operations in the country during the pandemic are careful to do so in an orderly way, either by transferring or selling their operations to another player or by reducing their participation.

There are also organizations that decided to dismantle their regional structures and relocate them to another region. According to Matías Arturo, Accenture’s Strategy and Consulting Leader for Hispanic South America, there is a direct relationship in this type of decisions due to Argentina’s structural situation in terms of its ability to offer competitive (dollarized) salaries, where human resources -from top management to junior positions- know their value in other markets.

Daniel Iriarte, Glue Executive Search director, says that with the current situation, many companies have started to rethink their strategic plans. “They are assessing whether to focus on restructuring or to place their chips on more important markets,” he says.

And he adds: “We are increasingly looking at Montevideo as a headquarter for operations in the region, particularly in the logistics industry.” Uruguay enjoys legal security, relative macro stability and a good quality of life. It also has an investment incentive policy for the Free Trade Zone. “Having a small domestic market means that a regional role located within the country may have a truly regional outlook,” the executive says.

“Sometimes if the regional role is based on a large market, the dynamics of that market itself ends up consuming much of the executive’s attention, losing regionality,” he adds.

Also, salaries in the neighboring country are much higher and its compensation and benefits package is not devalued. “Uruguay needs foreign investment to survive, as it doesn’t have much population growth, particularly in terms of its workforce,” says Amanda Garcia, Regional Director of People and Culture at Megalabs.

Other factors

In addition to the macro situation, with inflation as one of the most notable obstacles, labor regulations are added to the list that companies assess when deciding where to relocate their headquarters. “At some point, the weight of labor costs, labor legislation and powerful unions was stronger than that of Argentine talent itself,” says Julian Irigoin, professor of Human Behavior at IAE Business School. And he adds: “If you have Argentine talent, but the legislation does not support it, what would be the advantage of setting up headquarters here?”

According to Hatum, Argentina may become a marginal market. “Today, before hiring, companies consider it 10 times. It is necessary to generate a process of adaptation, that the unions find their new role, with laws that provide more work and do not restrict the opportunity to hire,” he states.

“In order to do business, the country’s tax structure must be redesigned, because it is unfeasible as it is presently structured, and regulations must be dramatically reduced,” Vassolo explains. And he adds: “It is difficult to do business and have 30 or 40 percent inflation. Excluding Venezuela, in all Latin American countries inflation is in single digits. This is one of the greatest problems a multinational faces,” he continues.

“The lack of legal certainty, the changes in the rules of the game, the labor legislation that threatens employment, added to the increasing levels of interventionism, conspire against the establishment of multinational companies,” Irigoin concludes.